The United States vs. Europe, Part III

Part I of this series showed higher wages and better housing in the United States, while Part II showed an ever-larger GDP advantage for America.

Part III will begin with this John Stossel video.

Sven Larson is an Associate Scholar at CF&P, so I’m not surprised that he did an excellent job of describing the negative impact of his country’s welfare state.

For my contribution to today’s discussion, I’ll begin my analysis with four mostly favorable observations about Europe.

1. Europe is actually one of the world’s richest regions and easily has more economic liberty – on average – than Asia, Africa, and South America.
2. European nations are not identical. Some, like Switzerland, are very free market and very rich, while more-statist nations like Greece and Italy lag behind.
3. Sweden, which receives a lot of attention in the above video, is behind Switzerland but is still one of the more market-friendly European nations.
4. While there is a lot to admire in European nations, the main policy problem – compared to the U.S. – is a bigger fiscal burden of government.

At the risk of understatement, Point #4 is what matters. Fiscal policy is the biggest difference between the U.S. and Europe. Unfortunately, many folks on the left (as well as some big-government Republicans) want America to copy European-style fiscal policy.

But that’s a recipe for European-style economic anemia.

If you don’t believe me, I already linked to the two previous editions in this series and here’s the column I usually cite when showing that Americans have much higher living standards than Europeans.

And if that’s not enough, here are two relevant columns from 2023 (here and here) and three more columns from 2022 (here, here, and here).

If you want fresh evidence against Europe’s redistributionist model, here’s what’s been happening with per-person economic output in the United States, the European Union, and the EU-15 (basically Western Europe).

That’s divergence rather than convergence.

Next, here’s a new chart (part of an excellent thread on Twitter/X) showing sluggish financial markets, which presumably is an indication of investor expectations for weak future growth and dismal future GDP.

If you’re not sufficiently depressed by that data, Allister Heath’s analysis in the Telegraph is grim reading.

Here are some excerpts, though the title almost tells you what you need to know.

Once the world’s richest, most advanced continent, Europe is finished… Its self-inflicted pathologies – catastrophic economic failure…and a gaping democratic deficit – have now metastasised. …Any young, ambitious European would be better off moving to America, especially anti-woke Florida or Texas. They will pay less tax. They will live better, happier, freer lives. …Their living standards will be drastically higher. …unlike in Paris, Berlin, Rome or Brussels, enough remains of its capitalist spirit, its dynamism, its entrepreneurialism, its love of science, meritocracy and technology, to see it through its current troubles. …there is no way back for a European continent that has embraced…the politics of envy, that believes that saving the planet requires shutting down successful industries and impoverishing its people, …and that won’t reform its welfare state. …Welfare states will implode, with taxes rocketing on the young to pay for healthcare and pensions for the old. …The gulf in living standards between America and Europe keeps on widening. …The continent’s high-tax, high regulation model has caused decades of under-performance.

A Wall Street Journal column by Edward Conard is similarly blunt. Here’s some of what he wrote, focusing on America’s more successful entrepreneurial climate and the dangers of soak-the-rich class warfare.

America excels relative to Europe… While Europe has created 14 companies worth more than $10 billion in the past 50 years, with about $400 billion of market value in total, Americans have created nearly 250 such companies, worth $30 trillion. …The median disposable U.S. household income, according to the OECD, is now 25% greater than the median German household and 60% greater than the median household in Italy. Europeans’ incomes would be even lower if they weren’t free-riding on American innovation, defense spending and higher drug prices… The argument that we can heavily tax the tail of the distribution of payoffs without discouraging prudent risk-taking…fails to recognize that outsize payoffs at the tail of the distribution critically drive overall expected risk-adjusted returns above break-even. …When entrepreneurs capture as little as 5% of the value they create for others, it makes little sense to encourage successful risk-takers to quit working long before they achieve outsize success.

Here’s one final chart, showing how Europeans responded to the collapse of the Soviet Union.

As you can see, they got a peace dividend. Defense spending has been flat.

But domestic spending has relentlessly expanded, rising faster than the private economy.

We have the same problem in the United States. Except we had good spending restraint in the 1990s.

Every president in this century, however, has increased the burden of domestic spending. And there are plenty of politicians in Washington who want to accelerate that worrisome trend.

The lesson from today’s column is that more spending in America will make the United States more like Europe. And every shred of data shows that will mean less prosperity for the American people.