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22 October 2010

Krugman Claims Europe is Economically Successful, Proving Socialism Works

Paul Krugman says:
Europe is an economic success, and that success shows that social democracy works.
Since 1980 -- when our politics took a sharp turn to the right, while Europe's didn't -- America's real G.D.P. has grown, on average, 3 percent per year.  Meanwhile, the E.U. 15 -- the bloc of 15 countries that were members of the European Union before it was enlarged to include a number of former Communist nations -- has grown only 2.2 percent a year.  America rules!
Or maybe not.  All this really says is that we've had faster population growth.  Since 1980, per capita real G.D.P. -- which is what matters for living standards -- has risen about the same rate in America and in the E.U. 15:  1.95 percent a year here; 1.83 percent there.
Seems interesting and perhaps surprising, but wait.  Think about it.

First off, in 1981, not 1980, we stopped moving deeper into socialism, but we did almost nothing to reverse it.  In 1988, we restarted our momentum down the socialist path under the first President Bush with President Clinton and then the second President Bush continuing the slide into the numbing clutches of socialism.  We now have the highest corporate tax in the world, excepting Japan whose corporate tax will be lower than ours starting in 2011.  Meanwhile, many of the European countries have been reducing their corporate taxes and many other business taxes.  Some have adopted flat rate income taxes with growth rates increasing as a result.  Many of the nations have returned state-run enterprises to the private sector.  Yes, there are many legacies of socialism in Europe and yes, they are still enamored of it in many ways.  At the same time, they have come to understand that there are economic penalties associated with it and they have backed off from socialism somewhat. The effects of the long term legacy of socialism are stronger in the comparison between the U.S. and Europe than have been the effects only compared in the window since 1980 as Krugman does.

There are other problems in the comparison.  One is that our population growth is not just a variable in need of correction.  It is due to Americans having a more positive view of the future, which the socialist environment seems to kill off.  This makes it more tempting to have children.  It is also due to the fact that we allow very high levels of immigration to the U.S. and many of our immigrants are very poor as they begin their life here.  Many take years to learn the skills that native Americans have.  But, let us leave this caveat aside and look at the more meaningful per capita GDP numbers corrected for Purchasing Power Parity (PPP).  This information is available at a Blog called Political Calculations in a post entitled Battle of the Titans: U.S. vs E.U. GDP per Capita, 2008.

We find there that:

United States 2008 GDP-PPP is $45,588.10

European Union 2008 GDP-PPP is $31,182.49

The U.S. beats the complete E.U. by miles and miles, or more than 46%!  But this is not what Krugman was comparing.  He left out the newer members of the E.U. to exclude those most hurt by their prior experience with socialism.  So let us look at the results on a country by country and a state by state basis while ordering them together, with the E.U. countries in red (note that Norway and Switzerland are not E.U. countries) in the table at the end of this article.

Luxembourg does well and beats the U.S. average, but it comes in behind the District of Columbia and has a bit less than half the GDP-PPP of D.C. and it has a smaller population, so it does not raise the E.U. result relative to the U.S.  The next country on the list is Ireland, which comes in just behind the U.S. average of $45,588.10 with $45,475.12.  Then the Netherlands and Austria manage to beat 16 states.  Sweden, which has made a strong reversal of its socialist model lately, beats out the nine poorest U.S. states, but loses to the Okies!  The United Kingdom only beats seven states, finishing behind Montana.  Germany beats only five states and loses to Alabama.  France and Italy can only beat Mississippi!  None of the other countries of the E.U. can beat any state of the U.S.

So despite the fact that many of the European countries have been backing away from socialism and the U.S. has been moving deeper into its clutches, the standard of living in the U.S. is clearly much higher than that of Europeans with their long history of embracing socialism, even gussied up as social democracy.  The upcoming election should slow down our present slid deeper into the quagmire of socialism.  As the table below makes clear, you have to weigh a horror of seeing anyone around you who is better off materially than you are very heavily to find any reason to think socialism will give you a higher standard of living.  I do not believe any thinking Americans really want to trade places with European countries on this list and we should be able to agree that the Paul Krugman claim is false.

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