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The Europeanization of America

13 Nov 2009
Posted by Bruce Bartlett
Would it really be so bad?
Bruce Bartlett
 
In 1944, the Austrian economist F.A. Hayek published an extraordinarily influential book, The Road to Serfdom. In it, he argued that liberalism eventually leads to totalitarianism; that is, once a nation has embarked on the creation of a welfare state, there is no natural limit to the size of government until it controls everything, socialism becomes pervasive and political freedom evaporates.
 
It is an argument that made sense at the time Hayek made it. Liberals were indeed soft on communism in those days and engaged in a massive expansion of government throughout Europe. In England, where Hayek was living when he wrote his book, much private industry was being nationalized, cradle-to-grave welfare programs were being instituted and many of those advocating such measures were not shy about pointing to the Soviet Union as a model to follow.
 
Since Hayek's book appeared, it has been an article of faith among American conservatives and libertarians that every expansion of government is a step on the slippery slope to totalitarianism. National health insurance today, the gulag tomorrow, many of those on the right genuinely believe, often citing Hayek in support.
 
Consequently, it is axiomatic that Europe, which is much further along the road to a welfare state than the U.S., is also further along the road to socialism and totalitarianism. Thus it is a grave insult among conservatives for one to be accused of wanting to Europeanize the American economy. It is only a small step removed from being called a communist or Marxist. The difference is only one of degree.
 
I am often accused of wanting to Europeanize America these days--my friend Larry Kudlow always says so--because I think the magnitude of our fiscal problem is so large that a significant tax increase is inevitable, and that the magnitude of that tax increase is so great that we will eventually need a value-added tax because it will be impossible to get enough revenue through the income tax. Raising income tax rates enough to plug our fiscal hole would be much too debilitating, economically.
 
In the conservative mind, the VAT, which is embedded in the prices of goods, is the foundation upon which the European welfare state rests. Without its enormous revenue-raising capacity the Europeans never could have financed their welfare states. In short, without the VAT there would be no welfare state in Europe, government would be smaller and the threat of totalitarianism would be much less, conservatives reckon.
 
By advocating a VAT, I am, in effect, advocating totalitarianism, many of my friends believe. If we institute a VAT it will be like pouring gasoline on the fire of big government. It will get bigger overnight. The only thing holding this country back from having a welfare state as large as Europe's, conservatives argue, is the low level of taxation that most Americans are loath to abandon. Thus in their own minds, conservatives believe that holding the line on taxes, no matter how large the deficit, is the essential prerequisite for the preservation of liberty.
 
The only problem with this analysis is that it has no factual basis whatsoever. If Hayek were even remotely correct, all of Europe would be one huge gulag by this time. At the very least, Europe would be mired in poverty, growth nonexistent and freedom hanging on by the thinnest of threads.
 
Of course, that is not the case at all. According to Freedom House, virtually every country in Europe has just as much political freedom as we do. Even organizations like the Cato Institute and the Heritage Foundation, which seem to think that the tax burden is the single most important measure of freedom, concede that many European countries with tax burdens that would be considered confiscatory by all conservatives and probably most Americans are in fact just about as free as we are.
 
For example, according to the Heritage Foundation's rankings the United States has a freedom score of 80.7 (out of 100), but Denmark, where taxes consume 49.1% of the gross domestic product (versus 28% here, according to the Organization for Economic Cooperation and Development), has a ranking of 79.6. If the Danes weren't so heavily penalized for their high taxes, they would actually rank well above us. The same is true of the United Kingdom, the Netherlands and many other heavily taxed European countries that rank higher than us in terms of monetary freedom, financial freedom, investment freedom and other measures calculated by Heritage.
 
Nor is Europe some pit of poverty. While it is true that most European countries have a lower GDP per capita than the U.S., it is not true that they have grown more slowly. According to economist Angus Maddison, between 1990 and 2006 the following countries all had higher growth rates of per capita GDP than we did: Austria, Denmark, Finland, Greece, Ireland, the Netherlands, Norway, Spain, Sweden and the U.K. And even those that grew less mostly grew only a little less than we did. The 30 nations of Europe for which Maddison calculated growth rates grew 28.02% while the U.S. grew 29.31%. Interestingly, the nation with the slowest growth was Switzerland, the one with the lowest taxes among major European countries.
 
Americans generally believe that the overall quality of life is better here than in Europe, but this belief is based more on chauvinism than reality. According to a new book, The Narcissism of Minor Differencesby UCLA historian Peter Baldwin, there is no significant difference overall in the quality of life in Europe and here. While the U.S. ranks higher in some ways, many European countries rank significantly higher in others.
 
According to Baldwin, among the ways most Europeans are better off than most Americans: Europeans have more leisure time (paid vacations, public holidays); more hospitals per capita; lower infant mortality; higher life expectancy; lower rates of obesity; lower murder and incarceration rates; lower poverty rates; better restaurants; and greater income equality. The U.S. scores higher in areas such as lower taxes; less state control of industry; less labor regulation; higher wages as a share of GDP; fewer suicides; lower incidence of stomach cancer and stroke mortality; higher breast cancer survival rates; lower percentage of the population on disability; more living space; more people with college educations; more patents; more charity, volunteer work and participation in civic organizations; more blood donations; and higher religiosity.
 
Baldwin might also have noted that business profits and investment are higher in Europe than the U.S., according to the European Union. Manufacturing productivity is higher in many European countries, including Sweden, according to the Bureau of Labor Statistics. Income mobility is higher in many European countries, according to the Brookings Institution. And when it comes to taxes, 70% of EU countries have cut their top income tax rates since 2000 and every EU country save one has a corporate tax rate lower than ours.
 
Presumably, we are mostly better off in ways we think are important and Europeans in ways they consider important. Trying to draw a conclusion about who is better off on balance is impossible because it involves comparing interpersonal values. Perhaps the only thing that really matters is whether people are happy or not. On this score, there are many Europeans who are, in general, happier than we are, according to an OECD study. Based on survey data the people in these European countries are generally happier than Americans: Denmark, Ireland, Switzerland and the Netherlands. Those in Austria, Luxembourg, Norway, Sweden, France and Belgium seem to be about equally as happy as we are. Among wealthy countries, the Germans and Italians appear to be considerably less happy, for some reason.
 
I don't mean to imply that Europeanization is unambiguously good; only that it's not unambiguously bad, as virtually all conservatives believe. There are many ways I think we could learn from the Europeans and they from us. One way we can learn from them is how to have a tax system that raises considerably more revenue as a share of the economy than ours does without killing the goose that lays the golden eggs.
 
At a minimum, I think it's safe to say that Hayek was wrong about the inevitability of totalitarianism arising from growth in the size of government. The collapse of communism is proof enough of that. Nor does it appear that the welfare state necessarily erodes freedom or places a crippling burden on the economy. As Columbia University economist Jeffrey Sachs recently wrote, "In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness."

www.forbes.com/2009/11/12/europe-america-taxes-health-opinions-columnists-bruce-bartlett.html

This is NOT what Hayek says

Bruce, Hayek says no such thing, in fact he says the opposite, we says that an extensive welfare state including socialized medicine is NO threat to liberty.

I defy you to prove you've read the book, to find any support for your false claim. I can easily quote chapter and verse showing hour claim to be self evidently false. This isn't even close to true:

"In 1944, the Austrian economist F.A. Hayek published an extraordinarily influential book, The Road to Serfdom. In it, he argued that liberalism eventually leads to totalitarianism; that is, once a nation has embarked on the creation of a welfare state, there is no natural limit to the size of government until it controls everything, socialism becomes pervasive and political freedom evaporates."


Hayek

If Hayek were still among us and voicing the views he held in the Road to Serfdom he would be considered a socialist by every conservative in America except, maybe, Greg.


Hayek the leftist

They would be more appalled by Hayek's politics of the early 1920s -- Hayek was a Fabian socialist / Social Democrat into his mid-20s.

But lots of America conservatives aren't really that far from European Social Democrats -- Huckabee & George Bush repeatedly support the ever growing expansion of the welfare state. They just know that the best way to get elected is to let the next generation suffer the economic consequences.

And, indeed, most of the Social Democrat states of Europe are going the other direction from Huckabee & Bush -- Huckabee and Bush are expanding the state and retracting the range of liberty, and the Social Democrats are expanding the range of liberty and reigning in the welfare state.

In many ways, some of the most famous Social Democratic states of Europe have less government and more freedom than America.


Romney is a conservative and

Romney is a conservative and he expanded socialized medicine in Massachusetts, Bush is a conservative and he expanded socialized medicine for senior. There's a LOT of Social Democracy in modern American conservatism.

It doesn't help the conversation to pretend otherwise.

What we don't have anywhere are responsible people in government who live give us a non-pathological social democracy.

They ALL support as deeply, deeply pathological system of social democracy -- and current trends are NOT making things betters.

This are headed off a cliff, and you Bruce are one of the few who are speaking out about it.


What?

@Greg Ransom: "This are headed off a cliff, and you Bruce are one of the few who are speaking out about it."

Well, he is certainly speaking out about it. But he's hardly "one of the few." The chorus of people speaking out about it is both massive and loud.

Go find the Peterson Foundation's great film "IOUSA". Or go pick up virtually any conservative publication -- past or present. Lots and lots of people have been talking about our being headed for a fiscal, and thus economic, cliff.

To the extent that Bruce is a lonely voice, it's that he advocates new and/or higher taxes as one means of warding the debacle off -- and does so while still somewhat wearing the "conservative" tag.

Yeah, there are precious few conservatives (or, at least, people who consider themselves conservatives) out there who think we should be instituting a Value-Added Tax as one response to this mess we've gotten ourselves in.

For one thing, that comes at the expense of long-term economic health. Europe's problem isn't that those countries are politically repressive, but that they're economically flaccid and long have been.

But the other problem with his suggestion is that new or higher taxes usually serve only to whet the appetite of expansionists, not satiate it.

The right model for modern fiscal conservatism is Indiana Gov. Mitch Daniels. Daniels has instituted some mild tax reform -- cutting property taxes in exchange for a higher sales tax. But, for the most part, he hasn't been aggressive in raising or lowering taxation.

Instead, he's just been as frugal as possible -- looking for whatever efficiencies and values he can find in state government and in the state itself. His state is still looking at a slight deficit because of the collapse of tax revenues. But, for the most part, he's contained the problem by curtailing spending.

And that's what the federal government needs to get right first....before we start talking about instituting any new taxes. Our federal government spends too much money. We should change that, not enable it.


The Real Hayek

Here's what Hayek actually says in The Road to Serfdom:

"There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security [that is, limited security] should not be guaranteed to all without endangering general freedom…. Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision."


Anyone who thinks socialized

Anyone who thinks socialized medicine isnt a threat to liberty is out of their minds. It is the European social welfare state that is the root cause of Europe demographic collapse and eventual rise of Eurabia.

Bruce is deranged. He hates GW Bush so much that he has turned against all his previous positions. He is somewhat like PC Roberts in that effect. Reagan sure knew how to choose them.

I have tried to debate Bruce, but he is a coward and easy to refute.


Your comment on corporate tax

Your comment on corporate tax rates always bother me.

You are talking about the legal rate of 39%, but in the US the effective corporate tax rate is barely half of that at just over 20%. Moreover, it has been falling steadily for some 50 years.

I've been looking for a good source of what European effective corporate tax rates are and have not found a good source that I can use to compare effective rates.

Do you know of one?


The level of ignorance that

The level of ignorance that most Americans--and yes I am an American--exhibit toward the rest of the world never ceases to amaze me.

Perhaps the most striking example of this is the commonly held belief among American conservatives that Europe is mired in a cesspool of cultural rot and moral relativism. Having lived in the UK and Switzerland, and having spent a good deal of time in Belgium, France and Germany, I find this belief to be preposterous.

My wife and I found our European friends and co-workers to be the most honest, trustworthy, and hardworking people either one of us had ever encountered. Furthermore, while we Americans pay lip service to the ideas of family and community, our European brothers and sisters have seemingly found ways to incorporate these ideas into their everyday lives. I can recall meeting only one person who was divorced out of the thousands of people that we met while living abroad. And if, as the adage goes, a society is ultimately judged by its children, then we Americans are surely behind the Europeans. We were constantly amazed at how well-mannered and mature our friends' children were.

Let me conclude by saying that the purpose of my post was not to disparage America. I love my country and its people. I just don't understand why it is so hard for us to accept the fact that we do not live in a vacuum wherein only our ideas are valid.


I think the objection we have

I think the objection we have is when your subjective valuations are forced on others.

You like their children better, so you look, you study, you examine, and you decide you know _the reason_ why.

But that isn't enough. Knowing why they are better than everyone around you is only depressing. If only everybody knew, there would be new European Utopia springing up right in the heart of Wisconsin. And the children! The children would be so well mannered, and they'd all be quoting Ibsen by age 3.

The other Wisconsinites are denying the future. If only you can force them into seeing _the reason_ that you discovered. They may object now, but what of it? They'll really be thankful when they finally see _the reason_ that you saw so long ago.


Uh, Ok

ThomasL,

It was not my intention to imply that I liked European kids better than American kids. Nor was I trying to say that I had discovered a perfect society that should be forced upon every other citizen of the world.

Rather, I was merely trying to point out that, contrary to what the American right seems to think, Europe is not full of adults with no morals who allow their kids to drink, do drugs, and sleep around.


"The U.S. scores higher in

"The U.S. scores higher in areas such as lower taxes; less state control of industry; less labor regulation; higher wages as a share of GDP."

That says it all, right there. Thanks for destroying your own argument, fool.


Bruce: There are several

Bruce:

There are several perspectives, may I suggest, from which your analysis can be challenged.

First, your quote from Jeffrey Sachs at the end of your pieces implies that you accept the notions of "economic equality" and "fairness" as usually used by many on the "left."

That is, you believe that it is morally right for the state to use its coercive powers to take the income and wealth of some to give to others.

If a man resists having his honestly earned income seized by the government for redistributive purposes, do you consider it "moral" or "just" for the agents of the state (the police) to use force to take his income? And if he were to resist, do you believe that the state has the right to kill him (since the state and its agents have the legitimized authority to use lethal force against those who resist its power) so someone else has their food stamps or public housing apartment?

And don't say I'm being "extreme." If that "extreme" was not tacitly there, many people would not be paying their taxes.

Second, public choice theory has taught us that government intervention and redistribution have little to do with high minded notions concerning some hypothetical "public good" or "general interest." The reality of democratic politics is that politicians want campaign contributions and votes to be elected and reelected, and they offer in exchange other people's money; those who supply those campaign contributions and votes want the money of others that they are not able to honestly earn through the free play of open competition in the market place. And due to the "concentration of the political benefits and the diffusion of the economic costs among the citizenry" real world democratic politics is a practice of plundering the many for the benefit of the well-connected special interest few.

Third, as Hayek, in his other writings, has argued, there is no real meaning to ideas such as "social justice" -- they are "mirages." The market does not reward some hypothetical notion of "merit" or "goodness." The market rewards "service," i.e., did an individual succeed in offering to others some specialized product in the market system of division of labor that was valued by others at a particular price?

Precisely because there is no objective measure of a individual's "real merit" or "worth" or "need," there is no impartial and unbiased way the state can bestow on each member of society some income fraction that reflects their "socially just" worth and deservedness.

Hence, it is far better to leave such issues to the private sector charity of individuals and private associations, who in spending their own money may use it based on their own evaluation of who may or may not deserve charitable support based on their own personal standards.

Plus, private charity, precisely because it relies on voluntary contributions, must be far more efficient in their tasks than the coercive monopoly welfare state. Why? Because private charities must demonstrate to their voluntary supporters that their dollars have been spent effectively; otherwise, their support diminishes over time in competition with other charities and other uses for the donors' money.

Fourth, the welfare state produces over time perverse incentives and behavior among the members of society. Economists call this "moral hazard." If the costs and consequences of someone's mistakes and bad judgment are paid for and subsidized by others, then the person making those mistakes or acts of bad judgment has no incentive to learn from his mistakes and act more carefully and wisely in the future. Thus, you create the perverse incentive for such individuals to do the same thoughtless or risky actions again in the future. And you signal even more others in society that they, too, can act in the same way, and have someone else pay for their mistakes in the future, as well. This does not make for a healthy and productive society in the longer run.

Fifth, these and related factors tend to generate growing financial demands on the regulatory and redistributive powers of the state. With no "fiscal constitution" imposing a balanced budget on the expenditures of the Federal government, modern democratic society plunges further and further into government deficit spending and mounting government debt -- as is happening right now before our eyes.

This debt is a lean on people's income in the future, since the principle and interest is supposed to be paid off at some point as the government's IOUs come due. Thus deficits of today mean higher taxes or even more government borrowing tomorrow to pay at least the growing interest on the accumulated debt.

But we need to also not forget that we pay for that deficit spending not only "tomorrow" when the borrowed sums and interest payments come due. We pay for it today. Every dollar borrowed today by the government siphons off a dollar that, otherwise, would have been available for private sector investment and use today. The society's resources are finite at any moment in time. They are either used by individuals in the private sector or they are used by the government. They cannot be used by both of these potential users at the same time.

Thus, every dollar borrowed by the government today (and the real resources that dollar's purchasing power represents in the market place)is a dollar not being used for, say, capital formation, technological innovation, improvement in private sector "human capital" on the job in a private enterprise.

Instead, that dollar (and the real resources it represents) are used by government for current consumption: government employee salaries, welfare payments, bullets to shoot people in foreign wars, the fuel to fly the president's "Air Force One," etc.

As a result, we are that much poorer as a society due to those resources being used for current consumption rather than future-oriented capital formation for higher and better standards of living tomorrow.

All of these elements, and others that surely could be listed as well, demonstrate, I believe, persuasively that the welfare state is a huge burden and drag on the cultural, material and psychological well-being of a free society.

And every additional regulation, redistribution, and control over our lives DOES make us all that more of a serf under the power of the State.

Dr. Richard Ebeling
Professor of Economics
Northwood University
Midland, Michigan


Thanks for the excellent

Thanks for the excellent response


The Dangers from the Welfare State

There are several perspectives, may I suggest, from which Bruce Bartlett's analysis can be challenged.

First, your quote from Jeffrey Sachs at the end of your pieces implies that you accept the notions of "economic equality" and "fairness" as usually used by many on the "left."

That is, you believe that it is morally right for the state to use its coercive powers to take the income and wealth of some to give to others.

If a man resists having his honestly earned income seized by the government for redistributive purposes, do you consider it "moral" or "just" for the agents of the state (the police) to use force to take his income? And if he were to resist, do you believe that the state has the right to kill him (since the state and its agents have the legitimized authority to use lethal force against those who resist its power) so someone else has their food stamps or public housing apartment?

And don't say I'm being "extreme." If that "extreme" was not tacitly there, many people would not be paying their taxes.

Second, public choice theory has taught us that government intervention and redistribution have little to do with high minded notions concerning some hypothetical "public good" or "general interest." The reality of democratic politics is that politicians want campaign contributions and votes to be elected and reelected, and they offer in exchange other people's money; those who supply those campaign contributions and votes want the money of others that they are not able to honestly earn through the free play of open competition in the market place. And due to the "concentration of the political benefits and the diffusion of the economic costs among the citizenry" real world democratic politics is a practice of plundering the many for the benefit of the well-connected special interest few.

Third, as Hayek, in his other writings, has argued, there is no real meaning to ideas such as "social justice" -- they are "mirages." The market does not reward some hypothetical notion of "merit" or "goodness." The market rewards "service," i.e., did an individual succeed in offering to others some specialized product in the market system of division of labor that was valued by others at a particular price?

Precisely because there is no objective measure of a individual's "real merit" or "worth" or "need," there is no impartial and unbiased way the state can bestow on each member of society some income fraction that reflects their "socially just" worth and deservedness.

Hence, it is far better to leave such issues to the private sector charity of individuals and private associations, who in spending their own money may use it based on their own evaluation of who may or may not deserve charitable support based on their own personal standards.

Plus, private charity, precisely because it relies on voluntary contributions, must be far more efficient in their tasks than the coercive monopoly welfare state. Why? Because private charities must demonstrate to their voluntary supporters that their dollars have been spent effectively; otherwise, their support diminishes over time in competition with other charities and other uses for the donors' money.

Fourth, the welfare state produces over time perverse incentives and behavior among the members of society. Economists call this "moral hazard." If the costs and consequences of someone's mistakes and bad judgment are paid for and subsidized by others, then the person making those mistakes or acts of bad judgment has no incentive to learn from his mistakes and act more carefully and wisely in the future. Thus, you create the perverse incentive for such individuals to do the same thoughtless or risky actions again in the future. And you signal even more others in society that they, too, can act in the same way, and have someone else pay for their mistakes in the future, as well. This does not make for a healthy and productive society in the longer run.

Fifth, these and related factors tend to generate growing financial demands on the regulatory and redistributive powers of the state. With no "fiscal constitution" imposing a balanced budget on the expenditures of the Federal government, modern democratic society plunges further and further into government deficit spending and mounting government debt -- as is happening right now before our eyes.

This debt is a lean on people's income in the future, since the principle and interest is supposed to be paid off at some point as the government's IOUs come due. Thus deficits of today mean higher taxes or even more government borrowing tomorrow to pay at least the growing interest on the accumulated debt.

But we need to also not forget that we pay for that deficit spending not only "tomorrow" when the borrowed sums and interest payments come due. We pay for it today. Every dollar borrowed today by the government siphons off a dollar that, otherwise, would have been available for private sector investment and use today. The society's resources are finite at any moment in time. They are either used by individuals in the private sector or they are used by the government. They cannot be used by both of these potential users at the same time.

Thus, every dollar borrowed by the government today (and the real resources that dollar's purchasing power represents in the market place)is a dollar not being used for, say, capital formation, technological innovation, improvement in private sector "human capital" on the job in a private enterprise.

Instead, that dollar (and the real resources it represents) are used by government for current consumption: government employee salaries, welfare payments, bullets to shoot people in foreign wars, the fuel to fly the president's "Air Force One," etc.

As a result, we are that much poorer as a society due to those resources being used for current consumption rather than future-oriented capital formation for higher and better standards of living tomorrow.

All of these elements, and others that surely could be listed as well, demonstrate, I believe, persuasively that the welfare state is a huge burden and drag on the cultural, material and psychological well-being of a free society.

And every additional regulation, redistribution, and control over our lives DOES make us all that more of a serf under the power of the State.

Dr. Richard Ebeling
Professor of Economics
Northwood University
Midland, Michigan


According to Baldwin, among

According to Baldwin, among the ways most Europeans are better off than most Americans: Europeans have more leisure time (paid vacations, public holidays); more hospitals per capita; lower infant mortality;

I have read that infant mortality in EU countries is calculated differently than in the US. And it's not the same from country to country inside the EU.

For this statistic, at least, it's comparing apples-to-oranges. And it irks me that people trot this out as if having ratty data does not matter.


Who decides?

I think the tone of your central question is one Hayek would object to, or at the very least it is one that anyone alive should find objectionable.

You have studies that show Europe ahead in this way, and America is some other. You passingly acknowledge they are probably the result of subjective valuation, but then turn around and suggest that the European valuations produce happier outcomes.

As a comment it is fine. If you agree with the prevailing European valuations, no one is stopping you from taking more leisure time and eating at fine restaurants and thereby gradually elevating your soul from American drudgery into European bliss.

However, implicit is the suggestion that we would really all be happier, if we just did things a different way, a way that you personally find more agreeable.

And who decides what my way to happiness is? Apparently you. You know it is for my own good, so coercion into the system you choose is really the best thing for me. As long as you know best (and you apparently do) that should be OK. After all, you seem fairly certain I'll be happier. Who am I to object?


Welfare state

The welfare state is the invention of conservatives -- Bismark Wasna conservative.

Churchill was a part of the vanguard supporting a Bismark style welfare state in Britain.

Bush spent 8 years expanding governmen spending and expanding the welfare state and and expanding subprime lending and expanding Federal power and expanding regulations.

The idea that conservatives have a problem with big government is silly.


Sorry for the Iphone

Sorry for the Iphone typos.

And let's make that "Bismarck"


Defenseless, parasitic Europe...

US military spending... $623b rest of world $500b... France $45b... UK 42b... Germany $35b... Netherlands $9.4b ... Sweden $5.5b

How can Mr. Bartlett write so many words without disclosing the chief financial/cultural difference between the US and the nanny states of Europe? The EU welfare states would crumble with anything like equally large military spending.


Yeah, it would be kinda bad for America to be like Europe

For one thing, these are different places. As in, some people will like one and some people will like the other. If you really want to "Europeanize" America, I have a crazy idea - actually go to Europe. Everything you want is already there. Or go soft core Europe. Go to Canada. Then, the people who want America to be America will, you know, have their choice.

At a minimum, I think it's safe to say that Hayek was wrong about the inevitability of totalitarianism arising from growth in the size of government. The collapse of communism is proof enough of that. Nor does it appear that the welfare state necessarily erodes freedom or places a crippling burden on the economy.

It must be said. The proof that Soviets weren't totalitarian is that they collapsed? Are you insane? That's like saying the proof that I'm not a violent criminal is that I don't jaywalk. Um, no.

That is the single most mendacious claim I have ever read. There's a lot of stupid in the world, but this is special. No one can seriously believe that. No one. That has to be a blatant lie, and I am insulted that you wrote it and expected random strangers like me to accept it.

The Soviets slaughtered 100 million people, had political prisons and insane asylums strung across a continent to house political dissidents, destroyed or seized all private property, and outlawed religion. And they did that for over 80 years across Russia and half of Europe and Asia. What the hell is your definition of totalitarian if that isn't it?

The collapse of Communism is proof that socialism, in fact, places a crippling burden on an economy enough to collapse it. It's not even a mystery. What it does not prove is that socialism doesn't slouch towards totalitarianism. It only proves it doesn't work.


To compare freedom in the US

To compare freedom in the US to Europe is preposterous. Europe has in few respects the political freedom of the US. The political structures are sclerotic, elites in countries such as France and the UK have effectively conspired to suppress non-establishment opposition's support in parliament. This is why Labour were able to win the 2005 election with 35% of the vote. Meanwhile in Belgium the biggest political party was banned. And let's not address the EU.

Why does this not show up cross country comparisons? Because they rarely compare apples to apples when compiling stats. The infant mortality one is one of the best examples of this. In international comparisons, the US frequently shows up badly but the wider scope of deaths covered by the US is a big reason for this. Stillborns for example are not covered n many countries but are in the US.

Large parts of the rest of Bruce's post are also flawed. Like his claim that Europe had better growth rates than America. Well sure they did. That's because countries like Spain and Ireland had property bubbles and Eastern Europe was in a takeoff stage of development. Compare the US to the Western EU core of nations and I'll bet America kicked ass.

His point about VAT is also flawed because most states in America already have a sales tax which while not as high as VAT in most EU countries, is pretty large in some places. Those cozy EU labour markets have the effect of driving up productivity(France has the highest) because companies invest in employment rather than hire new staff. This is a boot on the neck of EU employment growth. It isn't that big of an issue though because EU has so few young people(even though pre-crash real unemployment for youth was high in EU), and weak EU defense spending(Thanks USA) meant that lots of public sector jobs could be created. BTW, corporation tax in the US is actually lower in the US when you compare the effective rates and WEALTH as opposed to INCOME inequality is higher in the lies of France and Sweden than the US.

PS.Hayek was right until 1979 in the UK. The march of socialism led to the diminishing of freedom. Meanwhile in my little country, it was a criminal offence to operate a train company, sell electricity, open a phone company, and a host of other things. Needless to say, the only reason we didn't go bankrupt was blind luck.

America is a far better place than Europe.


It's Productivity Growth that Matters

Great article Bruce, as always. I have a few comments that I believe are relevant.

The US leads most advanced nations in overall GDP growth rates because of labor force growth and hours worked. In my opinion a better measure is productivity or GDP per hour worked. Detailed productivity data is available for 19 OECD nations going back to 1970. Between 1970 and 2008 productivity growth in the US averaged 1.7% per year ranking it 15th. Only Australia (1.6%), Canada (1.4%), New Zealand (1.2%) and Switzerland (1.1%) fared worse. Ireland was first at 3.9%. Japan ranked 2nd (2.9%), France 4th (2.7%), Germany 7th (2.5%), the UK 11th (2.3%), Italy 13th (1.9%) and Canada 17th (1.4%).

Back in 1970 the US led all 19 of these nations in productivity, with the next nearest being Switzerland at 98.9% of the US level. Because US productivity growth has lagged most of these advanced nations the US now ranks 5th behind Norway (132.7%), Ireland (106.2%), Belgium (101.8%) and Netherlands (101.7%) among these same 19 nations when corrected for cost of living (PPP). France ranked 6th (98.2%), Germany 7th (92.8%), the UK 9th (83.1%), Canada 11th (79.8%), Italy 16th (73.0%) and Japan 17th (70.2%).

To see how productivity growth impacts GDP per capita let's take France as an example. Adjusting for cost of living (PPP) in 2008 GDP per capita was $46,700 in the US and $34,400 in France in 2008 according to the OECD.

In the United States total employment was 152.6 million out of a population of 304.1 million in 2008. In France total employment was 25.8 million out of a population 62.3 million. Note that the employment rate in the US was 0.502 whereas in France it was 0.414. This difference is largely accounted for the fact that a lower proportion of women in France choose to participate in the labor force (unlike here, many are still full time homemakers) and people in France spend more time in school (higher tertiary enrollment rates), choose to retire earlier (the benefits are generous) and live longer (about 2.3 years on average). Consequently GDP per employed person was $93,000 in the US and $83,100 in France in 2008.

In the US the average number of hours worked per employed person was 1703 in 2008. In France the average number of hours per employed person was 1544. This is largely accounted for by the fact that employed people in France generally have shorter work weeks (long boozy al fresco lunches on the rue du Vert-Bois consisting of foie gras, poulet roti and l’entrecote) and have much more vacation time (August in the Riviera). Consequently GDP per hour worked was $54.60 in the US and $53.82 in France in 2008 (despite the noontime buzz).

Now, back in 1970 GDP per hour worked was approximately $28.80 in the US and $19.60 in France. If productivity growth continues at this rate by 2050 GDP per hour worked will be about $110.80 in the US and $164.80 in France. If the rate of participation in the labor force and the number of hours worked remains the same then GDP per capita will be about $94,800 in the US and $105,300 in France. At this rate our lead in GDP per capita will eventually disappear unless we can encourage everybody to join the labor force, leave school, postpone retiring, work evenings and weekends and give up vacationing. (But it will be worth it, right?)

Examining the data, it's not at all clear that a larger government sector is anti-growth. All of the nations that led the US in productivity growth since 1970 have larger government expenditures as a percent of GDP. All of the nations that have smaller government expenditures as a percent of GDP have lagged the US in productivity growth since 1970. In fact the correlation is positive although statistically insignificant. I am inclined to believe that there is in fact an optimum size of government, and it's quite clear that advanced nations tend to have proportionately larger government sectors than less developed nations.


The G in GDP shouldn't stand for government

All of the nations that led the US in productivity growth since 1970 have larger government expenditures as a percent of GDP.

But government spending is included in GDP, no?

Government spending, some argue, should not be included in GDP because it does not, in fact, produce anything. There is no return on investment because there are no investors; all government programs are funded through compulsory taxation. The government workers don't produce anything; they're either filing clerks or their services are compelled (e.g., school teachers and social workers) where people don't have much choice on using them (or funding them even if they don't use them). All government does it take money from the private sector and piddle it away. It can't even re-invest in itself.

So, government employees are not and cannot be a sign of economic health.

All your numbers really say is that all European countries have exploding government sectors. Doesn't really say anything about real productivity or growth.

Look at it like this:
* What countries have the most patents?
* What countries have the lowest numbers of government employees v. private employees?
* Which have the highest exports and in what?
* Which have the highest levels of consumer spending (i.e., personal wealth)?
* What diversity of major industries are there?
* How easy is it to start a business? What numbers of new businesses start yearly? How many new listings are on their (local) stock market yearly?
* Are new businesses the result of local/national or international intervention? I mean, when a new business starts, is it because someone in the country did it or because a multi-national expanded?

Examining the data, it's not at all clear that a larger government sector is anti-growth. Except it is, because 9% of the total population is not working in France that is working here. And Sarkozy is having to change their retirement age, their work-week mandates, and their vacation times because what they're doing isn't sustainable for their level of spending, obligations, and economic health. Even with all their university programs and stay-at-home moms, they still have roughly 20% unemployment in a normal year.


Government Counts and Innovation is Key to Growth

Anyone who truly believes that the work of school teachers (or policeman, or fireman, or serviceman etc.) adds nothing to the national product obviously has never taught school (or served publicly in any capacity).

As for this statement:
"What countries have the most patents?"

The answer is that Japan has the most in aggregate. On a per capita basis:

# 1 Luxembourg: 431.098 per million people per 1
# 2 Slovenia: 52.2128 per million people per 1
# 3 Iceland: 50.5498 per million people per 1
# 4 Malta: 45.1655 per million people per 1
# 5 Finland: 35.8032 per million people per 1
# 6 Latvia: 31.0044 per million people per 1
# 7 Sweden: 30.1044 per million people per 1
# 8 Ireland: 26.3944 per million people per 1
# 9 New Zealand: 25.5266 per million people per 1
# 10 Switzerland: 24.4358 per million people per 1
# 11 Norway: 22.4254 per million people per 1
# 12 Austria: 20.1588 per million people per 1
# 13 Mongolia: 20.0645 per million people per 1
# 14 Korea, South: 16.0153 per million people per 1
# 15 Georgia: 14.3254 per million people per 1
# 16 Israel: 11.7891 per million people per 1
# 17 Netherlands: 11.5195 per million people per 1
# 18 Denmark: 9.5729 per million people per 1
# 19 Japan: 7.80116 per million people per 1
# 20 Lithuania: 7.50626 per million people per 1
# 21 Belgium: 6.94712 per million people per 1
# 22 Belarus: 4.85437 per million people per 1
# 23 Slovakia: 4.41908 per million people per 1
# 24 Australia: 3.7332 per million people per 1
# 25 Kazakhstan: 3.62176 per million people per 1
# 26 France: 3.37972 per million people per 1
# 27 Romania: 3.17958 per million people per 1
# 28 Bulgaria: 3.08725 per million people per 1
# 29 Germany: 2.85087 per million people per 1
# 30 Czech Republic: 2.73411 per million people per 1
# 31 Kyrgyzstan: 2.72056 per million people per 1
# 32 Armenia: 2.68186 per million people per 1
# 33 Hungary: 2.59818 per million people per 1
# 34 Turkmenistan: 2.01939 per million people per 1
# 35 Croatia: 2.00178 per million people per 1
# 36 Singapore: 1.8075 per million people per 1
# 37 Ukraine: 1.78735 per million people per 1
# 38 United Kingdom: 1.35669 per million people per 1
# 39 Spain: 1.04112 per million people per 1
# 40 United States: 0.97723 per million people per

How many of these countries have a smaller government sector than the US? Em, er, NONE!

This is one reason why we lag so badly in productivity growth, and innovation is key!

And if you got that so wrong why should anyone care the rest of what you said? What planet do you live on? Go and travel abroad and broaden your mind, please!

P.S. Please take a course in microeconomics. Then you might understand the concepts of public goods and positive and negative externalities.


Unemployment here vs there

The highest involuntary harmonized unemployment rate the US ever had on a annual basis since 1970 was 9.7% in 1982 (I think Ronaldus Magnus Reagan was emperor at the time). Among the other 19 nations I mentioned previously several have never had an unemployment rate that high on an annual basis in the time period in question. The highest harmonized unemployment rate on an annual basis in Iceland, Japan, Netherlands, Norway and Switzerland was 5.3%, 5.4%, 9.2%, 6.0% and 4.4% respectively since 1970. Thus the US ranks 6th on that basis out of 19, good, but hardly exceptional. And with the exception of Switzerland all of these nations have higher government expenditures as a percent of GDP.

Last week our unemployment rate was reported as being 10.2%, whereas the unemployment rate in the Netherlands, Norway, Switzerland, Japan, Australia, New Zealand, Denmark, Italy, Canada, Finland, Germany, the UK, Sweden, Belgium and Iceland is currently 3.3%, 3.3%, 4.1%, 5.4%, 5.5%, 5.8%, 6.0%, 7.4%, 7.6%, 7.6%, 7.7%, 7.9%, 8.0%, 8.3% and 9.1% respectively. Similarly, all of these countries except Australia and Switzerland have higher government expenditures as a percent of GDP.


Even with a VAT, Europe's govts are going broke first

Standard and Poors has projected that on present policy European governments' sovereign credit ratings will hit "junk" at about the same time as the US's, for the same reasons -- actually with France going off the cliff first.

That, of course, is with the VAT that is producing so much revenue that it supposedly happily supports their welfare states.

What new tax are they going to come up with to solve that problem? They've already spun through the VAT, the "gas tax" to the point where it is far higher than the calculated related externality costs, pushed income tax to the limit... Maybe they'll bring back the Georgist land tax?

Is Europeanization so bad? Well, from a fiscal point of view, yes, that seems pretty bad to me. At least in the US we still retain some options, for the moment.

BTW, if using Europe as a model to follow, this gives a pretty clear message not to enact a VAT before it is really needed, letting the politicians squander all that revenue it produces on everything else in sight -- so that when your sovereign credit rating reaches the precipice, you don't have it as a revenue-raiser any more ... leaving you with what?


Mr. Bartlett is missing the

Mr. Bartlett is missing the larger picture entirely in Europe.

Take the European heavy social welfare tax and combine it with the social revolution that changed the framework of life's philosophy from understanding that meaning and fulfillment of life is to respond to the call of duty of something larger than the personal self ----- changing it to the pursuit of the self and self fulfillment. Heavy taxation for social welfare consumption not only drains economic capital, but also seriously detrimental to the development of human capital. Thus reproduction is below replacement rate. If you extrapolate current trends, Europe is committing political, social and ethnic suicide.

The choice between children and income for self fulfillment becomes an important factor. This leads to immigration of people from undeveloped countries for lower level jobs, and immigrants, being used to living at subsistence level, are willing to maintain substantially higher reproduction rates than the host country ----- ironically, subsidized and facilitated by the social welfare system of the host country. In other words, the social welfare system transfers wealth to a hostile alien immigrant population for their reproduction growth at the same time penalizing reproduction in domestic population.

One wonders what will happen to the last generation of the burdensome old white Europeans when the young alien taxpayers are longer want to carry this ever-increasing burden.

So now, it may be that the undeserving "me" generation of the self-indulgent ( for whom generation of ancestors have worked and sacrificed for the future of their children) end up consuming their heritage and leave their diminishing offsprings to a dilapidated Islamic autocracy, as disenfranchised second-class citizens in their own country, paying the "infidel" tax.


"Take the European heavy

"Take the European heavy social welfare tax and combine it with the social revolution that changed the framework of life's philosophy from understanding that meaning and fulfillment of life is to respond to the call of duty of something larger than the personal self ----- changing it to the pursuit of the self and self fulfillment."

Notice that the rationale for the American revolution was to secure the rights to life, liberty and the pursuit of happiness. Nothing about the call of duty mentioned.

As a Christian (one who isn't just talk but walks the walk), I find conservative fantasies about being called to higher duty laughable. Few of the leaders in the conservative movement have served their country in the military. Conservative Christians are preoccupied with the sex lives of others, phony culture wars (the war on Christmas--please)and not paying taxes for what they actually receive in services from the government.

It isn't that I hold liberals in any higher esteem, but this business about life being framed by duty is self-flattering bunk in the case of most conservatives. As someone who actually lives a life framed by duty, this sort of claim by conservatives ranks among the most transparent lies conservatives tell themselves.


Good grief

"The choice between children and income for self fulfillment becomes an important factor."

????

I don't understand this reproduction argument. It's actually cheaper (and less stressful) to have children in a more socialist system.

In a socialist system children are cared for better than under a capitalist system. Women are given ample maternity leave (much better than the US, and that's a huge deal in a woman's decision to have a baby), healthcare is provided for free, and education is free (through college level).

US is way behind Europe in financial incentives for child rearing.

When was the last time the tax deduction for dependent children was increased? And try putting a couple kids through college in the US without going broke yourself or loading them up with crushing debt.


"As Columbia University

"As Columbia University economist Jeffrey Sachs recently wrote, "In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness."

The key word in Sachs' statement is generous.

I challenge you to find where Hayek makes the assertion that a social safety net should not exist.

What Jeffery Sachs does is what every ideologue does; they distort the words of a person who cannot defend themselves to make it look as if caring for the disadvantaged is entering the on-ramp to the road to serfdom.

We can donate to charities as we see fit. We do not have to have our money confiscated by government and spend unwisely (ACORN).




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