Arnold Kling  

France and Germany

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Give Me Your Tired, Your Young... Thinking vs. Feeling...

Anthony de Jasay argues that French and German welfare state policies are based on


a belief that the distribution of the national income is the government's business as well as its natural prerogative, and that whatever it happens to be, the government must use its powers to make it tilt a little more, and a little more again, in favour of the lower income groups. It is very important, though, that such repeated redistribution should mainly take the form of "social" benefits in natura, rather than simply cash transfers.

...In Germany and France, taking the gross wage cost as 100, an average of 50-55 goes to social insurance contributions and 45-50 is pre-tax take-home pay. The two together, however, are not worth 100 to the worker, but always a little less


De Jasay describes the emotional attachment the many in France and Germany have for this unsustainable economic policy.

Bitter political adversaries in the two Sick Men countries are equally eager to preserve the "European social model" from the largely imaginary liberal menace, seemingly quite oblivious to the total failure of the "model" to produce the blessings it is supposed to bring.


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COMMENTS (14 to date)
Tom West writes:

It's seems rather condescending to admonish Europeans for having the gall to desire a system that differs from the American model. If this system was being imposed from without, I could understand people's unhappiness, but it seems that there's an almost anger that the Europeans choose to reject the American model.

Maximizing inequality and making life miserable for the poor might well increase overall wealth, but that's not necessarily a tradeoff that would increase satisfaction with life. I haven't noticed that the average European is despondent.

It's almost gotten as bad as those Europeans that seem to take personal affront that the Americans have chosen a society that maximizes wealth creation at the expense of allowing a significant portion of the population to suffer the effects of poverty (which is different from being poor...)

Diversity of economic opinion isn't a crime.

Dylan writes:

While the French system may be based on that principle in theory, in reality it redistributes money from the poor and middle class to the poor and middle class. The French elite do quite well in the land of high consumption and low capital taxes. France's economic problems are not inefficient redistribution but inefficient regulation and state control of business.

Kimble writes:

Whatever works Tom. And what has worked?

Tom West writes:

And what has worked?

It depends upon your metrics. For the Europeans, it appears they feel their system works for them. At least there seems little interest in making fundamental changes to it. I'm certain many Europeans would claim that the "American system" hasn't worked given any number of measures that they consider important.

spencer writes:

The interesting thing is that the major Western European states have had a major welfare state for about 50 years. Over most of that time economic growth in most of those countries has been much better then in the US. Only over the past decade has US growth been significantly higher then in Western Europe, and on a per capita basis even that difference is not very big.

So the question is the welfare state the real cause of the recent slowing of Western European growth. Other possible causes include the emergence of a one size fits all monetary policy that means large parts of Europe constantly face inappropriate monetray policies. A second factor is the freeing of Eastern Europe and their integration into the capitalist system. So much of the investment that would have originally gone into western europe has gone to the east. This is especially true of Germany where bring the east into the system at a horrible exchange rate has caused massive problems.

I know you like to blame the welfare state, but the actual evidence supporting this is very weak.

Roger writes:

De Jasay's use of the hair shirt to describe Europe's policies is very appropriate: Europe has chosen the monestary over commerce. Naturally, those who do so feel a sense of superiority as having chosen the better thing. But Europeans should keep in mind that the Muslims make the same claim against Americans: "Yes we're poor, but our culture is superior to yours." The American response should be that you don't have to choose between wealth and great culture. We have both and so can you.

Spencer defends Europe by arguing that our faster growth has come late and that the cost of integrating Eastern Europe has held the West back. However, one could argue that US growth came late because of our own flirtation with socialism up until Reagan. And I don't believe the argument that integrating the East has been a burden to the West. The cheap labor and land should have been a boon to the West, but socialism turned them into a burden. If it were possible for the US to integrate Mexico fully into our economy (with our laws and law enforcement) I can see great wealth being created on both sides of the Rio Grande! Only the Europeans could screw up such a wonderful opportunity.

Europeans love to sneer at our greater inequality, but they should keep in mind the primary cause--immigration from the south. Europe maintains its low level of inequality by fencing out the poor; America lets them in. In the European mind that's a bad thing.

Mr. Econotarian writes:

The issue is that a lot of people in Germany and France feel that their low-growth, high-unemployment economies are due to not enough government intervention in the market (or too many immigrants, "polish plumbers", etc.), when the truth as analyzed by economists the world over is that their social policies are the cause of the low-growth and high unemployment.

I'd prefer that France and Germany have higher growth, as that would help the US, but if they really want to insist on keeping low-growth, high-unemployment policies, they should at least be honest about the causes of their woes.

A poster said that Europeans are happy with their system, but the "Non" from France showed that they are not really happy with their economy.

Another poster talked about the longevity of the social systems in Europe, in truth the high maginal tax rates on labor in Europe only rose to their current employment-reducing levels in the 1980's, coindicing with a growth slowdown.

Mr. Econotarian writes:

By the way, see this paper to understand the employment-killing effect of European labor laws, and to a lesser extent, higher marginal taxes on labor, and how these have diverged from the US since the 1960's.

Nicholas Weininger writes:

Alternatively, spencer, you could explain the fast growth in Western Europe post-WWII as a catch-up effect: they had major infrastructural damage from WWII, the repair of which produced fast growth, and we didn't.

Indeed, there are almost always such alternative explanations for any side of any macro-causative debate you want to have. Which is an illustration, not of the weakness of anti-welfare state arguments, but of the limits of empiricism.

James writes:

Limits of empiricism? You misunderstand its intended purpose: to cover the left's revolt against reason with a patina of scientific authority. If the intent were something along the lines of discovering facts about the world, empiricists would avoid discussion of macroeconomics entirely as the number of explanatories exceeds the number of observations.

Tom West writes:

left's revolt against reason

Oh please.

Choosing policies that reduce inequality at the cost of growth is leaving reason behind? Let's drop the empty rhetoric.

The "if you don't agree with my world view, you're evil, stupid, or both" is pretty tiresome.

Policy choices shouldn't be made blindly, and I certainly don't believe we should be unaware of the costs of our policies, whatever those policies should be.

But there are plenty of people (indeed, I suspect the majority of mankind) who believe that being able to consume more things faster should not the be all and end-all of mankind's destiny (although, given the opportunity, we certainly will consume what we can). There are many other important factors along the way, and yes, adding those as factors to one's equation *will* slow down economic growth.

I think economics is a useful tool for analyzing policy. But having developed tools that economists believe predict which policies will maximize economic growth, many economists start to advocate only those policies. At the risk of being silly, it makes as much sense as physicists discovering nuclear fission, and then start advocating for nuclear war :-).

spencer writes:

Roger -- I would not go around bragging too much about the shift in the US from "socialism" before 1980 to "capitalism" after 1980.

It is almost impossible to find a single measure of the economic well-being of the US population that improved more since 1980s then it did in the 1950-1980 "socialist " era.

For example. From 1950 to 1979 the unemployment rate averaged 5.2% while since 1980 it has averaged 6.3%. Real per capita income growth averaged 4% from 1950 to 1979 and only 3% since 1980. I could go through a very long list of these type of comparisons because it is almost impossible to find a single measure of the economic well being of the US population that has done better since 1980 then in did in the pre-1980 era.

If you are want to talk about how the US has done under Reagan I have news for you. By essentially every economic measure you can find, the Reagan revolution has failed.

I challenge you to show me facts that demonstrate that the Reagan revolution has improved the economic well-being of the US population.

James writes:

Tom,

By revolt against reason, I'm referring to the shoddy uses of empirical data that I continuously see applied to justify policies that go counter to economic theory. Pointing out that one can't do very good empirical work when the number of explanatories exceeds the number of observations is not empty rhetoric. You'll find this mentioned in nearly every graduate or undergraduate econometrics text. If not explicit, it will be at least implicit in calculating degrees of freedom.

In your case though, this criticism misses you clean because you apparently recognize that there is a tradeoff between growth and equality of income, rather than claiming to have an empirical case that redistribution increases growth. Fair enough. My problem with the position you take is moral, not economic. You want to spend other people's growth to buy more equality. I oppose that for the same reasons you would oppose a program that uses up some people's equality to buy more growth.

Roger writes:

Spence-How about real per capita income, the mother of all measures of economic well-being. Besides, socialism didn't really kick in until Johnson's Great Society of the late 1960s.

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