Omnibus Reply to Criticisms of Keeping America’s Edge UPDATE
In a lengthy article for National Affairs, I wrote the following sentences:
From 1980 through today, America’s share of global output has been constant at about 21%. Europe’s share, meanwhile, has been collapsing in the face of global competition — going from a little less than 40% of global production in the 1970s to about 25% today. Opting for social democracy instead of innovative capitalism, Europe has ceded this share to China (predominantly), India, and the rest of the developing world. The economic rise of the Asian heartland is the central geopolitical fact of our era, and it is safe to assume that economic and strategic competition will only increase further over the next several decades.
These have been the subject of extensive criticism in the left-of-center blogosphere. Let me take the criticisms, as I see them, one at a time.
Criticism 1: I presented incorrect numbers. Accurate data is the foundation of all empirical analysis. Without it, progress is not realistically possible. Paul Krugman wrote a blog post in which he accused me of either gross negligence or dishonesty. The specific charge he made is:
But I went back to Manzi’s source of data, and it turns out that it’s even worse than that. If you use the broad definition of Europe, which includes the USSR, it did indeed have 40 percent of world output in the early 1970s. But that share has not fallen to 25 percent — it’s still above 30 percent.
His assertion is flatly false.
First, Professor Krugman incorrectly identified my source of data.
I have never corresponded with Professor Krugman concerning data sources and analysis for the passage in question, so I can not know on what basis he asserted that the dataset to which he links is my “source of data.” It is not. As per the blog post in which I reviewed multiple data sources for the analysis in question, I averaged multiple sources of data. Professor Krugman has selected only one of these sources, presented it as if it were my sole source, and therefore (obviously) failed to replicate the published result for both the 1970s and the current day. The error is his.
Second, Professor Krugman misread the economic dataset that he did identify.
According to the dataset in question, that part of Europe excluding any part of the USSR had about 40% share of global GDP in 1973 [Cell H59 in the spreadsheet]. According to this dataset, if you add the USSR to this definition [Cell H59 + Cell H102], then such a constructed entity would have had global GDP share of about 44%, not the 40% that Professor Krugman asserted. This error is his as well.
I have invited Professor Krugman to explain how I am wrong, or failing that, to retract his charge.
[UPDATE]: Professor Krugman has responded. I will reproduce his post in its entirety here:
The debate over European economic performance has gone in two directions. One is the usual response of people when they get something very wrong: they start quibbling over minor details (which dataset was Manzi actually using? what about immigration?) to throw up dust clouds. The key thing to remember is that we had a flat assertion that social democracy leads to stagnant economies; that assertion is just wrong.
The other is to point out that even rich European countries have lower GDP per capita than the United States. Indeed. But there’s a story there that is a lot more complicated than a simple table conveys. I wrote about it a few years back.
I’ll leave it to readers to evaluate this response.
Criticism 2: Defining Europe to include Russia and other parts of Eastern Europe is ludicrous when the argument concerns the trade-offs involved in the social welfare state.
Critics argue that since we all know the social welfare state is only present in Western Europe, then it is disingenuous to bundle together Western and Eastern Europe.
In the article, I explicitly defined the ‘European model’ as I used the term by methodically listing out each element of it:
Seen together, these initiatives — shifting government spending away from defense and public safety toward social programs; deeper direct involvement of the government in the operation of large corporations across a substantial portion of the economy; energy rationing in the name of managing climate change; more direct government control of health-care provision; and higher tax rates that probably include a VAT — point in a clear direction. The end result would be an America much closer to the European model of a social-welfare state, which prioritizes cohesion over innovation.
It turns out that Europe as whole is systematically different than the U.S. on each of the listed dimensions. As a further, and more severe statement, it is also true that Eastern Europe as a region (defined as Russia and other west of Urals components of the old Soviet Union and countries of the old Soviet Bloc) and Western Europe as a region (defined as all other countries in Europe from Iceland to Greece) are also each systematically different than the U.S. on each of the listed dimensions.
I’ll take each one at a time
shifting government spending away from defense and public safety toward social programs
The governments of both Eastern and Western Europe have a much higher weighting of social spending than does the government of the U.S. According to the OECD common governmental expenditure classification system, in 2006 the ratio of government spending on the sum of Housing and Community Amenities, Health, Recreation, Culture and Religion, Education, and Social Protection to government spending on the sum of Defense plus Public Order and Safety was at least about twice as high as in the U.S. in every country for which the OECD reports in Eastern Europe (Czech Republic, Estonia, Hungary, Poland, Russia [using transaction code P3CG], Slovak Republic and Slovenia), and every country for which the OECD reports in Western Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and the UK).
deeper direct involvement of the government in the operation of large corporations across a substantial portion of the economy
In finance, according to the NBER working paper Government Ownership of Banks (2000), the share of government ownership of the assets of the 10 largest banks was as high or higher in every reported Western European country and in every reported Eastern European country than in the U.S. (where it was 0%).
In products, according to the OECD Indicators of Product Market Regulation, in 2008 product market regulation was heavier than in the U.S. in every reported Western European country (although the UK was almost tied with the U.S.) and in every reported Eastern European county.
Health care is addressed below.
energy rationing in the name of managing climate change
The following Western European countries are ratified Annex I signatories to the Kyoto Protocol that commits nations to defined emissions caps: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
The following Eastern European countries are ratified Annex I signatories: Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russian Federation, Slovakia, Slovenia, and Ukraine.
The United States has not ratified participation in the Kyoto Protocol.
more direct government control of health-care provision
According to the OECD Health Data 2009, in 2007 the U.S. had lower public expenditure on health as a percent of total expenditure on health than every reported country in Western Europe and every reported country in Eastern Europe.
higher tax rates
According to the OECD Factbook 2009, in 2007 the U.S. reported lower total tax revenue as a percentage of GDP than every reported country in Western Europe and every reported country in Eastern Europe.
that probably include a VAT
The following Western European countries have a VAT: Austria, Belgium, Denmark, Finland, France Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK, Iceland, Norway, and Switzerland.
The following Eastern European countries have a VAT: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Albania, Belarus, Bosnia, Croatia, Moldova, Montenegro, Russia, Serbia, and Ukraine.
The U.S. does not have a VAT.
There is obviously tremendous variation across the nations of Europe, but at the level of abstraction carefully defined in the article, there are systematic differences between Europe and the U.S. in their respective approaches to the political economy of the social welfare state. In the article, I also carefully reviewed the evidence that actions to date in the late Bush and early Obama administrations, plus the publicly stated intentions of the current administration and congressional leadership, have made and/or would make the U.S. more like a European social welfare state in each of the defined dimensions.
Criticism 3: This comparison does not demonstrate that the social welfare state causes lower economic growth.
As I said almost immediately when this was pointed out, this is exactly correct. No matter what the relative growth rates (however defined) of Europe and the U.S. over any period, such a comparison could never constitute a reliable empirical demonstration of causality, because we could never know the counterfactual of what would have happened had one entity or the other executed some alternative policies. I have argued in many posts over a period of years that even less-naïve econometric methods that attempt to control for other factors are not sufficient for the task of identifying non-obvious causal relationships in human society reliably.
The purpose of the article as a whole, never mind the short passage in question, was not to provide an empirical demonstration that less regulated markets tend to provide faster economic growth under many conditions than more regulated markets. Nor did it ever claim to provide this. The purpose of the article was to describe why even though I (like many, many other people) accept the advantages that less regulated markets can provide, this does not lead to the conclusion that we should advocate a deregulation-oriented path of economic development without considering the balancing consideration of social cohesion, and modifying our proposals accordingly.
As I also said immediately, it is easy for me to see how these sentences could be read naturally to be an asserted demonstration of causality. And as I also said at that time “the responsibility for lack of clarity rests on the shoulders of the author, not the reader.” I acknowledged this, and thanked my interlocutors for improving my expression; I continue to do both.
Criticism 4: The fact that the difference in total GDP performance between Europe and the U.S. is entirely due to different population growth rates proves that it can not have been caused by the social welfare state.
In effect, this argument is that GDP = GDP / Person X Population, and that GDP / Person has grown at about the same rate in the U.S. and Europe over the past several decades, so the only real difference has been population growth. This is a factually (approximately) correct statement. There are two big problems with arguing that this shows that therefore differences in political economy of the welfare state did not matter to this difference in outcome. Both are counterfactual problems. First, just because growth in per capita GDP turned out to be the same in this period, it does not follow that had the U.S. adopted policies more like those in Europe that growth rates would not have have been lower, and per capita GDP converged. It is almost always harder to maintain a lead. Europe and the U.S. had previously been on a generally converging path of GDP / Person, and maintaining this lead in productivity (by this metric) was very far from preordained. Second, it assumes that the political economy of the welfare state can not affect population growth, either through impacting fertility or impacting immigration. There are many plausible models for how this can happen. We can’t know through econometric analysis (whether of the simple “I just know that the welfare state can’t influence fertility or immigration” variety cited in the title of this section, or of the more sophisticated variety that attempt to control for other factors) what U.S. population growth and per capita GDP growth would have been had the U.S. adopted different social welfare policies.
Many variants of these criticisms have been repeated over and again through a certain segment of the blogosphere. I have here answered each of them directly, and I believe comprehensively. In any event, barring new information brought to the debate, this is where I intend to leave it.
Wow, another thread just to avoid a comprehensive demolition of your latest defense. Who could have known? (Besides me, I mean, when I predicted it in the last thread.)
— Chet · Jan 13, 04:53 PM · #
Bit harsh Chet. This final post is very good. It’s always better to clearly express your premises so that readers can be cognizant of what must be accepted in order to delve into your analysis. While I strongly disagree with the “less regulated markets lead to innovation and growth” theory, it’s perfectly fair to build on that and examine the ways a balancing act (as you see it) between social cohesion and deregulation can be resolved.
Mr. Manzi, thank you for engaging the supporters and detractors of your piece alike.
— Dwight · Jan 13, 08:25 PM · #
In Manzi’s defense, Europe built its economic empire on the back of the colonized world, and got a head-start. It’ll take some time for others to catch-up with Europe (if the Europeans could give Krugman another Nobel Prize, they would).
* China Dethrones Germany To Become World’s Largest Exporter http://www.forextv.com/Forex/News/ShowStory.jsp?seq=1175490
* Learning from Europe http://community.nytimes.com/comments/www.nytimes.com/2010/01/11/opinion/11krugman.html?sort=highlights
Prof. Dr. Troy Wiwczaroski
Debrecen, Hungary
January 11th, 2010
10:07 am
Sorry, Mr. Krugman. With all due respect, please come to Hungary and see for yourself that the collective noun ‘Europe’ and your arguments pertaining to it are both a bit stretched. Hungary, like Greece, Romania and Bulgaria (just to name a few important examples) are clearly examples of EU Member States where the opposite of what you claim is true.
Hungary is in reality a crypto-communist disaster, where the old oligarchy has continued to plunder the nation, using its ‘class enemy’ ruse to blame Hungary’s economic crisis on Gypsies and Jews, while claiming to actually ‘protect’ them.
If this is a success in democracy, I’d hate to see a failure!
Monica C.
Venice, Italy
January 11th, 2010
10:35 am
Mr. Krugman looks exclusively to France and Germany for his examples of European success. But Italy and Spain are part of Europe too, as are Poland and Hungary, and countless other countries. Most of these, to be sure, have a much stronger social net than the U.S. But the economic crises of countries to the north, south and east of France and Germany make the case that Europe is doing well much less compelling.
Bob J
Brookline, MA
January 11th, 2010
10:41 am
Krugman’s article is so utterly simplistic that it’s difficult to know where to begin. But let’s start with the hard fact that we pay the bill for European security and have been doing so since 1945. That’s a genuine reality “check”.
Onno Frowein
Deep River, CT
January 11th, 2010
10:53 am
How wrong you are again, the social system in Europe is collapsing, unemployment is increasing, governments have to borrow money to finance this social fiasco. European governments are increasing their debts by issuing bonds and postpone payment for next generations of taxpayers. European companies are taken over by companies from India (Jaguar, Arcelor, etc) and China (Volvo, Saab, etc) While European officials are bickering over politics and who should be president of the EU (after Barosso they found another incompetent Belgium van Rompuy) Chinese leaders are securing their suppies (steel, gas, oil, etc) and markets in Africa, Australia and South America and become the World’s largest exporter. Education in Europe is below American standards and technological innovation has to come from the USA.
Finally, lets look at the quality of life of Americans vs. Europeans and I have to conclude that your statistics may show other numbers but that the American people in general are better off than the Europeans except for the socialized health care.
Karl
Pennington, NJ
January 11th, 2010
12:04 pm
Dr. Krugman, The one thing that you did not discuss is innovation. It strikes me that Europe is far less innovative than the US. Compare the number of new drugs, software and hardware advances and even Nobel Prizes between the two economies and I think you’ll agree that the US, by far, out shines Europe. Isn’t it possible that the European economy is hindered by excessive taxation and over regulation?
Amos
Buenos Aires
January 11th, 2010
2:03 pm
Very convenient to include the eastern european block in these calculations. These economies have grown very rapidly since they started from such a low base. If you run the numbers again, excluding these economies, you will get a very different picture. Comparing the U.S. economy to that of, say, Latvia or Slovakia, as Professor Krugman does here, is hardly relevant.
— t2 · Jan 13, 08:29 PM · #
Is it? You don’t find it strange that after I completely demolished this post in the previous thread, Manzi turned around and posted the exact same argument all over again? Oh, my bad, there’s a trivial “update” to excuse the double post. What can be the explanation for this (and for his complete silence when it comes to addressing the objections I’ve raised) aside from an attempt to throw the hounds off his scent?
— Chet · Jan 13, 08:32 PM · #
P.S. I am referring solely to criticism 3 in calling this a good post. You seemed to be hedging on the unimportance of establishing the less regulation -> growth causality before that.
— Dwight · Jan 13, 08:40 PM · #
“between social cohesion and deregulation can be resolved.”
Except that nothing Dr.Manzi has offered as solutions in any way mitigates the fail of social cohesion.
His immigration recruitment is unworkable, his education solutions are perfect pre-failures unsubstantiatiated by a nano-particle of data, and we have already tried “Trickle Down” and supply-side economics.
How is deregulation not simple supply-side economics?
White christian conservatism has dug us into a deep enough hole that social democracy may be the only way out.
Give us a social cohesion solution that is not a social democracy , Dr. Manzi, and your next post might be worth reading.
— matoko_chan · Jan 13, 08:40 PM · #
Chet, I didn’t see the double-post at first, so I didn’t have the context for your disapproval. I understand now. As far as my approval is concerned, Manzi’s “Europe” reference was so patently flawed that his justifications are no longer of interest to me. His criticism 3 at least approaches a mea culpa for the way he “established” the premise of his original piece.
Still Jim, you state that it’s unnecessary to justify the link between less regulation and anything for the purpose of your piece…so why try? In providing a fallacious justification for the link and proceeding to treat it as commonsense thereafter, you compel a shift of the focus.
— Dwight · Jan 13, 09:17 PM · #
Krugman and most of the commentators miss the interesting point (Krugman deliberately and dishonestly, others maybe more innocently), at which Mr. Manzi sort of points. Standard development theory and history from 1945 to 1980 suggested that other countries would continue to gain on the U.S. in per capita GDP and eventually reach comparable levels. But something happened, such that Western Europe and Japan stalled out at per capita GDP levels 25% lower than the U.S. What is the explanation? At the very least, this phenomenon is hardly an argument in favor of the European-style policies that Krugman advocates.
— y81 · Jan 13, 09:37 PM · #
In Manzi’s defense again, since people best vote with their feet, let’s try this:
Since 1990 or 2000 (or pick a better cut-off date), and including only UK, France, Germany, Italy, Spain, Portugal, Greece and Belgium –
(% of European immigrants moving to the US) v (% of US immigrants moving to Europe)
— t2 · Jan 13, 09:40 PM · #
Even after a double-posting of another lengthy EDGE defense this earlier comment still applies:
“You article was obviously successful in that it got a lot of people talking, but I see it as a starting point. As I’ve said over and over again, you made two big ideologically-based assumptions. To go forward (as you seem to be doing in a book?) I really, really think you have to prove or disprove your assumptions (to the level that they can be proved or disproved) and go from there. You wrote a post criticizing the field of economics for not being rigorous enough, but in my opinion, you haven’t been rigorous enough in your current article to do more than start a conversation.”
— cw · Jan 11, 02:04 PM
— keatssycamore · Jan 13, 10:00 PM · #
Monica C Bob J Onno Frowein
Countries like Poland and Hungary were part of the eastern bloc twenty odd years ago and are still very backwards economy-wise and this has obvious effects on the gdp, productivity numbers of europe as Manzi is defining it. West Germany absorbing East Germany by itself was the equivalent of the US absorbing Mexico. If the US had absorbed Mexico twenty years ago then GDP per capita etc. would have dropped somewhat, wouldn’t it? If you take out former communist bloc countries from what Manzi is calling “Europe” and compare Germany, France, Italy, Britain etc. by extrapolating their numbers then you’ll see similar or better economic performance.
And we don’t pick up any tab for defending Europe. European economys spend about 1% of gdp less than the US does, no real huge difference.
— hal · Jan 14, 05:13 AM · #
n/e ways correlation is not causation.
what if America’s “Edge” just comes from virtualized chattel slavery of minority citizens and souless rapacious exploitation of third world resources?
I see no hard data to support your thesis.
— matoko_chan · Jan 14, 05:06 PM · #
Jim, was reading Mancur Olson’s Logic of Collective Action along with Jonathan Rauch’s Government’s End. Wanted to deposit this little bit of insight to see what you think:
At first glance, the significance of this “directionality” appears to be its negative effects on innovation and growth. Rauch put it in Government’s End (citing Olson), “The very direction of society’s evolution may be deflected away from productive activity and toward distributive struggle.” He goes on:
Worth noting. What look like policies of cohesion in the short run can lead to instability and crisis in the long run.
— Kristoffer V. Sargent · Jan 14, 07:17 PM · #
who know?
the second law of thermodynamics applies to economies and cultures and societies.
lol.
— matoko_chan · Jan 14, 08:03 PM · #
Oh God will you please STOP TALKING ABOUT THIS STUPID ARTICLE?
— Ray Butlers · Jan 14, 08:15 PM · #
Once upon a time, the Manzinis would have thought it important to distinguish the command economies of Eastern Europe from the market economies of Western Europe. These days Manzini only finds it useful to note that they are all different from the US and ignore the important differences so he can attribute all differences to social-welfare policies.
Second, Manzini attempts to save his argument from the criticism that the change in GDP closely tracks the change in population with the highly hypothetical proposal that US GDP would have been lower if we’d had more welfare policies. And maybe the US had higher population growth because we had poorer welfare policies! (Hi, honey. Let’s pack up the family and move to a place where we can’t get healthcare for the kids and parents rather than a country where we can!) Maybe the moon really is made of green cheese, but it’s covered with a thin layer of rock so you can’t tell.
It was just a bad analysis – admit it and move on.
— ItOnlyStandsToReason · Jan 14, 09:32 PM · #
I can’t stand Chet, and I think the article is valuable in other respects, but I really do have to say that Defence #2 is extraordinarily weak. Even if we accepted that Eastern European economies are enough like Western European economies today to group them together as against the US model (which I think is wrong, but possibly within the universe of arguable propositions), GDP statistics in the Soviet bloc in the 1970s were totally fictional and the subsequent collapse up to the mid-1990s cannot be attributed to any kind of social democratic model. Unless you want to go all the way with the John Birch society and other crazies and deny any difference between social/christian democracy and communism.
You obviously don’t want to take that route because you want to be taken seriously by people on the centre and left. But that’s where you are.
If you just wanted to say the US model is better at integrating immigrants than the Western European model, you’d have a point (although you’d need to address Canada). But the fact that the DDR’s economy collapsed just is not relevant to any reasonable political point you might want to make.
— Pithlord · Jan 14, 09:43 PM · #
“I really do have to say that Defence #2 is extraordinarily weak.”
And I think your post is an extraordinarily weak rebuttal of that defense. As Manzi has pointed out repeatedly, you get the same basic result for any reasonable definition of “Europe,” including one that completely excludes the Soviet bloc of the 1970s.
— Jerry · Jan 14, 10:31 PM · #
But Manzi is wrong. That’s repeatedly been pointed out.
— Chet · Jan 14, 11:26 PM · #
Jerry,
That’s not what Manzi says in Defence #2. He says Eastern Europe is close enough to Western Europe to throw them in the same basket.
— Pithlord · Jan 15, 12:02 AM · #
“But Manzi is wrong. That’s repeatedly been pointed out.”
No, he’s not wrong. This has been pointed out to you repeatedly.
— Jerry · Jan 15, 04:42 AM · #
“That’s not what Manzi says in Defence #2. He says Eastern Europe is close enough to Western Europe to throw them in the same basket.”
Yes, I know. And you’re saying that GDP data from Eastern Europe from that time period is not reliable. And I’m responding that your objection doesn’t matter to his point, because the decline in Europe’s share of global GDP is clear even when “Europe” is defined to include only the EU15.
— Jerry · Jan 15, 04:47 AM · #
It’s been asserted repeatedly, but you’ve presented no argument or evidence to that effect. There’s a pretty comprehensive refutation of this post in its duplicate, the immediately previous thread. Maybe you could address it? Manzi can’t or won’t, it seems.
— Chet · Jan 16, 10:41 PM · #
Ditto Chet
— Ray Butlers · Jan 17, 09:03 PM · #