Will turning the U.S. into Europe save our economy?

by philg

Let’s look at what the U.S. government has been proposing to do in response to the collapse of 2008…

  • extend unemployment benefits and other payments to people who don’t work
  • expand government spending as a percentage of GDP
  • increase taxes, starting with folks who have higher incomes
  • offer universal government-paid health care
  • make it easier for workers to unionize

Will this work? Let’s consider the Western European countries. They all have lavish unemployment benefits, high government spending, higher taxes on high earners, taxpayer-funded universal health care, and powerful trade unions. They long ago achieved everything that our current president and Congress are trying to achieve. How are the Europeans doing? The S&P 500 is down 48.76% from a year ago; the FTSE Eurofirst 300 is down 49.11% (source). Our unemployment rate is 8.1%; France and its overseas departments have an unemployment rate of 8.2% (source). France is supposedly the healthiest of the European economies.

24 thoughts on “Will turning the U.S. into Europe save our economy?”

  1. You also need to look into things like quality of life – health, leisure, housing etc.

    Unemployment rates have also been screwed with so much by various governments so you have to check the same thing is being measured.

  2. I would add one more to your list:

    What about 4-day work week to help solve the unemployment problem? France has done that. Will it work here in the US?

  3. Phil: I recall that a while back, you suggested that Obama was ultimately going to configure himself so that when he left office, he would be embraced by those with “higher incomes.” Since that time, he has raised his tune about taxing the rich, expanding government and taking other steps to crush small business, such as increased payroll taxes and mandatory payments for government-paid health care. Obama is smart, he is no doubt aware of the fact that his model follows that of Western Europe. Are you still convinced that he is interested in advancing capitalism and our current free-market economy or as you now correctly noted, he would rather implement his policies of socialism (more government), and that he could care less about the S&P (down 48%) and private sector unemployment (since he believes government should ultimately provide jobs), etc.

  4. Ref: [Europe] “They long ago achieved everything that our current president and Congress are trying to achieve.”

    *Incorrect*. Europe has no military to speak of (at least not in a “world fighting force” context). No world-class space program. Both stupendously expensive.

    Arguing whether or not the USA “needs” these programs is another matter altogether.

    Regarding “universal medical care” please do not use Germany as the example (med-care in Italy is horrid). Poland “3rd world”.

    Within the EU (per last weeks Economist) the worst is yet to come. In the EU, rich-members lent freely to poor-members, this bill is coming due, there is literally zero hope the borrowers will do anything but default. The EU is looking at disaster.

    Unemployment: The way the USA calculates unemployment is a joke (literally “survey”). People with exhausted benefits simply “dropped from the rolls” (i.e. unemployment here much higher than 8%). I do not know the EU calculation mechanism, but in comparison I do know the unemployment data not “normalized”.

    In 2005 I wrote a major research paper on France vs. USA [Aerospace Corp ATM-2005-(8583-01)-2]; by any standard, “Impressive place” considering (CIA Factbook) it’s only the size of Texas.

  5. What one country calls unemployment isn’t the same as what another country calls the unemployment.

    In many European countries unemployment counts all the people who get paid unemployment. In many cases this is close to what the US numbers count, but, since benefits go for a long time in most European countries the long term unemployed count in the rate. One is no longer ‘unemployed’ in the head-line rate once your benefits run out.

    The BLS (http://www.bls.gov/news.release/empsit.t12.htm) has a load o’different numbers. The U6 number describes what many European countries would call unemployment. For those of who who didn’t click on the link the U6 number is 15.4 for Jan and 16 for Feb.

    Also not all European countries have government paid health care. I pay $200/mo for an adult and $100/mo for a child for my health insurance. It is not subsidized. The Drs office bills me directly, and, a typical visit of 20 mins for one of the kids is $50-$100. I pay this and then send the bill to the insurance company and they reimburse me. This process involves me writing my insurance policy number on the front of the bill and dropping it in the mail, ie, 30secs of time. The birth of the last child was $3000 in the hospital. I choose my health insurance company and also my Dr. Now, while this is not subsidized, it is regulated.

    If one is poor enough to not pay your health insurance then my tax dollars (well, CHFs) will subsidize ones payment.

  6. Is there an example of a country doing the opposite of us that is doing well? It seems like every country is doing bad right now.

    -Dave

  7. The French economy “supposedly” the healthiest? I’d like to know where you got that from! It’s true the France isn’t the country worst hit by the recession, but it really has its problems – especially from an economically liberal view.

    There is no US of Europe and thus you shouldn’t look at Europe as a country. All the “new members” of the EU have problems (some huge), not to forget Greece, Italy, Spain, Portugal, Ireland and the UK. (Assuming that FTSE Eurofirst 300 incudes those.)

    What about Switzerland, where several cantons have a low flat rate tax? The unemployment rate there is 4,3 %? Or the Nordic countries, especially Norway, with its high taxes, a lot of state funded social services, but an unemployment rate of 3,0% and a higher GDP (PPP) per capita than the US and also the best country to live in according to the UN (since Iceland, of obvious reasons, will loose its first place.) Or the Benelux countries – especially Luxembourg with the second highest GDP (PPP) per capita in the world, only second to Qatar?

    (Of course, by “saving the economy” you mean pleasing the investors…)

  8. It’s not the french economy that’s healthy, it’s the french people….

    I agree with the others that you can’t measure a country’s success by economic output only. You have to look at other things, like human rights, the environment, education, happiness, health….

    It’s also hard to compare the US with Switzerland (which gets a lot of money from tax evaders) or Norway (which has vast reserves of oil).

  9. 1. In the rest of Europe, France considerd the sickest rather than the healthiest European nation. (not to mention Italy or Greece …)

    2. If I thought of a European country with a welfare/social state that really works, I would rather mention Sweden ( or perhpas Netherlands.)

    3. The real problems with this kind of ‘European’ state is – mounting national debt,
    -miserable chances for young people to get a normal job
    – lots of people survivng on welfare …
    I have a young French friend who emigrated from France first to Belgium , and later to the Czech Republic as he could not find a suitable job in France …

    4.On the other hand, it is not so bad to live in a place where you don’t have to worry about medical expenses once you lose a job, cost of college education etc.

    5. Obama’s policy, if implemented, may work in the short term, but will probably be a disaster in the long term. It took Great Britain about 35 years (Attlee-Thatcher) before they were able to reverse the worst socialist policies that were crippling their economy.

    ( I am from Europe, Czech Republic)

  11. Well, if the US has the same unemployment level as France, the real question is…

    Imagine that YOU are one of those unemployed. Would you rather live in a country (like France) that has the type of social services in place that can help you survive this economic storm, or would you rather be hung out to dry and left to survive on your own (like Republicans are proposing)?

    People suggesting otherwise need to experience having all their money disappear (a la Madoff) or losing their only source of income. I think you’ll find their perspective change quite rapidly.

    It’s easier to be a right-wing ideologue if you have a high-paying job or pile of money to feed off. Take those things away and you’ll see where those ideas really take you.

    Don’t get me wrong. A job is always better, because if someone is receiving income without doing something for it, half the benefit is lost. Roads/infrastructure need to be repaired anyway, so better to spend gov’t money to get that done now, when the economy can benefit from the boost.

    Countercyclical economic policy is logical and saves a lot unnecessary suffering, at really no cost. The work needs to be done anyway, why not do it when there are more people unemployed/available to do it (now), and when it has the most beneficial impact on the economy (also now)?

  12. Edgar: Countercyclical spending in infrastructure, e.g., congestion pricing for our road network, might make sense, but most of the changes being wrought aren’t related to that. Increasing the percentage of American workers in trade unions, for example, is great for those workers who currently have jobs but it does tremendous harm to young people who depend on new jobs being created for them. A permanent increase in tax rates, as is being implemented by Congress, makes the U.S. a less attractive place to invest and do business.

  13. Paul, it is hard to put the military and NASA under the same breath considering one is about two orders of magnitude bigger. Closing NASA wouldn’t cover just California’s deficit.

  14. philg: Do you oppose trade unions altogether or just when the unemployment rate is high?

  15. Joe: As noted in my economic recovery plan, I oppose government employee unions. It is unfair for a Walmart clerk to pay high taxes so that a government worker doing a similar job can get paid 2-3X as much and retire 20 years earlier.

    I am not an expert on private unions so it is tough for me to balance out the good (check on abusive employers, who definitely have more power than an average worker) with the bad (helps older richer workers at the expense of younger poorer workers; hurts minorities (companies would prefer to hire a discriminated against minority because they can pay him less; unions often allow a group of white workers to exclude non-whites from their club); may hurt the country overall as businesses move factories offshore).

  16. Sweden has some serious problems right now. SAAB may not survive. The Swedish Krona has lost almost half its value to the USD over just a few months. France, on the other hand, is holding up much better. Heck, when compared to the UK and Spain for example, France is looking pretty good.

    Also, it is not fair comparison to claim that the US unemployment rate is the same is an Europe. Once someone is not applying for benefits here, they all of a sudden do not get counted. In Europe they would still get counted (or at least for a much longer time).

  17. Simone: An American who is looking for work is counted as unemployed. He or she need not be applying for or receiving unemployment benefits. One notable case would be a young person who had never held a job. He or she would not be eligible for unemployment insurance, but if he or she were actively seeking employment, would be counted as “unemployed”. When a potential worker becomes “discouraged” and is no longer seeking a job, he or she is no longer counted in the most commonly quoted statistic.

  18. Indeed, the US will turn into France, without the good food, without the excellent transportation system and without the good looking women. Sounds pretty lousy to me.

    As for Roger’s comment regarding “the quality of life – health, leisure, housing etc”, the quality of life is worse than in the US. Very large number of people are smoking, the leisure is truly expensive (e.g. things like renting a car cost twice as much) and housing is incredibly expensive.

  19. I expect to see homeless people in the USA, but I am surprised by the presence of homeless people in France, given the social support that I am told is available. Can someone explain this? Is it a problem of rationing limited housing resources?

  20. matt: the social welfare systems are by far not as effective as people think (but they are very costly) … it seems to me from aFranch TV show I saw that even middle-class, educated French people have problems getting a place to stay (…)

  21. [edited for thinkos]

    You previously discussed the government manipulating unemployment counts so the actual unemployment rate is several percentage points higher than the quoted figure:

    http://philip.greenspun.com/blog/2008/04/23/cooking-gdp-unemployment-and-inflation-numbers/

    If so, then maybe France did get some of its domestic policy right, and, even if not, it sounds like the changes won’t hurt. Maybe the US Air Force should stop buying AirBus products.

    http://www.msnbc.msn.com/id/23413217/

  22. @philg:

    When I was an American just-graduated from college looking for a job, no official statistics-gatherer counted me in any way that I could perceive. Whereas when I received unemployment benefits years later, at least the state knew that I was unemployed while I was receiving them.

    So how do U.S. unemployment stats supposedly include unemployed people who *aren’t* receiving unemployment benefits? Unless someone can specify a plausible mechanism, you should consider whether it’s true or a fairy tale.

  24. So our economies are in the same state as yours’ AND we’ve got all these better benefits…I’d say you’re answering your own question there.

    And ours’ here in Denmark is in better shape than most. We’ve got not foreign debt for a start. We’re even in credit. And I pay 38% tax as an ordinary hospital worker. We have the highest levels of taxation (at least until next January) in the world. Higher even than Sweden (at least we can beat them at something). There’s a tax reduction coming in January, yet an opinion poll last year showed that most Danes would rather it stayed where it was, to protect the welfare state. It just happens that we’ve got a conservative government who want to reward their mates in the upper tax brackets…

    …hmm, sounds familiar…

Comments are closed.