The Therapy Sessions
Monday, June 21, 2004
Europe vs. America
From the The Wall Street Journal (suscriber's only):
The growing split between the U.S. and Europe has been much in the news, mostly on foreign policy. But less well understood is the gap in economic growth and standards of living. Now comes a European report that puts the American advantage in surprisingly stark relief.
The study, "The EU vs. USA," was done by a pair of economists --Fredrik Bergstrom and Robert Gidehag -- for the Swedish think tank Timbro. It found that if Europe were part of the U.S., only tiny Luxembourg could rival the richest of the 50 American states in gross domestic product per capita. Most European countries would rank below the U.S. average, as the nearby chart shows.
The authors admit that man doesn't live by GDP alone, and that this measure misses output in the "black" economy, which is significant in Europe's high-tax states. GDP also overlooks "the value of leisure or a good environment" or the way prosperity is spread across a society.
But a rising tide still lifts all boats, and U.S. GDP per capita was a whopping 32% higher than the EU average in 2000, and the gap hasn't closed since.
This is something that is not well understood in America: sluggish European GDP growth is having real effects on relative standards of living. Europe is getting poorer relative to America.
When Europeans are bitter to Americans, the war is only part of the reason. They now doubt the superiority of their economic model, which they have bragged about for decades.
It is suffocating them.
It is so wide that if the U.S. economy had frozen in place at 2000 levels while Europe grew, the Continent would still require years to catch up. Ireland, which has lower tax burdens and fewer regulations than the rest of the EU, would be the first but only by 2005. Switzerland, not a member of the EU, and Britain would get there by 2010. But Germany and Spain would need until 2015, while Italy, Sweden and Portugal would have to wait until 2022.
Higher GDP per capita allows the average American to spend about $9,700 more on consumption every year than the average European. So Yanks have by far more cars, TVs, computers and other modern goods. "Most Americans have a standard of living which the majority of Europeans will never come anywhere near," the Swedish study says.
But what about equality? Well, the percentage of Americans living below the poverty line has dropped to 12% from 22% since 1959. In 1999, 25% of American households were considered "low income," meaning they had an annual income of less than $25,000. If Sweden -- the very model of a modern welfare state -- were judged by the same standard, about 40% of its households would be considered low income.
In other words poverty is relative, and in the U.S. a large 45.9% of the "poor" own their homes, 72.8% have a car and almost 77% have air conditioning, which remains a luxury in most of Western Europe. The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.
The disease is familiar: advanced socialism.
"The expansion of the public sector into overripe welfare states in large parts of Europe is and remains the best guess as to why our continent cannot measure up to our neighbor in the west," the authors write. In 1999, average EU tax revenues were more than 40% of GDP, and in some countries above 50%, compared with less than 30% for most of the U.S.
We don't report this with any nationalist glee. The world needs a prosperous, growing Europe, and its relative economic decline is one reason for growing EU-American tension. A poorer Europe lacks the wealth to invest in defense, a fact that in turn affects the willingness of Europeans to join America in confronting global security threats. But at least all of this is a warning to U.S. politicians who want this country to go down the same welfare-state road to decline.