Whither Europe?
I’m working (only in my head, for now) on a lengthy response (part agreement, part dissent) to Jim Manzi’s much discussed piece (and I’ll only start working on actually writing it once I finish a first draft of the screenplay, so send all your positive brainwaves that way, folks). I haven’t had time to follow discussion in the comboxes, but I am surprised that so much of the discussion has revolved around Manzi’s claim that aggregate GDP in Europe has not kept pace with that of America since 1980.
I mean, the claim just isn’t terribly important to the larger argument. It’s absurdly insufficient as a data point to persuade anyone that the American model is in some categorical way “better” than Europe’s at producing growth; and I can’t imagine anyone abandoning his convictions about the success of the “Anglo-Saxon” model if that particular prop were kicked out.
Think about this: what happened to the relative share of American and Japanese global GDP from 1960 to 1985? Does that “prove” that the Japanese corporatist model is superior to the American model? There were plenty of people in both Japan and America who thought exactly that in the 1980s; what do we think of them now?
But I think there’s another point to be made about Manzi’s comparison. As I think all have agreed, a substantial portion, probably the biggest portion, of the difference in share of global GDP between the US and our various European competitors – say, France, or Germany, or Italy, or whoever you like – relates to demographics. American population growth has outpaced European population growth; and the growth in the American workforce has outpaced the growth in the European workforce even more dramatically.
American population growth has not been driven primarily by natural increase, however; it has been driven by immigration. Immigration is one way a political entity can grow faster than its natural rate of population growth. But another way is by territorial expansion and absorption of the population of the absorbed territory. And this latter has been the strategy pursued by “Europe” if “Europe” is to have any real political meaning.
In my own opinion, if we want to compare the relative share of global economic power represented by “Europe” and America, we need to use a definition of “Europe” that has something to do with wielding power – that is, a political definition and not merely a geographic one. The obvious candidate for this purpose is the European Union and its predecessor institutions.
But the EU has not had a static membership. Just as America has grown through immigration, the EU has grown – substantially – through adding more members. Just as immigration has put some strain on the American social fabric, EU expansion has put some strain on the political fabric of the EU – take a look at the French reaction to the influx of Poles, or the increasingly unviable CAP. But in both cases, growth has meant greater aggregate economic power, and therefore greater global influence – where political institutions have been able to harness that power. This last is more the case in the USA than in the EU, with the notable exception of monetary policy, where the European Central Bank swings quite as big a club as the Fed, if not bigger, precisely because it is just as strong institutionally and has direct influence over a larger share of the global economy.
If what we’re trying to measure is which entity, relative to each other, is growing most or shrinking least in global influence, I think it is unarguable that Europe is outpacing America. The end of the Cold War and the integration of much of the former Warsaw Pact into “Europe”, and the simultaneous growth of European-wide political institutions (at least at the level of economic policy-making), has dramatically increased Europe’s global influence. Whether this political project is going to reach the point of diminishing returns is another question – and a good one. I’m a skeptic that “ever closer union” and “ever expanding union” can work together over the long term, and I think the former is more important at this point than the latter for the development of functional and responsive political institutions. Moreover, given the demographic profile of most of the likely candidates for future expansion, it’s not obvious that expansion in this manner will in fact grow Europe’s labor force quickly enough (and the big demographic exception – Turkey – poses its own problems). But the fact remains: in 1980 there barely was a “Europe” in a political sense, and now there is one, and the one we have now is substantially bigger.
I don’t think I’m making a controversial point here. Germany, in 1980, was divided. Its political influence was severely limited by this fact – West Germany was acutely aware of its dependence on America; East Germany was utterly dominated by the Soviet Union. When West Germany absorbed the East, integrating it into its preexisting political and economic order, it caused considerable economic hardship; German growth was basically stalled for a decade. But every observer understood that this was a move that increased a now-united Germany’s economic and political clout. And Germany – as a political entity within a larger European political entity – is reaping the benefits of that greater clout today. The same is true for Europe as a whole. The expansion of “Europe” – first southward to encompass Spain, Portugal and Greece, then eastward to encompass the Warsaw Pact countries of central Europe – has, whatever the other consequences have been, resulted in a relative increase in “Europe’s” clout on the global stage.
If we’re going to consider America’s growth through immigration as one component that contributes to our national power, we should consider Europe’s growth through absorption of other countries as one component that contributes to theirs.
Corollary:
At what point should we seriously consider ‘absorption’ as an alt-strategy to productivity-growth, immigration and baby-making?
— Kristoffer V. Sargent · Jan 11, 03:47 PM · #
Hmmm. Maybe putting together an attractive ‘absorption porfolio’ would force us to think anew about federal versus local power.
Then again, 50 is a nice round number.
— Kristoffer V. Sargent · Jan 11, 03:50 PM · #
We should then consider in the equation our de facto absorption of (the economies of) Canada, Mexico, and the CAFTA countries via free-trade agreements.
— Withywindle · Jan 11, 04:37 PM · #
Well, look. The title of the piece is “Keeping America’s Edge.” If it turns out that there’s no edge to be kept, what is the piece even about?
Whether or not Europe’s greater levels of social democracy have retarded its economic growth is incredibly central to the piece. That all of Manzi’s defenders have tried to downplay it’s importance indicate to me that Chait and Krugman are substantially correct, and Manzi has gamed the statistics.
— Chet · Jan 11, 06:11 PM · #
Chet, it seems clear to me that the “edge” Manzi is talking about is America’s global economic and military dominance. I wish the debate would move on to questions like:
1) is it important for America to maintain that dominance?
2) If so, what sacrifices ought to be made by whom to maintain it?
3) what policies might make it easier or harder to maintain it?
I think Noah’s post provides at least one argument that the answer to #1 is “not as important as Manzi thinks it is.”
Manzi BEGAN to suggest some answers to #2 and #3 (see his recommendations to undo stimulus, regulate finance, promote immigration, restructure education).
I suspect that his intent in writing his article was to stimulate discussion on these points rather than try to settle a dispute over whether social democracy is or is not superior to free market capitalism with data that, no matter how it is analyzed, would be ridiculously incapable of providing a answer to that question.
To me it looks as though Krugman et al are so sure they will be opposed to any policy direction that Manzi might propose that, as is so common in our political climate today, take want to take potshots at him in any way they can to muffle any additional discussion of the merits in a debate they think they are already winning.
We know from Krugman’s writing that he would say Manzi is silly to want to undo the stimulus. But what does he think of the idea of promoting immigration of talent? Regulation of the financial system? School reform? What does Krugman think about the importance of maintaining our edge? I’d be very interested to hear that discussion.
— andrew · Jan 11, 08:42 PM · #
Excellent point Noah. I’ve been thinking about this some from the Defense side as I’ve done some work on European Defense spending professionally (with update to come). Not surprisingly European defense industrial integration, let alone military integration, is in many ways even more fraught than economic integration. However, while Europe does still spend less as a percentage of GDP on Defense than the U.S. does, the EU’s efforts towards integration also should improve clout based on the logic of the Manzi piece.
— GregSanders · Jan 11, 09:30 PM · #
We should just as well ask, “whither China?” That’s one helluva big country to hold together on the timescale that is relevant for contemplating America’s position in the world. Whither USSR? Whither pre-Pakistan India?
— andrew · Jan 11, 09:47 PM · #
The most plausible hypothesis, in a world of moderately porous borders, is that growth through immigration and growth through per capita economic expansion are additive (or more properly multiplicative): immigrants seek out the fastest-growing economy, and their additional numbers increase the aggregate size of that economy.
Krugman and Chait are exceedingly disingenuous, for those of us over 50. The whole mantra of the Europhile left when I was young (i.e., the 1980s) was that the European system would produce superior economic growth, not growth almost as good. See, e.g., Lester Thurow’s “Head to Head.” To now say that a 12bp deficit in economic growth doesn’t matter (you bet it would matter if it ran the other way), and that per hour economic productivity, not per capita, is what matters (that sure wasn’t the metric used to measure macroeconomic performance under George W. Bush), is such obvious hypocrisy that I find myself unable to understand the mental processes of those who make those arguments.
— y81 · Jan 11, 09:54 PM · #
What economic dominance? That’s the central claim that’s been under discussion for so long.
— Chet · Jan 11, 10:52 PM · #
Only local value added economies in as local possible balanced
geopolitical settings work. Perhaps Europe represents the best in mixing
local value added economies so no one gets shafted but still so call
free trade and globalization are infecting all economies by an
unbalanced formation of the value of workers compared to the values
consumers have available to recycle all economies. In our present times
the worst case scenario has taken over. Using impoverished workers in
other lands or bringing them into a more prosperous nation to supply our
goods hinders if not stop adding real values to an economy and regrowing
them everytime with the seeds from the original value added process. In
other words you can’t have your cake and eat it too. See http://tapsearch.com/flatworld and http://tapsearch.com/pope-benedict-economic-encyclical
— Ray Tapajna · Jan 11, 11:22 PM · #
I’ve had some time to digest this post. First thing that pops into my head is how the EU conducts foreign policy and what this has to do with output share and clout.
Since I believe this to be a main point of the article, let’s assume that output share is an indicator of international clout. Let’s also stipulate that Noah’s definition of ‘Europe’ is sound, that the EU is equal to or greater than the US in output share, and that the EU has accomplished this by absorption. Let’s also stipulate Jim’s point that output share is an indicator of power potential, and that power potential is a determiner of security.
At first glance it would seem that the EU has more clout than the US, and therefore more security. Which would then mean that Jim’s article is incomplete at best, fatally flawed at worst.
However, the EU’s clout is undermined by the her disaggregation of foreign policy, the disassociation between trade, on the one hand, and national security on the other. Which means comparison between the US and EU, on the question of the output and clout, is simply off base: the EU cannot parlay its global output share into geopolitical leverage and collective security, whereas the US can and does.
Of course, for the EU this does not a huge problem make, since the US is a de facto guarantor of Europe’s security interest. But that in turn lessens the clout of Euro-zone nations even more. That works out well when your benefactor is a BFG. It works out well for the BFG, too, since it makes us indispensable and shortens the list of the truly competitive heavy-hitters.
But it does mean that we, Americans, should be more concerned with output share since our position requires us to be more concerned with clout. The EU can afford to err on the side of cohesion. I don’t think that’s true for the US.
This still doesn’t tell us how to balance order and chaos in the economic arena. But it does warn us against looking at European policies and seeing a way forward for America. America must keep her edge because she’s the one forced to wield more than a butter knife.
— Kristoffer V. Sargent · Jan 11, 11:53 PM · #
KVS: well, that’s one way to look at it.
Another way to look at it would be: Europe’s relative geopolitical weakness has to do with the nature of Europe’s political institutions rather than with the nature of its economic system.
If that’s the case, then if the US actually wants Europe to shoulder more of the defense burden (positing only for the sake of argument that America’s military establishment really is shouldering the burden of defense as opposed to being partly about that, partly about other things entirely) it needs Europe to develop other political institutions. That probably means getting on Germany’s bandwagon with respect to deeper integration instead of always pushing for greater expansion (assuming you agree with me that there’s some tradeoff between the two goals).
Alternatively, as you say, if we don’t want a partner who might expect to be treated as an equal, we can live with Europe as it exists now – and expect it to get some combination of higher growth and more equality because it can “get away with” a lighter defense burden.
— Noah Millman · Jan 12, 12:07 AM · #
What – if anything – can persuade you people from making EVER MORE posts on this poorly-written and badly-received Culture War diatribe? It’s not worth any of our time.
— Ray Butlers · Jan 13, 01:09 AM · #
Chet
“Whether or not Europe’s greater levels of social democracy have retarded its economic growth is incredibly central to the piece.”
You still don’t seem to understand. Under social democracy, Europe has barely managed to keep up with America’s growth rate in GDP per capita, even as America was greatly expanding its population through immigration. The U.S. has largely maintained its share of global GDP, while Europe’s share has plummeted. Under social democracy, Europe is falling further and further behind the U.S. in living standards, and even further behind in global economic influence.
— Jerry · Jan 13, 05:49 AM · #
Except that it hasn’t.
Except that it’s not.
— Chet · Jan 13, 05:51 PM · #
“Except that it hasn’t.”
Yes, it has. I don’t know how you seriously think you can deny this. Manzi cited two sets of data showing a massive decline in Europe’s share of global GDP.
“Except that it’s not.”
Yes, it is. Europe’s GDP per capita is already lower than that of the U.S., and Europe’s GDP per capita growth rate is no faster than that of the U.S. (as Paul Krugman noted in his column two days ago, the EU15’s GDP per capita growth rate since 1980 has actually been a bit lower than that of the U.S.) Unless Europe can increase its growth rate above that of the U.S., it will continue to fall further and further behind the U.S. in GDP per capita and living standards.
— Jerry · Jan 13, 08:01 PM · #
As Chait, Krugman, the Economist, The New Republic and other sources have pointed out – Manzi was wrong. The data he cited doesn’t show this. The “massive decline” you claim simply didn’t happen.
Except that it always has been, and has not changed at all. The entire difference in GDP is the result of different patterns in population growth between the US and Europe, especially when you factor out the distorting influence of the various European nations that began 1980 as communist dictatorships (as Manzi did not do, and refuses to.) US and European GDP per capita have grown at entirely comparable rates. Living standards have long been higher in Europe than in the United States. You’re coming into the debate late, I guess; all this stuff has been discussed and refuted. Manzi’s taken the pretense that, sure, he “wasn’t clear”, and anyway “it’s not central to the article.” Manzi’s abandoned the claim, in other words. (Now he’s claiming, absurdly, that every current European social democracy in the present day was also one in 1980.) Are you sure you want to take it up?
As I said: Whether or not Europe’s greater levels of social democracy have retarded its economic growth is incredibly central to the piece. The evidence is overwhelming that it has not. Ergo, Manzi’s piece continues to be founded on a pretty glaring factual error.
— Chet · Jan 13, 08:26 PM · #
Chet,
“As Chait, Krugman, the Economist, The New Republic and other sources have pointed out – Manzi was wrong. The data he cited doesn’t show this. The “massive decline” you claim simply didn’t happen.”
Yes, it did. The critics you cite are just quibbling over the exact numbers. As Manzi has demonstrated, Europe has suffered a massive decline in its share of global GDP over the past few decades. And this is true whether Europe is defined to include only western Europe, as represented by the EU15, or more formally to include the eastern and southern European nations and parts of Russia as well. Manzi has supported this claim with multiple sources of GDP data, and no one has produced any source that contradicts it.
“Except that it always has been, and has not changed at all. “
No, not “except” that. Europe already has a lower GDP per capita than the U.S. and Europe’s GDP per capita is not growing any faster than that of the U.S. (As Krugman himself pointed out, the EU15’s GDP per capita growth rate since 1980 has actually been a bit lower than that of the U.S.). Unless Europe’s growth rate increases above that of the U.S., this means Europe’s GDP per capita will continue to fall further and further behind that of the U.S. It is a mathematical certainty. If I have $10,000 and you have $5,000, I am $5,000 richer than you are. If we both double our money (i.e., same rate of growth), I will have $20,000 and you will have $10,000. I will then be $10,000 richer than you. The gap will continue to widen unless your growth rate increases to exceed mine.
— Jerry · Jan 13, 10:34 PM · #
Chet,
“The entire difference in GDP is the result of different patterns in population growth between the US and Europe,”
No, it’s not. It’s a matter of both population growth and the fact that Europe is not growing any faster in GDP per capita. The U.S. has grown as fast or faster than Europe in GDP per capita while absorbing vast numbers of low-skilled immigrants into its economy. There is no basis for the assumption that Europe could have done this. Europe can barely provide enough jobs for the people it already has, let alone for a much larger immigrant population. Tightly regulated labor markets, high taxes and generous welfare benefits simply are not conducive to high levels of employment.
— Jerry · Jan 13, 10:42 PM · #
It’s not growing any slower, either, so I don’t see what your point is. All of the GDP growth difference can be explained by the differences in population growth. It has nothing to do with “generous welfare benefits” or any other social democratic program.
And all this, of course, completely ignores Europe’s real GDP growth simply as a function of nations joining Europe (since we’re basing our numbers of a static definition of Europe.)
Europe currently enjoys a higher rate of employment than the United States.
— Chet · Jan 14, 01:14 AM · #
“It’s not growing any slower, either, so I don’t see what your point is.”
I just explained it to you. Even at the same growth rate, Europe’s GDP per capita will fall further and further behind that of the U.S. as time passes. And according to Krugman, since 1980 (and possibly earlier) GDP per capita has grown more slowly in the EU15 than in the U.S.
“It has nothing to do with “generous welfare benefits” or any other social democratic program.”
Yes it does. I already explained this too. Generous welfare benefits discourage employment. So do high taxes and tightly regulated labor markets. Those are some of the reasons why unemployment rates in Europe have been higher than in the U.S. They are also reasons why it is very unlikely that Europe would have been able to increase its population at the same rate as the U.S. has done without sacrificing growth in GDP per capita.
“Europe currently enjoys a higher rate of employment than the United States.”
Current employment rates aren’t a reliable indicator of long-term trends. Again, as Krugman wrote: “European unemployment rates are usually substantially higher than the rate here [in the U.S.], and the employed fraction of the population lower.”
— Jerry · Jan 14, 01:56 AM · #
So what? What does that have to do with living standards?
Only barely, and so what? There are 27 nations in the European Union, not 15. Why be concerned about such a small subset of them?
Maybe it wasn’t clear – I heard you the first time. I just didn’t believe you. Generous welfare benefits don’t discourage employment, they promote it. The most generous nations in Europe in terms of social democracy are also the ones with the lowest unemployment and the largest per capita GDP. The more conservative European nations are the ones with higher unemployment. Of course, in conservative America, we have pretty substantial unemployment of our own, further highlighting the connection between stingy social welfare policies and high unemployment.
You weren’t talking about “trends”. You were talking about the present, and Europe’s ability to provide jobs for its citizens. On that score they’re doing a lot better than we are.
I’m waiting for your posts to contain anything that is true. Apparently being a conservative means taking a great deal of economics simply on faith.
— Chet · Jan 14, 05:24 AM · #
Chet,
“So what? What does that have to do with living standards?”
Huh? Living standards are based on GDP per capita. As Europe’s GDP per capita continues to fall further and further below that of the U.S., so will Europe’s living standards.
“Only barely, and so what?”
So, the GDP per capita, and hence living standards, of the EU15 are falling further and further behind those of the U.S. at an even faster rate than they would be if the GDP per capita of the EU15 were growing as fast as that of the U.S.
“Generous welfare benefits don’t discourage employment, they promote it. The most generous nations in Europe in terms of social democracy are also the ones with the lowest unemployment and the largest per capita GDP.”
Show me your evidence that there is a positive correlation between generosity of welfare benefits and level of employment. The assertion is deeply counterintuitive. The larger the benefits provided to non-workers, the smaller the incentive to work. The U.S. provides significantly less benefits to non-workers than Europe, but has a significantly higher level of employment, which is inconsistent with your claim.
And it’s not just generous welfare benefits that discourage work in social democracies, but also high taxes on employers and highly-regulated labor markets, which make it more difficult, expensive and risky for employers to hire.
“You weren’t talking about “trends”. You were talking about the present, and Europe’s ability to provide jobs for its citizens.”
No, we are talking about trends. The trends of the past few decades. And one such trend has been a significantly lower level of employment in Europe than in the U.S.
— Jerry · Jan 14, 06:13 AM · #
Which is increasing in both Europe and the US. Ergo, living standards will continue to increase apace, according to your logic. Of course, that logic fails to capture a basic point that if the GDP growth is concentrated among a few individuals (as its more likely to be in the US) living standards won’t actually increase. Goldman-Sacks executives owning two yachts instead of one doesn’t increase American living standards any.
Europe. Hell, even in the US the states with the least generous social welfare also have the highest levels of unemployment.
Only to conservatives, I suppose.
Except that Europe overall has higher employment than the US.
— Chet · Jan 14, 05:58 PM · #
“Which is increasing in both Europe and the US.”
GDP per capita, and hence living standards, is increasing faster in the U.S. than in Europe. Even under the same real rate of growth in GDP per capita, the amount of real GDP per capita has been growing faster in the U.S. than in Europe. Europe is falling further and further behind the U.S. in living standards as time passes.
“Europe.”
Sorry, uttering the word “Europe” does not constitute evidence of a positive correlation between generosity of welfare benefits and level of employment. Show me studies and data that substantiate your claim.
“Except that Europe overall has higher employment than the US.”
I don’t know if that’s true even now. In any case, the trend over the past few decades has been a significantly higher level of employment in the U.S. than in Europe, as Paul Krugman himself has attested.
— Jerry · Jan 14, 10:40 PM · #
What “hence” living standards? The best living standards on Earth are in Europe, because in the US, GDP growth “per capita” doesn’t grow per capita, it grows as a function of the rich getting a lot richer. Inflation-adjusted wages haven’t grown since the mid-70’s. Where’s that “increase in living standards” supposed to come from if people can’t afford any increase? Cheaper TV’s? Please.
At some point, Jerry, you’re going to have to do some homework.
— Chet · Jan 14, 11:30 PM · #
Chet,
“What “hence” living standards?”“
The “hence” that follows from GDP per capita. I already explained this to you. As Paul Krugman put it: “Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15.”
“The best living standards on Earth are in Europe, because in the US, GDP growth “per capita” doesn’t grow per capita, it grows as a function of the rich getting a lot richer.”
More factually incorrect claims. First, GDP per capita would rise even if all the gains went to the rich. GDP per capita is simply total GDP divided by the population. Second, the gains do not all go to the rich.
“Inflation-adjusted wages haven’t grown since the mid-70’s.”
Yet another unsubstantiated claim. Show me your evidence that “inflation-adjusted wages haven’t grown since the mid-70’s.” And I’m still waiting for your evidence of a positive correlation between generosity of welfare benefits and level of employment. You made the claim. Substantiate it.
But even if your wage claim above were true, it is irrelevant. Living standards are not simply a matter of wages. In fact, wages comprise only about 45% of total U.S. GDP.
— Jerry · Jan 15, 05:02 AM · #
Yes, exactly, Jerry. Try to follow along, ok? How would such an apparent increase improve living standards? If the GDP gains are actually concentrated among a few individuals, GDP per capita would grow (like I said, and you’ve now agreed with) but living standards would not possibly increase. How could they? That’s what I’ve asked you to address three times, now. Why are you being so evasive?
Here, let me Google that for you.
Europe, where the highest employment and standards of living are associated with the more generous welfare states, is the substantiation. Like I said three times now. Try to keep up, ok?
— Chet · Jan 16, 11:38 PM · #