Why Can’t the U.S. be more like Europe?

My friend and esteemed blogosphere colleague, Cory Heidelberger, thinks that the U.S. should be more like Europe, economically. This may explain why he takes the sovereign debt crisis a lot less seriously than I do. I will confine myself here to the arguments that Cory presents.

The most significant argument concerns economic mobility. Here is Cory's final point:

Europeans enjoy more upward mobility than Americans: "…42% of American men who grew up in households in the bottom fifth of incomes stayed there as adults. The comparable figures for Denmark (25%) and Britain (30%) demonstrate the point."

This is based on a recent New York Times article by Jason DeParle.

At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jantti, an economist at a Swedish university, found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25 percent) and Britain (30 percent) — a country famous for its class constraints.

The DeParle article provides a helpful chart.

The chart does illustrate the dismal finding that someone born in the bottom quintile is more likely to end up there than is the cased in Demark. Otherwise, the stats are very nearly the same across the board. Danes in the top quintile are as likely to remain there as Americans similarly fortunate.  I would note also that in the U.S. as in Demark, most folks do not end up where they began, which is to say that economic mobility is higher than it was for almost all human beings who have ever lived. 

The one really significant column on the chart is worth worrying about, but it is important to note that these are matters of relative standing. One could, for example, move up one quintile while actually suffering a loss of income, if the income decline were worse for other sectors.

Adam Davidson, the founder of NPR's Planet Money, also has a piece in the New York Times and it tells a rather different story.

G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe's best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America's poorest state. She's right: the comparison isn't fair. The average Mississippian is richer than the average Greek.

The U.S. generates more wealth per capita than Europe and more than Europe's best-performing nation.

Which problem would you rather have: a significantly better chance of improvement for the lowest quintile of the population when each fifth takes its cut from a diminished pie, or a richer nation overall where folks in the lowest quintile have a harder time getting out? Either problem desperately needs addressing, but I would prefer to address the second one.

In fact, the situation of Europe is much more interesting than Cory imagines.

Just as the U.S. was dismantling much of its welfare system — replacing it with the welfare-to-work reforms of the mid-1990s — Europe was (somewhat nobly) trying to show that an economy can be humane and competitive. In 1994, Denmark modernized a system, which came to be known as "flexicurity," that offered American-style flexibility (layoffs, transitions into new lines of business) coupled with traditional European security. Laid-off workers were offered generous benefits, like 90 percent of their last salary for two years and opportunities to be retrained.

And it worked incredibly well. After Denmark's unemployment rate sank to among the lowest in the world, the flexicurity model spread throughout Europe. It has been successfully implemented, in locally appropriate ways, in Norway, Sweden and Finland. But in other countries — like Germany, France and Spain — similar reforms faced stiff resistance from workers who preferred the old way.

Several countries applied the measures in a two-tier system: people who already had jobs were protected by pretty much the same old rules, while the unemployed — who were often younger — were offered less secure work at lower pay. Greek unions insisted on so much security and so little flexibility that now the country has neither. Flexibility has done little to help Italy, which remains effectively two countries. There is a rich nation in the north where workers earn great salaries in highly productive and competitive industries; many people south of Rome are living in a broken, developing economy that's considerably poorer than Greece.

Maybe we should be more like Denmark, but Denmark owes its relatively successful economic model to a very deliberate attempt to become more like the U.S. Meanwhile other European nations try to solve their problems by continuing to shower benefits on those who have jobs while denying them to those who seek them.

Europe's economy is much less efficient than that of the U.S., and that means less wealth to distribute, however you manage to distribute it. As DeParle notes, four out of five Americans are richer than their parents, something that European nations do not bother even to track. The idea that the European economies are fairer than the U.S. economy is flatly false. North African immigrants to Europe have much higher unemployment rates than the established populations, and much higher than for immigrants to the U.S. Whatever model we should imitate, this isn't it.

I'll consider some of Cory's other claims in another post.

Comments

[Stan Gibilisco]

On this issue, I have mixed feelings. (But then, I have mixed feelings on most issues.)

I made a couple of comments on Cory's blog for the relevant post.

Let's have a good long discussion about this issue, Ken. I suspect that as time goes by, we'll evolve into a more European-style model because we'll have more and more aging baby boomers to take care of.

But which European country do we want to evolve toward, if we inevitably must go there?

For my part, I plan to take care of my own doggone self as long as I can. If I'm lucky, I'll be like my mom and dad who, at age 88, both still enjoy volunteer work.

One thing remains clear to me: We, as a people, and individually, must learn to live within our means. Otherwise, no socioeconomic system will work for us, now or ever.

[larry kurtz]

Depends which country on the European continent. Maybe the US should be more like Australia:

http://www.dailymail.co.uk/news/article-2083914/More-Australians-marijuana-nationality.html

[Jimi]

Stan,

Why must we shift to European Socialism? There is no need....it would be taking steps backwards to do so, not forwards.

[Jimi]

In my experience....those who advocate a deeper shift to a European Style Socialism more than we have already sacraficed, have never been there long enough to experience why it is such a horrible idea. They also seem to have trouble understanding the fundamental idea of scale.

Do they not ask themselves why creating the European Union seemed to put the system at risk instead of strengthening it? It is one thing to have small country's with strict economic, labor, and immigration rules and point to them and say "Wow...looks like they are doing pretty good," and maybe they are, but looks can be deceiving. They may look good on paper, but that doesn't really mean it is the reality. Most of the Europeans do not know any other way.

But it is another thing to shift a country the size of the U.S. with all of it's diversity and freedoms and expect better results while maintaining the standard of living we enjoy in the U.S.

I submit that if that is the end game goal, to shift the U.S. to a more pure socialist system....Freedom, Individualism, and the standard of living will all have to be sacraficed to do so, and to be quite frank, once Americans get a taste of it, they will roundly reject it.

[Stan Gibilisco]

Jimi,

Actually I don't want to shift towards the European way. I do think we have to keep in mind that forces in our society are propelling us in that direction, sort of like a rip current in the ocean. I do agree that once Americans get a taste of that stuff, they'll spit it out. Unfortunately, we may have to sustain some real damage in order to learn the applicable lessons -- real and, perhaps, irreversible damage.

On one score I'm pure socialist: medical care. I wrestle with that conflict from time to time ... pretty soon I'll be on Medicare anyhow. (Yes, it will continue to exist, at least for people over 55 today. I can't think of a better way to start a civil war than to take existing Medicare away from old people.)

[lynn]

Stan, no one is talking about taking Medicare away from those of us over 65. However, the soundbite of the Reps pushing granny off the cliff is the only thing that Dems talk about if SS reform is mentioned. They fail to mention that if nothing is done, many of us over 65 will lose some Medicare. They also fail to mention that Obamacare will result in less doctors, cuts to Medicare funding, less doctors willing to see Medicare patients, and therefore loss of service to those of us over 65.

If it does happen that Obama is given another term and he really lets loose to "fundamentally change America" even more so than he has thus far, we may lose enough of our freedoms that we can't get them back. This is my worry. We will then be like Europe, and when people wake up and wonder what happened, it will be too late to undo the damage. That is why this election is so crucial and that the GOP choose a candidate who will truly honor his promises and undo the damage that O and his cohorts have foisted on us. I am not advocating any particular candidate here; I just want one who means what he promises.

[Mark Anderson]

I would imagine that the GDP would be much closer if we keep the ultra-rich like Romney out of the loop. We work about 300 more hours per year. Europeans get much more vacation, it's comparing apples and oranges. If what we do is so great in comparison, why don't the Europeans want our "freedom". There are many things we could look at that Europe does rather than the simple anti-europe bull that is slung by Republican presidential candidates. They pretty much lie about everything Obama wants. To say that Obama is a socialist is actually pretty funny when you really look at it.

[Clive Holland]

As someone who has studied Information and Resource Management I can assure anyone that any kind of stats based on unemployment, gdp or crime for that matter are basically a fabrication. Fundamentally we are asked the right questions to profile the right answers. If the result doesn't fit it will be made to. For a fact, having visited Norway, Denmark and Germany the first two are visibly poorer than Germany. I would also question how the US can generate more wealth than Europe as you (and ubfortunately here in the UK) have ravaged your manufacturing industry. Not so with Germany. They still follow common sense economic principles and are a European powerhouse of creativity. I wish to God the British would stop trying to copy the US and realise that American principles of economics have been making both our Nation's poorer for the last thirty years.