Over the past 65 years, the US and western Europe have followed different social models. While the US government expanded during the Great Depression and WW2, it remained much smaller than western European governments, which provided universal healthcare, more comprehensive social insurance, and even owned and controlled numerous banks and firms. US government spending has been about 30 to 35% of GDP over that time – while in Europe it’s more typically been 40 to 50%.
Conservative dogma has it that large government is inimical to economic growth. It would seem that we have a fine natural experiment: we can judge western European-style socialism by comparing their economic growth with that of the US.
According to the Bureau of Labor Statistics (BLS), the US is at the bottom of the pack with respect to GDP growth per capita for most of the past 65 years. European countries following socialist models – with large public investment in health, education and insurance – grew more. The US isnt just outperformed by France, Germany and Italy – countries who suffered the most war damage – it’s outperformed by every country except Australia. It’s true that the countries that escaped the brunt of the war are clustered at the bottom for growth – but the US is at the bottom of the bottom. This isnt just the case for per capita GDP since 1950 – the pattern holds for growth since 1960, 1970, 1980 and 1990 as well. European growth only stumbles in the mid 90s with the rise of the EU – when Europe sought to privatize industry and control spending – i.e., when they started emulating American policies! Strike one for conservatives: socialism, for economic growth, looks pretty good.
Socialism – as Americans are taught from infancy – saps the work ethic, bloats public debt, and makes a population lazy and dependent. If conservative theories are correct, when we look at Europe we should see high unemployment and deficits as far as the eye can see.
Forbes did a nice piece a few years back, searching the world over for the cushiest countries to be unemployed. The winners were Denmark, Norway, Finland, Sweden, Israel, Japan and Germany. According to Forbes, Norwegians “receive 87.6% of their previous salaries for 500 days.” Fins “receive 85.1% of their previous salaries for one year.” In the other countries, benefits are “between 66% and 90% of their last salaries.” Meanwhile in some US states, benefits “are as low 27%” for people of average income.
So you gotta imagine that workers in those countries are lounging around, taking it easy, drinking in pubs and watching soccer at the public’s expense. You imagine wrong. Unemployment in all of those countries is the same or lower than it is in the US. And Labor Force Participation Rates (LFPR) – the fraction of people aged 15-64 in the workforce – is in fact MUCH higher in all of those countries (except Israel). The US LFPR is about 73% – in most of Scandinavia it’s closer 80%.
You’d also expect, as we’ve been told, that those socialist economies are collapsing under mountains of debt, from their unsustainable social welfare programs. But except for Japan, all of those countries have less debt than the US. Scandinavians, with the largest governments and the most generous social programs, are the least indebted – the government debt of Sweden and Denmark is HALF that of the US (50% of GDP vs. 105%). In Norway it’s about one-third. The gap between conservative myth and real-world fact is large enough to swallow a whole continent.
Following WW2, there was a wide chasm between the US economy, and that of most of Europe – their infrastructure was wrecked, ours was built up – millions of their working age citizens were slaughtered or displaced. In 1950, per capita US GDP was tops in the world by a wide margin – almost 10% greater than #2 Switzerland, almost 15% greater than #3 New Zealand – double that of #14 Germany. The top 8 eight countries in 1950, not coincidentally, were all spared the brunt of the war’s destruction.
65 years of socialism – or its lack – have left its mark on western economies the world over. US per capita GDP has now been exceeded by countries that taxed more heavily and invested the proceeds in the health and wellbeing of its population. In 1950, US per capita GDP was about 40% greater than that of Canada, Australia, Sweden and Denmark – today, it is smaller.
But things are even worse. American per capita GDP is inflated by Americans working far many more hours than their European counterparts. The US is the only advanced country in which full-time workers are guaranteed ZERO paid leave. While Americans are producing less than many other now-richer countries, they are working more too. The average American worker puts in about 1800 hours per year. Canadians and Aussies put in closer to 1700; Scandinavians toil for 1600; and Germans – those teutonic lazyheads – dont even squeaking out 1400!
More hours and less output? How could it be worse!? But it is worse! As one may accurately observe: the “average” human being has one breast and one testicle – since America has far greater inequality than any of those countries, “average” income is far less meaningful for Americans, since few of them fall at or near the average. America has much higher poverty than any of those countries – 17% as measured by OECD – double that of almost every country named above.
In an effort to understand just how well (or badly) the people in a given country are really doing, economists developed a new metric: the Human Development Index – or HDI. (One of its developers, Amartya Sen, got a Nobel Prize for his work on human welfare.) HDI encompasses life expectancy, education and income, and then adjusts for inequality. The US now ranks 16th.
Americans have been sold a rotten bill of goods. As discussed in a previous post, several key industries are not well served by free markets – rich, modern economies need the government to ensure adequate investment in health, education and insurance. The conservative preoccupation with smaller government persists in a factual vacuum – ignorant to the fact that the world’s most prosperous nations – which enjoy high productivity and high workforce participation, as well as broadly shared wealth and good health – all have much larger governments than the US. Generous social insurance – far from leading to sloth and dependence – has made Europe healthy, productive and meritocratic. Indeed, the American dream has emigrated back to the old country – America’s poor are far more trapped in poverty than their European counterparts.
“Socialism” has become the right’s latest pejorative for the left – following in the tradition of “card-carrying liberal”. With its truth revealed and mythology debunked, liberals should wear it as a badge of honor.