The European Disease

[A18]

http://opinionjournal.com/editorial/feature.html?id=110006768

The European Disease
Economic anxiety is a product of the welfare state.

Friday, June 3, 2005 12:01 a.m. EDT

No one knows for sure to what extent economic anxiety influenced the decisive "Non!" by French and Dutch voters against the new European Union Constitution this week. But one thing is certain: The French and much of the rest of the European Union have much to be economically anxious about.

The French unemployment rate has hovered around 10% for nearly a decade, and almost half of the jobless have been out of work for at least a year. If the U.S had an unemployment rate as high as France, there would be about six million more non-working Americans--the equivalent of placing every worker in Michigan on the jobless rolls.

Our point here isn't to engage in gratuitous French-bashing. The truth is that the economic anemia afflicting France has become the standard bill of health to varying degrees in virtually all of the nations of Old Europe, particularly Germany and Italy. Once upon a time the intellectual elites in Europe and the U.S. trumpeted the economic accomplishments of European social welfare state policies. Today the conclusion is nearly inescapable that this economic model simply doesn't work to create jobs, wealth or dynamism.

###
Two Economic Models
Rates for 2003-05 (1Q)

Unemployment    
U.S. 5.6%, EU 8.7%

Growth    
U.S. 3.7%, EU 1.5%

Source: OECD
###

As the nearby table shows, the U.S. has substantially outperformed Old Europe in wealth and job creation. The economic growth rate of the European Union nations since 2003 has limped along at about half that of the U.S. In the 1980s and '90s the U.S. created about 40 million new jobs; Western Europe created some 10 million, well over half of which were in the public sector. If this divergence in economic performance continues for 40 years, the American worker will be roughly twice as wealthy as his European counterpart.

The Europeans have created a vast constellation of domestic policy interventions that are cloaked in the seductive rhetoric of compassion, fairness and cultural sophistication. These policies include highly generous welfare benefits for the unemployed; state ownership and subsidy of key industries (such as Airbus); rules that make it difficult to hire and fire workers; prohibitions against closing down plants; heavy protections of labor unions against competitive forces; mandatory worker benefit packages that include health insurance, child care allowances, paid parental leave, four to six weeks of vacation; shortened work weeks; and, alas, high taxes on business and labor to pay for these lavish benefits.

In sum, European nations penalize work and subsidize non-work, and, no surprise, they have gotten a lot of the latter and far too little of the former. By contrast, the U.S. model--allegedly cruel and "laissez-faire"--has done much better both by economic growth and worker opportunity.

The frustrating irony is that, at the very moment in history when Europe's model is in disrepute, many U.S. politicians still want to emulate it. In Congress today there is some bill to provide virtually every social welfare benefit that Europe now offers. And the Congressional Budget Office predicts that if America's federal entitlement programs are not reined in, by 2030 government's share of the U.S. economy will close in on 50% of GDP, or even more than Europe's share today. The good news is that at least Washington has begun to debate how to reform these programs.

Which brings us back to the future of the EU. We have consistently supported European integration, especially the liberalizing and efficient force of the euro. But most of the economic maladies that face France and Germany today are incidental to whether the EU itself gains or loses power in the months and years ahead. In many ways the European Union has always been the right answer to the wrong question. The common market was originally established with economic goals in mind: to reduce trade barriers (which has been a good thing), followed years later by a single, stable currency (another good thing).

But the Brussels bureaucracy has to this day purposely ignored the Continent's central ailments: high tax rates, bloated welfare benefits and industrial policies that pick winners and losers, usually the latter. Those topics are essentially taboo in Brussels, which has pursued an economic "harmonization" strategy in part to inhibit the benign impact of tax cutting and tax competition among member countries by creating a de facto multi-state cartel. The nations that have prospered the most in recent years--Ireland in the 1990s, now the nations of Central Europe--are those that have resisted the harmonizing orders.

Europe is now paying a high price for this failed experiment with welfare state socialism. Today's populist revolt against economic integration in France and Germany suggests that these nations remain mysteriously impervious to the need for change. A bigger mystery is why some American politicians are so intent on repeating Europe's mistakes.

[opebo]

Economic anxiety is the permanent psychological state of the bottom 80% of Americans.

Europeans by contrast do have a welfare state to fall back upon.

[Rob]

Excellent article. Eurosocialism has clearly failed, but the reactionary left won't admit it.

[opebo]

Excellent article. Eurosocialism has clearly failed, but the reactionary left won't admit it.

'Failed' for whom?  The vast majority of Europeans live better lives than the vast majority of Americans.

[Rob]

There you go making an objective statement. I'm disappointed in you.

[opebo]

There you go making an objective statement. I'm disappointed in you.

No, it was a factually objective statement, not a morally objective statement - they have more money, more time off, less working hours, etc.  Very quantifiable. 

Of course I will admit that whether one prefers better pay, more time off, less work hours, and greater security is purely subjective.

[Rob]

It is bad for the economy overall. It has resulted in stagnant growth and high unemployment. I know what you'll say to this- the unemployed are well off, since they have a generous welfare state to fall back on!

You may think this is all fine and dandy, but someday Europe is going to pay the price. Their governments will go bankrupt, and those "generous" welfare benefits are going to be slashed. All the welfare staters are going to be in for quite an unpleasant surprise when reality comes knocking.

[opebo]

It is bad for the economy overall. It has resulted in stagnant growth and high employment. I know what you'll say to this- the unemployed are well off, since they have a generous welfare state to fall back on!

Yes, I would say that.  Also I would note that they need far less growth as their populations are not really growing much at all anymore.

You must be logged in to read this quote.

Hah, your envious resentment is hilarious!  How dare they live so well, those damned Europeans. 

[○∙◄☻¥tπ[╪AV┼cVê└]

It is bad for the economy overall. It has resulted in stagnant growth and high employment. I know what you'll say to this- the unemployed are well off, since they have a generous welfare state to fall back on!

Yes, I would say that.  Also I would note that they need far less growth as their populations are not really growing much at all anymore.

Their economy is probably growing faster once you factor in population growth and inflation.

[Dave from Michigan]

Read this earlier, yet some  politicians want to bring these policies over here. some of the regulation over in Europe is awful.  I wouldn't be suprised if were like Europe now,  in 30 years, what a awful thought.

[opebo]

Not "resentment"- realism. Your naivete is touching- it truly is- but I'm afraid that line of thinking is not going to solve Europe's problems.

If what Europe has are 'problems' I'll take them, thanks!  The US has far worse problems.

[Rob]

That's highly subjective, Opebo.

[Filuwaúrdjan]

Eurosocialism? Wtf? France et al are not Socialist. They're failing social model is not Socialist. At all. Statist does NOT = Socialist.
Bah humbug. And what's all this "Europe" thing? Some European countries don't have these problems. I live in one of them.

[dazzleman]

Eurosocialism? Wtf? France et al are not Socialist. They're failing social model is not Socialist. At all. Statist does NOT = Socialist.
Bah humbug. And what's all this "Europe" thing? Some European countries don't have these problems. I live in one of them.

Britain escaped these problems because of Margaret Thatcher.  Before she came along, Britain was the sick man of Europe.

[phk]

Religion was thier disease, but they've repudiated it.

Now they should exterminate the Muslims.

[Filuwaúrdjan]

Britain escaped these problems because of Margaret Thatcher.  Before she came along, Britain was the sick man of Europe.

Not actually true. The British Welfare State has always been very different to, say, France's; it was set up by very different people for very different reasons. And with the notable exception of H.M Customs & Excises*, the bureaucracy in the U.K has always tended to have something of a human face and been reasonably approachable.
Before Ted Heath** the economy was usually pretty good with the odd hiccup every now and again (over things that don't seem even slightly important now) but the Heath government combined a complete lack of economic competence with an even greater lack of competence as far as dealing with the international economic crisis (es) and energy crisis went... and he made both worse by picking a fight with the miners in an attempt to get re-elected; causing the infamous Three Day Week, which made the economic crisis worse... etc. etc.
Most of the underlying problems in the economy were actually dealt with by the Callaghan government which actually adopted free markety policies in many areas, began a moderate privatisation/deregulation programme (and was one of the first governments to take inner city decline seriously; something that still hasn't really happend in France). Thatcher came to power because of a wave of public sector strikes (the Winter of Discontent) more than anything else. Whether Thatcher's policies were effective or not is debatable and as the answers of both sides are kinda predictable I won't start that off
I will add that the return of mass unemployment to Britain after a gap of almost half a century happend during the Thatcher years and <cut>
Ahh... went off at a tangent there

*Who obviously spend too much time dealing with the French

**There's actually a society of Ted Heath burners. They get together and burn effigies of Heath. No joke. But they do it for a different reason to the ones I'm talking about.

[Beet]

Personally, I would like to see the U.S. and Europe with monetary policies reversed. Have the Fed raise interest rates to unreasonably high levels compared to the economy, freeze the money supply, and try to increase the value of the dollar as much as possible. Have the ECB lower interest rates to near zero, explode the money supply, and institute mercentile euro-depreciating efforts. The U.S. would soon be in recession, while Europe would be booming.

[A18]

http://www.cia.gov/cia/publications/factbook/rankorder/2003rank.html

GDP - real growth rate (%) - 2004 est.

United States, 4.4%. Germany, 1.7%. Italy, 1.3%. France, 2.1%. Spain, 2.6%. The UK is better with 3.2%.

[opebo]

http://www.cia.gov/cia/publications/factbook/rankorder/2003rank.html

GDP - real growth rate (%) - 2004 est.

United States, 4.4%. Germany, 1.7%. Italy, 1.3%. France, 2.1%. Spain, 2.6%. The UK is better with 3.2%.

Minus population growth -
US - 3.4%, Germany - 1.7%, Italy - 1.3%, France - 1.7%, Spain - 2.5%, UK - 2.9%.

Keep in mind that the growth of GDP is only relevant to people if they get a piece of the increase.  In Europe, workers do, in America, they get, if anything, a much smaller share.  In the case of the lower 50% of workers their share actually falls!

Better to get half of 2% growth than 10% of 3.5% growth!

[Blue Rectangle]

http://www.cia.gov/cia/publications/factbook/rankorder/2003rank.html

GDP - real growth rate (%) - 2004 est.

United States, 4.4%. Germany, 1.7%. Italy, 1.3%. France, 2.1%. Spain, 2.6%. The UK is better with 3.2%.

Minus population growth -
US - 3.4%, Germany - 1.7%, Italy - 1.3%, France - 1.7%, Spain - 2.5%, UK - 2.9%.

Keep in mind that the growth of GDP is only relevant to people if they get a piece of the increase.  In Europe, workers do, in America, they get, if anything, a much smaller share.  In the case of the lower 50% of workers their share actually falls!

Better to get half of 2% growth than 10% of 3.5% growth!

Unemployment:
US 5.5%   Germany 10.6%   Italy 8.6%   France 10.1%   Spain 10.4%   UK 4.8%

How do you benefit from increasing GDP if you don't have a job?

Also, the very low population growth of Europe has a downside too: less workers for every pensioner as time goes by.  Add in higher promised benefits in European countries and a longer life expectancy than the US and all of the sudden our problems with Social Security don't seem so bad...

[opebo]

How do you benefit from increasing GDP if you don't have a job?

The social safety net - welfare, the dole, free medical care, etc.  Not working in Europe is superior to the jobs of the lower half of American workers.

[Blue Rectangle]

How do you benefit from increasing GDP if you don't have a job?

The social safety net - welfare, the dole, free medical care, etc.  Not working in Europe is superior to the jobs of the lower half of American workers.

There Ain't No Such Thing As A Free Lunch.

How do you support a generous welfare system with high unemployment, low population growth (which would be negative, if it weren't for the influx of poor immigrants) and slow growth in GDP?  Where does the money come from?  Even if you tax the rich heavily, you'll still run out of money.

[opebo]

How do you benefit from increasing GDP if you don't have a job?

The social safety net - welfare, the dole, free medical care, etc.  Not working in Europe is superior to the jobs of the lower half of American workers.

There Ain't No Such Thing As A Free Lunch.

How do you support a generous welfare system with high unemployment, low population growth (which would be negative, if it weren't for the influx of poor immigrants) and slow growth in GDP?  Where does the money come from?  Even if you tax the rich heavily, you'll still run out of money.

What free lunch?  Of course it isn't free, but someone else pays for it.

As for the conditions in Europe - there's plenty of money.  Rightists just like to exaggerate the supposed difficulties to get workers to accept an awful American style life.

[A18]

I happen to like America.

[opebo]

I happen to like America.

Well, your family has quite a bit of money.  Have you travelled overseas yet?  When you do I suspect you'll notice how rotten this place is.