Learning From Europe: A Reply To Paul Krugman

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

Flattr this

Paul Krugman, ever the shrewd academic, is trying to make a case for America to become Europa through his Op-Ed column in The New York Times. He is arguing that Europeans have nearly the same per capita gross domestic product (income per person) as the United States, even though they are a social democracy and we are a capitalist democracy, because U.S population has grown. Implicit in this argument is that Europeans enjoy a better quality of life than Americans, while being just as productive, because they work fewer hours. And Europe is also just as dynamic as the United States, he says.

On the surface, there is nothing wrong with this picture, if not being beguiling. It would make an American feel that he or she is perhaps working far too hard because they are paying less in taxes compared to their European counterparts and are not getting much in return for doing so: not health care, not schools and not most other things unless he or she is wealthy. Middle class is not cutting it anymore in America, implies Krugman, so we have to become European so that a large government can intermediate between the American rich such as himself and the rest.

A closer look, however, can be far more revealing. U.S population growth rate is close to its replacement rate. That of Europe is on a knife-edge. Their lower population relative to nearly the same output, aggregated across politically separate countries, is giving them nearly the same per capita income as the U.S. Meaning, the Economic and Monetary Union’s (EMU’s) or the European Union’s (EU’s) per capita GDP is not comparable to that of the United States. It is a figment of summation and averaging over heterogeneous economies across the political spectrum from France to the U.K, with Germany somewhere in between and the three together carrying the less productive southern European states from Spain to Greece.

In fact, the Europeans would want their populations to grow, because whatever the snapshot of perhaps the Solow closed-economy growth model he is applying to his analysis, the projections in the long run through 2050 imply that their decreasing populations do not necessarily translate to higher GDP per capita but lower. Further, the European GDP per capita, even if we are to forgive the EU for not being one country, is because they are the EU and the EMU; because, they have liberalized to move in the direction of the U.S economic model to unify. So, Krugman is missing the reform dynamic in Europe that has been playing out since the end of World War II.

The differences across social strata in the United States in income are largely socio-economic, currently impacting all racial and ethnic groups, because of many factors such as education, race, gender and government policies but not because of nationality or culture. In Europe, if hypothetically, the renowned and well-off Paul Krugman were to become a citizen of any of the 27 EU countries, he will not enjoy the same quality of life as the native elites of his adopted country. To many Americans, Europe is heritage. To Europeans it is truly native.

Europeans are paying higher taxes for safeguarding their cultural and ethnic identities, to preserve their homogeneity, which only governments can do, and secondarily for public services through redistribution because cohesiveness can be achieved through redistribution in return for the intangible of homogeneity. Raising their per capita GDP anymore than it is will require them to trade-off cultural preservation for more integration. That is to become more like the United States. This is the choice confronting Europe as it enlarges.

It is okay if Brazil, Russia and China along with many other countries in the world try to emulate the EU, because they will have a more efficient role model that is consistent with their predilections for economic management. If the transition and emerging countries (outside of India which has already achieved, politically, two millennia ago, what Europe is trying to achieve by 2050 and has been a vibrant democracy for more than 60 years after seeking it of its own accord from the British Empire in 1947 similar to the United States in 1776) reform to become the EU, they would be moving right. If America does, it would be gratuitously moving left because it is ideological, not rational, to do so.

Europe has little choice but to liberalize to sustain their union going forward. America can remain true to itself and reform within its founding parameters to become more efficient and effective as a government, while being less expensive to its citizens. The quality of America’s government must improve, not its quantity and overall, all societies must reexamine the role of quality of life in their growth accounting closely, because consuming more, albeit being the definition of standard of living does not necessarily imply the corollary of living well just as visiting a doctor more often to live longer is not the same as living longer without doing so.


About Chandrashekar (Chandra) Tamirisa

This entry was posted in Economics, Politics, Transformations LLC and tagged , , . Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s