Here are two unsettling slides I made for a talk. Here is GDP per capita in US, UK, France and Italy and China (2020 dollars, source world bank)
To make the comparison easier, here is each country not including China, divided by the US:
Here are the 2019 numbers (in 2019 dollars, again World Bank) US: $65,297. UK $42,330. That's 35% less than the US. Or, the US is 54% better off than the UK.. France: $40,494. Italy: $33,228 That's 50% less than US. Or the US is 96% better off than Italy. China: $20,261.
And it's been getting steadily worse. France got almost to the US level in 1980. And then slowly slipped behind. The UK seems to be doing ok, but in fact has lost 5 percentage points since the early 2000s peak. And Italy... Once noticeably better off than the UK, and contending with France, Italy's GDP per capita is now lower than it was in 2000.
GDP per capita is income per capita. The average European is about a third or more worse off than the average American, and it's getting worse.
What the heck happened? It could happen here too. Maybe it already has, just not as bad.
This should be profoundly unsettling for economists. Everyone thinks free trade is a good thing. The European union, one big integrated market, was supposed to ignite growth. It did not. The grand failure of the world's biggest free trade zone really is a striking fact to gnaw on.
Sure, other things are not held constant. Perhaps what should have been the world's biggest free trade zone became the world's biggest regulatory-stagnation, high-tax, welfare-state disincentive zone. Still, "it would have been even worse" is a hard argument to make.
Economists haven't been talking about Eurosclerosis for a while but I think we should.
These are huge numbers. The worst estimates of climate change are 7% of GDP in 2100. And those are surely overstated (see the excellent new paper by José Luis Cruz and Estban Rossi-Hansberg) You may admire the NHS for saving money, but even if the 20% of GDP we spend on health care is totally wasted, we're still ahead. Lots of people admire the European model. Just how far Europe is behind the US is remarkable -- and getting worse.
These are interesting points and I appreciate your willingness to question your own frameworks. To push this a bit further, though, picking up from your last sentence: output per capita is (trivially) not identical to welfare, and it seems particularly unsuited to questions like “which health system is most efficient and/or welfare-maximizing” with respect to the actual proximate output of that system, namely health outcomes. In that respect the “free trade zone” of US health care comes out abysmally, perhaps even worse than Europe’s GDP numbers (especially on a spending-adjusted basis). US life expectancy, after reaching parity with the three countries in your plots in the late 70s, is now up to 7% behind them and declining on an absolute basis over the last 15 years (https://fred.stlouisfed.org/graph/?g=BAky). (The picture is even more depressing relative to China and the rest of the world, both of which are on pace to eclipse the US within the decade.) Of course this does not mean the picture is “better” for the European free trade zone as a whole given that the proximate outcome there is what you plotted. In both cases the picture is not pretty.
ReplyDeleteIt is common to believe this: "it seems particularly unsuited to questions like “which health system is most efficient and/or welfare-maximizing” with respect to the actual proximate output of that system, namely health outcomes. In that respect the “free trade zone” of US health care comes out abysmally."
DeleteBut it is not accurate. Yes, US healthcare absorbs an enormous proportion of its economy, but it is in fact very efficient at curing people. Data from the OECD show that outcomes of major illnesses in the US are better than the OECD averages almost across the board and are often at or near the top of the rankings. (see link at bottom of comment)
If medical care "efficiency" in terms of major disease survival were the measure, the US would come out very well indeed. It surprises me that almost no one mentions this, when the data are not that hard to find.
"Health at a Glance: OECD Indicators":
https://www.oecd-ilibrary.org/docserver/4dd50c09-en.pdf?expires=1614895230&id=id&accname=guest&checksum=1BDC218BD356BDB3475BE1F29B49B53A (see chapter 6)
Thanks for the comment. Unfortunately your logic makes little sense here. You’re correct that the US’s health outcomes for major illnesses are perfectly fine conditional on treatment. But “conditional on treatment” is doing a lot of work there: many can’t afford it. Indeed your own OECD Indicators link provides good evidence of this; for example figure 3.9 shows that mortality for treatable causes in the US is worse than the OECD average, which should frankly be embarrassing. (Presumably your argument is that the horrible health outcomes in the US arise from poor population health; while this is part of the story — see the first half of that same figure — it’s not the full story.) Of course at an even more basic level, the fact that the US’s off-the-charts prices and health spending are buying us basically the same (actually slightly worse) outcomes as other rich countries *even conditional on care* means that your argument is as flimsy as our third rate health system. I sincerely hope a bout of unemployment-induced lack of insurance results in you finding this out the hard way.
DeleteI don't know the answer, but I congratulate John Cochrane on asking it.
ReplyDeleteOne might want to check GDP per employee, rather than per capita.
Also, perhaps Europeans have cleaner air, or shorter commutes, or nicer parks than 40 years ago, things which do not tend to get captured in the numbers but can improve the quality of life. Perhaps even better health care.
I would like to see Germany added to the chart. They have become an exporting powerhouse in the last 40 years---has that helped the Germans?
Also, look at Greece. Their economy shrank by 25% after the Global Financial Crisis and never recovered. Whatever wrong is, they (or Europe) is doing it wrong to Greece.
well, cleaner air, nicer parks, shorter commutes would have been reflected in the gdp growth at least to some extent. improvements require either investments or volunteers.
DeleteMight it not harm GDP if it means fewer or smaller auto purchases, fewer auto repairs and parts purchases, less gasoline volume purchased?
DeletePlease check the facts of European economic integration. France and Italy signed the Treaty of Rome in 1958. Its main point was the creation of the custom union, which was finally created in 1968. Your graph suggests that this process has be accompanied with a lot of economic growth in these countries. The more recent decline relative to the US must have other reasons than free trade.
ReplyDeleteI don't agree with the sentence "Perhaps what should have been the world's biggest free trade zone became the world's biggest regulatory-stagnation, high-tax, welfare-state disincentive zone." The EU didn't become like that: the individual states were already like that well before. If anything the EU has brought about some liberalizations, but unfortunately not enough of them. Take my country of origin, Italy: decades of currency devaluations, high inflation, high deficits, high taxes, high subsidies, invasive industrial policy, pervasive bureaucracy, corruption, state-owned and municipality-owned banks and companies have left the country with a low productivity low innovation state-dependent private sector. As large portions of manufacturing production moved to Eastern Europe and China, the Italian private sector struggled to move to higher value-added activities. Italian banks and their regulator have been heavily influenced by politicians: politically-motivated poor lending decisions lead to high loan defaults, which were covered up by Italian regulators, until the EU regulator came in and uncovered fraudelent behaviours. The Italian state instead of supporting innovation by liberalizations keeps intervening in the economy by trying to find more innovative (pun intended) ways to support and save companies in declining industries, as state interventions are mostly forbidden by the EU. All major Italian political parties from left to right think that constant state intervention in the economy and large deficits would make Italy grow. If it wasn't for the EU, I think Italy would be in a much worse state: none of the problems of Italy come from the EU, which has actually put a break to some of the worst Italian policies.
ReplyDeleteOf course the EU could be much better, there is no denying that. But I think the EU has become a scapegoat for issues that would be even more present without it.
An interesting book on Europe vs the US is the following one by economists Alesina and Giavazzi:
https://mitpress.mit.edu/books/future-europe
1) Are these numbers adjusted for PPP?
ReplyDelete2) Why assume that the EU is a source of the malaise, rather than general anti-business policies driven by decades of left-leaning governments?
Also, why look at GDP per capita, rather than GDP per worker or even more accurately GDP per hour?
ReplyDeleteIndeed, looking at GDP per hour worked gives some explanations away. US around 72 $, Germany/France around 68 $, UK around 58 $ (OECD numbers: https://data.oecd.org/lprdty/gdp-per-hour-worked.htm)
DeleteSo you could say that some countries made the choice, explicitly or implicitly, to work fewer hours. Of course this could be because of "anti business measures", or maybe that's just a society choice.
It is a bit worrying that France/Germany productivity has flatten compared to 15 years ago (both were above the US around that time).
Interesting post.
ReplyDeleteMaybe there was too much unhealthy deregulation in the US? Thus, it would be interesting to see whether non-EU advanced economies (Canada, Australia etc.) could narrow the gap over the last decades.
Is this really a blogpost from a top economist? Cherry-picked data, selective choice of countries, no reference to hours worked, workforce participation, allusions to causal explanations without any substantiation...
ReplyDeleteJohn, I'm sorry but you are better than this.
This is designed to spark additional conversation, not definitively answer a question in a refereed journal.
DeleteUnless there is data omitted that you think shows the opposite, and you're accusing John of being misleading, I don't see anything wrong here.
How do the Netherlands, Germany, Switzerland, and the Nordic countries compare? I would think it might complicate the argument.
ReplyDeleteJust curious why Germany isn't included in this analysis. If memory serves it isn't that different from France and probably doesn't contradict the trend.
ReplyDeleteI assume because Germany was essentially two countries up until the reunification of East and West, which makes comparison complicated.
DeleteBut are those series really comparable? There are plenty of historical differences in GDP calculation conventions between US and Europe. Some of these (like treating software spending as investment or hedonic adjustments) have been harmonised over the years but still bias pre-2000 US/Europe ratios upwards. Other methodological differences (like treating military spending as investment and also treatment of financial sector trading gains) still persist. Military spending and the financial sector are not small peanuts. Somehow every single of these discrepancies biases US/Europe ratio the same way - what a coincidence! You cannot compare GDP growth rates without controlling for these differences.
ReplyDeleteand also for Italy you would expect a 10% drop in relative GDP per capita over this period just from the change of proportion of population 15-64 relatively to US - up 5% in US, down 1% in Italy, so 6% differential around a baseline of 60%. https://data.worldbank.org/indicator/SP.POP.1564.TO.ZS?locations=IT-US
DeleteFrom the graph it looks like you are comparing GDP based on official growth rates and the 2017 world bank benchmark of purchasing power parities. That is, in the year 2017 the international comparison program takes price and expenditure data and estimates real levels of GDP across countries. Similar benchmarks were done for the years of 1975, 1980, 1990, 1996, 2005, 2011.
ReplyDeleteIf you compare the 2017 benchmark with benchmarks from 1980 and 1996 for instance for these 3 countries plus Germany we get:
France
1980 - 83%
1996 - 82%
2017 - 74%
UK
1980 - 71%
1996 - 69%
2017 - 77%
Italy
1980 - 77%
1996 - 75%
2017 - 70%
Germany
1980 - 86% (only West Germany)
1996 - 79%
2017 - 88%
So there was a slight relative decline for France and Italy over the past 40 years, losing 9-7% of GDP per capita relative to the US. Aging of the population should explain it as hour worked per capita declined a lot in both countries, so productivity per hour worked probably has converged to the US levels over the same period.
While the UK and Germany have converged (considering that its GDP per capita didn't incorporate the much poorer East Germany in 1980).
Stiglitz has opined on this numerous times. Europe tried to turn nations into states like in the U.S. while a single currency is a step in the right direction along with the removal of tariffs (frictions), there's still the major problem of imposing a unified government on nations with different cultures and governmental institutional goals. Look at Greece and their mess. Compare that to Britain's mess and their Brexit desires and grievances with Brussels. Apparently giving up some sovereignty for economic benefits wasn't a good tradeoff for them. Look at Italy and their bond mess...
ReplyDeleteCan't go backwards. Imagine Texas or California turning into separate nations while geographically in the U.S. What a mess that would be.
But if California became its own nation, I nominate Dr. Cochrane to run the Central Bank of California.
Best,
M
Some of this (but certainly only some) might be due to aging populations in Europe (especially Italy) compared to the US. Would be informative to look at GDP per working-age population.
ReplyDeleteVery good point!
DeleteThis is definetely an interesting story, but I think there is more to it than the EUs regulatory environment (likely the regulatory environment of a country), if you add the Netherlands, Denmark or Sweden their growth rates keep pace and they are subject to the same regulatory environment (Germany also does slightly better).
ReplyDeleteI am surprised at the professor’s surprise——-as it implies that perhaps this is less noticed than I would have assumed. We know they artificially spend more on energy, which like any poor investment, I assume lowers GDP. I know there are rules in France, for example, (at least as I am told by friends of mine from there) that limit employment hours. Taxes are higher. So a free market oriented person would assume those higher taxes on the margin earn less than if kept in private sector.
ReplyDeleteBut a qualitative thought has always been present in my mind—-at least specifically about France and Italy. It’s a wild guess of sorts. Their culture and physical infrastructure is older by a lot. My metaphor or analogy is their “real depreciation rate” is lower. I often think of this in terms of housing (incredibly nice old towns with much older structures), historically significant cultural structures, etc. Also, their population growth is less. Eastern Europe is actually shrinking. Western Europe is half of US—-although both are low (but higher than China and Japan).
They are living off what has been bequeathed to them. Not a critique—-but it has been a perception of mine for so long. These comments are meant to describe trends on the margin.
The usual counterargument is that there is more to life than work. Utility is, like productivity, output less input. If US works twice as much (because no holidays and 60 hour working weeks), then output should be twice as high. That doesn't mean in US people are twice as happy or more optimizing than people in Europe. And I hear productivity *per hour* is same in France as in the US...
ReplyDeleteBut my guess is there's more on-the-job leisure in the US.
Delete"But my guess is there's more on-the-job leisure in the US" ... Yes ... reading johncochrane and existentialcomics.
Delete--E5
Please do. Talk about it. We need saving.
ReplyDeleteCould you add Germany and Russia to the plot? Thanks!
ReplyDeleteOK. But does GDP per capita really matter to each capita?
ReplyDeleteNumber of flights in gliders, days gone fishing, general health that keeps the doctor away, and so forth, are not indicated in GDP.
How will you measure what really matters to individual capita?
--E5
OK. But does GDP per capita really matter to each capita?
ReplyDeleteNumber of flights in gliders, days gone fishing, general health that keeps the doctor away, and so forth, are not indicated in GDP.
How will you measure what really matters to individual capita?
--E5
Europe produced the most massive capital misallocation of history. In a free-trade, common-currency area you should avoid that the allocation of the most mobile factors be determined by fiscal reasons. This is what happened in Europe because everything was regulated with the exception of ... corporate income taxation. Please, don't talk about fiscal competition. When you have a country of 500.000 inhabitants with a veto power in fiscal matters identical to a country of 80 millions, you are simply replicating the Montecarlo model for rich individuals on an higher scale. And we Europeans needed the American Congress investigation in the multinational fiscal practices to shed some lights on what happened from the '70-'80. Public Finance 01 docet.
ReplyDeleteFabulous graphics! Puts those who strive for the "European Model" of social welfare on the back foot.
ReplyDeleteIt would be interesting to compare this graph to one that shows taxes per capita from all sources, income taxes, VAT taxes etc. the list is a very long one..
I read a monograph not long ago that contended that the EU is not a free trade zone as it actually operates, more of a trade protected zone, with where what is called free trade is actually so highly negotiated between the countries as to be unrecognizable.
I believe Europeans see lower GDP/capita as the price to be paid for greater levels of social solidarity -- and they're willing to pay this price. In fact, this is now part of what it means to be 'European.'
ReplyDeletewhat happens when you include Germany and Netherlands?
ReplyDeleteThese two slides make the case for the deleterious impact of neoliberal policies since the 1980s.
ReplyDeleteIf neoliberal policies are deleterious then why have Northern European countries done relatively well, since they have trimmed their welfare states more than Southern Europe (with the notable exception of Greece).
DeleteWould not it be more appropriate to use GDP per capital in PPP adjusted dollar than what seems to be GDP per capita in US dollar using market exchange rate?
ReplyDeleteI am very curious about how the trade-off plays out in terms of well-being on the lower-end.
ReplyDeleteSo, if EU growth issues are worse for their poor than US welfare gaps, then policy-wise this is clear.
Unless we have decisive (or as close as the real world gets) Pareto optimality, or a clear path to convert a Kaldor-Hicks optimal to Pareto(ish) using transfer payments, then this case can get a bit mired.
Don't you need Germany on the graph to have it represent EU?
ReplyDeleteIf I understand your statement correctly, you are pointing solely to EU vs US? Because I see an overall upward trend. UK and France seemed to have been pulled relatively lower by China's upward rise than the US has, but still have increased their absolute values.
I know it is routine to refer to the EU as a free trade zone, but have you ever tried to do business in France? It's nothing of the sort.
I'm unclear as to how you disambiguate all the other factors from the "One Market" sufficiently to state that the EU economic zone did not generate growth. (or meaningful growth, which I think is your position)
Italy...well come on. Did you expect anything else?
I don't view the EU as a free-trade zone and as such don't view it's relative success vs the US as useful commentary on free trade.
Can you expand on your reasoning?
How much of this could just be demographics? the average age today in the us is 38, uk is 40, france is 42, and italy is 46. this matches the recent rank order of growth rates.
ReplyDeletefwiw, average age in china is also 38, although china is different from the us and europe in so many other ways i wouldn't want to include it in the demographic argument
Would like to see some other European countries added to this comparison -- Germany, Denmark, Poland. I find this inquiry fascinating.
ReplyDeleteIs the chart data cherry-picked? Where's Germany, Sweden, Poland, etc.?
ReplyDeleteBeing Italian I am very invested in the "What the heck happened?" question...
ReplyDeleteI don't think that the decline can be due to increased regulation and welfare state, in fact I am pretty sure both have reduced. Even new EU regulations tended to replace national regulations which were on average more restrictive. Compared to the 80s, Italy is practically a free market paradise! (not in the absolute sense of course)
I know there are several theories on the decline of Italy specifically, the following two are very plausible to me. Maybe something similar applies to France as well.
1) the public debt story: when Italian gdp per capita went above the UK one, it was not "real". The economy was boosted by public deficits and money-printing, causing a medium-to-high inflation and the well known Italian public debt problem. In the early 90s this stopped being sustainable, and the governments tried to keep the debt under control by running primary surpluses ever since. This was not very successful, but has required high taxes which have crushed any hint of more sustainable growth.
2) the globalization and EU enlargement story: when the EU was just a few countries and Asian manufacturing was not a big thing, Italy was the natural place to outsource all the cheap productions for the German value chains. That was, in fact, the bulk of Italian exports. Since the 90s, between EU enlargements and imports from Asia there are alternatives which are just are reliable but with cheaper labor. Italy has yet to find a new role in global trade.
Both those theories fit the timeline very well. Then there are other things like demography: if you are retired you contribute only to the denominator of gdp per capita...
I thought everybody understood that European disparity with US GDP was solely and only because the US -- being a labor union desert -- works people more hours a week, more weeks a year and more years a life. Oh, and pays people less a year than Europe.
ReplyDelete"Oh, and pays people less a year than Europe". That must be why incomes for professionals in the US are double, triple that of Europeans, even adjusting for work hours doesn't change it much. 0/10 troll attempt.
DeleteGDP is a measure that goes down when a man marries his secretary.
ReplyDeleteA lot of things could lower GDP even if quality of life improves, so comparing GDP across coutries and across so many years is not a good comparison.
And GDP is increased by car crashes, shipping disasters, and such, because of the economic activity required to fix up the mess. All of which is actually a loss.
DeleteE5,
DeleteThat's where balance sheet economics comes into play.
Yes, GDP is a measure of the production and sale of new goods.
That doesn't mean that we should all go around breaking windows to spur the production and sale of new windows - it's called the "Broken Window Fallacy" elaborated on Bastiat:
https://en.wikipedia.org/wiki/Parable_of_the_broken_window
GDP, even if you use PPP do not measure welfare. How many days does the average American have holidays per year? What is the gap in life expectation of a newborn, and how many years live Europeans retired on average compared with the average American? None of these gaps made a place in GDP. This is why you cannot compare; money is not welfare.
ReplyDeleteKoreans, Japanese, Hong Kongese and Singaporeans all work longer than Americans, have lower welfare spending, and live longer than Europeans. Are you suggesting those countries have superior genes?
DeleteIf you look at happyness, clearly most european countries are above, living to work might boost the national GDP but is it worth it? it seems not:
ReplyDeletehttps://www.visualcapitalist.com/measuring-global-happiness-countries/
Two points.
ReplyDelete1. How much of the difference in GDP is due to hours works in the market versus leisure time?
2. Do a comparison of labor productivity per hour
Youth Matters
ReplyDeleteTo echo others;
ReplyDeleteYou really, really, should add Germany to the chart.
Then one of Spain or Portugal.
And then Turkey.
The per capita GDP figures in the FRED series "Constant GDP per Capita" differ from the figures cited in the blog piece above. The URL, for ease of comparison is here: https://fred.stlouisfed.org/graph/?g=BBn5
ReplyDeleteThe percentage below the USA constant GDP per capita statistic for 2019 (latest reported year) for other national economies differ from your own calculation based on 2019 USD figures. The FRED constant GDP per capita series draw their data from the World Bank source (link to WB is found in the FRED webpage at the URL provided above.)
Setting USA = 100 for the year 2019, the FRED figures by country, in the year 2019, are ranked as follows, in percentage points relative to the USA:
Canada 92.5; Japan 88.2; Germany 85.1; France 79.5; UK 78.4; Italy 64; Spain 60; Korea 51.4; Chile 27.1; Brazil 19.9; World 19.9--i.e., Canada's constant GDP per capita is 92.5% of the USA's.
Since 1960, Canada and the USA have traded annual rankings position in the no. 1 or no. 2 position several times. The differences in relative rankings for the countries compared are likely a function of demographics, political system differences, the relative importance of intellectual property vs. resource stock endowments, and the relative burden of the regulatory state on risk-taking and the formation of permanent capital.
As regulations take a more significant role in economic decision making by private actors, and politicians cater increasingly to conservationist demands (including "climate change" pressures) economic growth slows and bolted-down capital obsolescence increases. The EU is a prime example, but the USA is now tending to follow the same road as the EU and the UK. Canada has moved more adventurously down that path since the change in power from a right-center leaning government to a left-progressive government in 2016; but the break in growth rates of the Canadian economy is evident from 2013 in the FRED data series. Notably, Korean growth rates have recently slowed to parallel those of the USA, indicating the effect of size effects as the economy has grown--the greater the dependence on the growth of the dominant country (the USA) on the dependent country appears to have made its mark on the Korean economy.
The lessons, if there are any in the data sets, do not augur well for the USA over the next four to eight years.
This is a heck of a complex subject, but suffice it to say that the arguments for American superiority are far from airtight.
ReplyDeleteThe Europeans who have five or six weeks of paid vacation, and very little medical debt, and retirement with a pension, would surely contest any suggestion that they are less well off than American
I have been reading Steven Hill on this for years.....
https://www.quora.com/Are-Western-Europeans-better-off-than-Americans-and-if-so-in-which-ways
Hi John, It would be very interesting to see how similar mature/developed non-European economies have done over this same period. How do Canada, Japan and Australia compare to the US and Europe during this stretch? The second graph is particularly striking but is the outlier the US or Europe?
ReplyDeleteAmericans do often have higher salaries than Europeans, and pay somewhat lower taxes..........
ReplyDeleteBut when you subtract what Americans must pay for health care, self-funded pensions, and college tuition for their children, the American advantage shrinks rapidly.
Add a 25% VAT on consumption and 50% or higher marginal tax rates on middle class workers and the American advantage is even larger than it appears.
DeleteWhy would anyone refer to the EU as a zone of free trade?
ReplyDeleteIsn't production and distribution regulated by many rules?
What the formation of the EU accomplished was to eliminate barriers to trade and movement between members, but there are still many regulations on production, distribution, labor, and trade with non-members.
Saying that all members will have the same rules is not the same as reducing the regulatory constraints on production and distribution.
Perhaps the EU should be referred to as a unified trade zone.
As pointed out by many, the productivity gap between Europe and the US is entirely driven by some services sub-sectors (trade, transportation, IC, business services, finance). The persistency of productivity gap could be explained by the fact that structural change within the services also favors these sub-sectors. This is not a fact limited to the EU-US only, we see same productivity patterns from Canada to Japan. Interested ones can check my working paper on this subject: "Structural Change within the Services Sector, Baumol’s Cost Disease, and Cross-Country Productivity Differences" (sorry for self-promotion!)
ReplyDeleteYou ought to look at GDP (PPP) per hour worked – that gives a way more accurate picture.
ReplyDeleteIt reflects first the trend of stagnating annual working hours in the US versus massively reduced working hours in Europe since the 1970s (that’s weekly work hours, part-time, vacation time, earlier pensions etc.). US-Americans work 1,801 hours on average per year; Germans work 1,354 hours – that alone goes a long way to explaining the difference.
The second point is of course different demographics.
If you look at productivity per hour worked, Germany has in fact recently overtaken the US and France is close up. For the UK, Italy, Spain and others, the news is more troublesome.
- https://ourworldindata.org/grapher/labor-productivity-per-hour-pennworldtable
But in any case, the graph above alone doesn’t show much without taking hours worked and productivity per hour worked into account.
How big is the effect of the effective defintion of a 'capita' between these countries? All the countries involved are going through pretty dramatic demographic shifts in various ways, how do these charts look graphed against prime working age population or similar? Does it change the story at all or is it pretty much the same?
ReplyDeleteNo commenter has mentioned yet that Europe has lost its former edge in science and technology. As to tech companies and startups, Europe has nothing comparable to the giants of USA or China. The closest thing to a world-level player is Spotify. Europe is simply not a place where new ideas take roots and new things happen; it has become a welfare paradise with high taxes and low ambitions. The dream career of the average European graduate is becoming a well-paid bureaucrat with little responsibility (located in Brussels, if possible), not an entrepreneur.
ReplyDelete2000-2020 covers the period in which the Euro became the single currency. The EU as a free-trade zone started much earlier, and really got going in 1993. If you look at Eurostat numbers, Real (after inflation) GDP per capita grew healthily in 1992-2000, continued uninterrupted after the introduction of the Euro, but was halted abruptly in 2010 after the banking/euro crisis. GDP p Capita has since stalled, but interestingly, has not shrunk. In most countries. Italy is the big exception. So .... who to blame? The currency? World economics? Centralisation? Lax oversight of banking??? Any suggestions?
ReplyDeleteForeigner living in France > 15 years here some of my observations. Counterexamples welcome.
ReplyDeleteIMHO It’s a real disaster here.
Most of these issues are not really discussed in the press except the first point maybe:
- Too high social deductions (current level of retirement contributions is way too high compared to what the country produces) and too much waste in social subsidies. Company taxes are comparable to other countries so they seem not be the reason for the loss of competitiveness.
- big black market economy which makes those who have regular work pay for everything like general healthcare
- Too little risk taking by the large French companies. There are lots of innovative startups though that get snapped up by foreigners or they have to move to US for funding etc. The big French companies do not tend to invest early; they are only willing to spend once the startup is successful. There has been a lot of buzz about "startup nation" but reality is more complicated.
- Management style (the bosses here do micromanagement all day long; if they were allowed they'd put a camera on you when you go for a wee.)
- Company leaders (no strategy, no investment, mediocre products that are not exportable) without any concertation with staff. Staff disengages and does not work anymore.
- Social assistance incites staying at home; those who earn just a little more than the minimum wage ("SMIC") are fully taxed and receive no government support --> that gave rise to the yellow vests movement (which will probably come back once the Corona is somewhat under control)
- Exclusive social structure: for getting invited into RFQs one has to be "in the right circles" which are formed during higher eductation based on which university etc. one has attended. If you are not part of these circles because you have attended a less prestigious French institution or have a foreign education your are out. Price/Skill do not matter who is getting the contract; contacts and the right name on the diploma does.
- Wrong industrial choices by French governments --> they favour measures for large companies close to government for easier handling of social conflicts. Medium or small-sized companies have very little support and bear the brunt of the taxes/ social deductions.
/rant.
Would like to see the same graph but using EUR instead of USD, would it look any different?
ReplyDeleteactually large deviations exist in EU from country to country.Current system has favored German and northern countries, as German products have been freely distributed in EU, very competitive in price in all sectors with higher quality.A comparison for countries can be made between pre and after EU and the results are obvious.GDP per capita is not a very meaningful indicator considering the income inequality that exists in US in a much larger scale than EU.
ReplyDelete>GDP per capita is income per capita. The average European is about a third or more worse off than the average American, and it's getting worse.
ReplyDeleteGDP per capita is an useful number, and one could say it is the average GDP of country, but "income of an average person" interpretation makes me twitch a little. Mathematically, the mean of distribution is not necessarily the typical member of the population. To make comparisons between average individuals and not statistical constructs, I'd rather look at median.
(Easier said than done; I tried googling a little bit. OECD seems to provide only the median disposable income, not the pre-taxes income. Pre-taxes median income would bear a more closer relationship to domestic product, if one is interested in how the domestic product distributes and evolves before taxes and transfers.)
Life quality is based on a vast range of attributes not only income.summer incidents in US can't compare to anything that has happened in Europe last years, with the exception of the brutal years in Greece's crisis.Again income per capita or gdp per capita is not median disposable income due to large scale inequality
ReplyDeletehttps://zimnative.com/blogs/history-of-the-peoples-of-zimbabwe/early-history-of-chimurenga
ReplyDeleteHonestly, this is such a poor analysis that it is not even at a level of a first-year economics student. Confusing causation with correlation, using a single explanatory variable when we have very relevant multiple candidates for explanatory variables. Many commenters pointed them out: demographics, difference in institutional setup and cultural values.
ReplyDeletePut it differently, US is not the counterfactual for EU. The counterfactual is Europe without EU, and the best representation of that is Europe pre-1960. But Prof. Cochrane knows that, and still puts up this disingenuous post.
John,
ReplyDeleteI recommend to look at the data set from EUROSTAT for gdp per capita in PPS:
https://ec.europa.eu/eurostat/databrowser/view/tec00114/default/table?lang=en
This shows that the EU27 narrowed the gap e.g. from 2008 to 2019 from +48% to +40%.
Comparing the EU15 with the US from 1995 to 2019 the gap in real expenditure reduced from +36% to 30%
https://ec.europa.eu/eurostat/databrowser/view/PRC_PPP_IND__custom_827970/default/table?lang=en
Another KPI is actual individual consumption. On this basis the gap to the US increased for the EU15 from +41% to +49% but decreased from 65% to 59%.
https://ec.europa.eu/eurostat/databrowser/view/PRC_PPP_IND__custom_828008/default/table?lang=en
Based on these data the conclusion is more that the gap is neither increasing nor getting smaller. The development within EU is sometimes strikingly different with some countries as clear winners (Scandinavians, Netherlands, Austria, Eastern Europe), some about the same UK, France, Germany and 2 loosers (Italy, Greek).
To me the conclusion is individual domestic policies of each country and less the EU matter a lot and corruption costs you dearly. 15 years of Berlusconiism and corrupt administrations in Greece before 2015 took their toll.
Dear John,
Deletein addition to my post on EUROSTAT data I`d like to state that the most common explanation for the income gap EU versus US, also referenced by Blanchard, is the significant hours less worked in the EU versus US. Most countries have 5-6 weeks of holidays, plus 10 public holidays at 35-40 hours work week and people retire earlier. In total hours worked seem to be about 30% less than in the US.
What also comes to my mind is lower life expectancy in the US, roughly about 3 years less versus EU 27 and about 5 years less for EU 15, that may play a factor. Since people live longer they have to spend more prudent during their retirement.
If you put that into consideration the gap may diminish significantly and EU and US are likely more or less on similar terms.
Sum it up to "Europeans are lazier and enjoy a longer life" though this may give the impression they are poorer. But productivity seems to be comparable.
Lower hours can account for lower income. But not lower productivity.
DeleteAlso, we should ask why do europeans choose lower hours? I remember when French people made fun of the British for taking the whole weekend off, and not working on Saturdays. The fact that you take home so much less of what you earn in that marginal hour in Europe might just have something to do with it!
Dear John,
ReplyDeletePiketty looked at this.
https://www.lemonde.fr/blog/piketty/2017/01/09/of-productivity-in-france-and-in-germany/
Unfortunately I couldn't find more recent data. But FR. DE and US look at the same level. Beside of Italy the UK look shockingly bad.