The conventional wisdom is that European high taxes and welfare states are a yoke, strangling growth, sinking productivity, and mixing metaphors all over the place. But is this really true? I decided to crunch some numbers and find out.
Check it out over the break. WARNING: math involved.
Now for this I'm going to be cribbing from Dr. Maddison's World Population, GDP and Per Capita GDP for my historic GDP figures, which, since they are translated into Geary-Khemis dollars, are blessedly adjusted for PPP. Also, for hours worked per person in employment, I will be using these figures, from Swivel, since OECD is being uncooperative at the moment.
So let's look at the numbers straight up. From the data, we can see that in 1980, when Reagan was elected, GDP/c was $18577/c. (Geary Khamis dollars are based off the value of currency in 1990, so they're worth more than 2006 dollars, but what I'm interested here is relative values and purchasing parity power, rather than current values.) In 2003, 25 years after the switch from Keynesian, welfare state policies to a neoliberal ones, GDP/c is $29037.
Doing the math, this is an increase of 56%.
Now let's see what happens when we do the same for the EU 12 (taken as an average):
$20596/14056 = 46%
Okay, so the USA beat the aggregate of Western Europe (Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, and the UK) by 10% over 25 years. Not bad - whether the welfare state compensates for lost growth is a matter of debate. Or: WE growth averaged approx 1.8% a year, US growth averaged 2.2% a year.
But... there's another trend at work here, that GDP alone leaves out.
Working hours per worker have been declining throughout all of Europe since the 80s. As you can see according to the second spreadsheet, in the US workers worked, on average, 1841 hours per year, whereas the average of the 12 Western European workers worked 1725 hours per year. This has steadily decreased, both through unions collective bargaining for shorter hours and more vacation time, and governmentally mandated time (such as the 35 hour work week and the minimum 4 weeks vacation) so that nowadays workers generally work 1568 hours a year across Europe.
Now obviously, when people put in fewer hours a year, not as much is produced. So: I wonder what would happen if Europeans were still working the same hours they were in 1980?
1568---> 1725 hours is a 10% increase. If Europeans were working 10% more hours, 10% more stuff would be produced, correct? Thus, there would be a 10% increase in GDP over what it is currently. So let's repeal the 35 hour workweek, kill the guaranteed vacation time and see what the economy looks like.
$20596*10%= $22655
So they'd be making an extra $2000 or so. I wonder how that looks for the growth figures?
$22655/14056 = 61%, or 2.4% a year.
So, in other words, over the long term the European model has been slightly superior for growth. The American economy only looks like it has grown more because Americans continued to work the same hours while Europeans chose to decrease theirs. If Europeans had chosen to work the same hours as they had before, growth would actually have slightly outpaced the American economy. The neoliberal establishment has entrenched a narrative of the sick man of Europe, wasting away under the welfare state, but this is simply untrue. And this proves it.
Anyway, if I have screwed up blatantly without realizing it, feel free to critique me for it. Run the calculations yourself, see if I'm right.
Thoughts? Flames? Death threats?
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