Learning From Europe
By PAUL KRUGMAN
AS HEALTH CARE reform nears the finish line, there is much wailing and
rending of garments among conservatives. And Iím not just talking
about the tea partiers. Even calmer conservatives have been issuing
dire warnings that Obamacare will turn America into a European-style
social democracy. And everyone knows that Europe has lost all its
Strange to say, however, what everyone knows isnít true. Europe has
its economic troubles; who doesnít? But the story you hear all the
time ó of a stagnant economy in which high taxes and generous social
benefits have undermined incentives, stalling growth and innovation ó
bears little resemblance to the surprisingly positive facts. The real
lesson from Europe is actually the opposite of what conservatives
claim: Europe is an economic success, and that success shows that
social democracy works.
Actually, Europeís economic success should be obvious even without
statistics. For those Americans who have visited Paris: did it look
poor and backward? What about Frankfurt or London? You should always
bear in mind that when the question is which to believe ó official
economic statistics or your own lying eyes ó the eyes have it.
In any case, the statistics confirm what the eyes see.
Itís true that the U.S. economy has grown faster than that of Europe
for the past generation. Since 1980 ó when our politics took a sharp
turn to the right, while Europeís didnít ó Americaís real G.D.P. has
grown, on average, 3 percent per year. Meanwhile, the E.U. 15 ó the
bloc of 15 countries that were members of the European Union before it
was enlarged to include a number of former Communist nations ó has
grown only 2.2 percent a year. America rules!
Or maybe not. All this really says is that weíve had faster population
growth. Since 1980, per capita real G.D.P. ó which is what matters for
living standards ó has risen at about the same rate in America and in
the E.U. 15: 1.95 percent a year here; 1.83 percent there.
What about technology? In the late 1990s you could argue that the
revolution in information technology was passing Europe by. But Europe
has since caught up in many ways. Broadband, in particular, is just
about as widespread in Europe as it is in the United States, and itís
much faster and cheaper.
And what about jobs? Here America arguably does better: European
unemployment rates are usually substantially higher than the rate
here, and the employed fraction of the population lower. But if your
vision is of millions of prime-working-age adults sitting idle, living
on the dole, think again. In 2008, 80 percent of adults aged 25 to 54
in the E.U. 15 were employed (and 83 percent in France). Thatís about
the same as in the United States. Europeans are less likely than we
are to work when young or old, but is that entirely a bad thing?
And Europeans are quite productive, too: they work fewer hours, but
output per hour in France and Germany is close to U.S. levels.
The point isnít that Europe is utopia. Like the United States, itís
having trouble grappling with the current financial crisis. Like the
United States, Europeís big nations face serious long-run fiscal
issues ó and like some individual U.S. states, some European countries
are teetering on the edge of fiscal crisis. (Sacramento is now the
Athens of America ó in a bad way.) But taking the longer view, the
European economy works; it grows; itís as dynamic, all in all, as our
So why do we get such a different picture from many pundits? Because
according to the prevailing economic dogma in this country ó and Iím
talking here about many Democrats as well as essentially all
Republicans ó European-style social democracy should be an utter
disaster. And people tend to see what they want to see.
After all, while reports of Europeís economic demise are greatly
exaggerated, reports of its high taxes and generous benefits arenít.
Taxes in major European nations range from 36 to 44 percent of G.D.P.,
compared with 28 in the United States. Universal health care is, well,
universal. Social expenditure is vastly higher than it is here.
So if there were anything to the economic assumptions that dominate
U.S. public discussion ó above all, the belief that even modestly
higher taxes on the rich and benefits for the less well off would
drastically undermine incentives to work, invest and innovate ó Europe
would be the stagnant, decaying economy of legend. But it isnít.
Europe is often held up as a cautionary tale, a demonstration that if
you try to make the economy less brutal, to take better care of your
fellow citizens when theyíre down on their luck, you end up killing
economic progress. But what European experience actually demonstrates
is the opposite: social justice and progress can go hand in hand.