Bryan Caplan  

Alabama vs. the E.U.

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Super-Economy serves Krugman some fine economic ridicule:
Alabama has the same per capita income and slightly faster growth rate as the Social Democratic EU.15, which Krugman wants us to believe is a "Dynamic" region that the US should "learn from". Has Paul Krugman ever written a column asking us to learn from the economy of Alabama? Of course not. That would be simply idiotic. Alabama is poor, and has a lower standard of living, just like the E.U 15. It only manages to grow faster than others because it starts off at such a low level (the EU doesn't even manage to do that).
HT: Tyler


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COMMENTS (31 to date)
Daniel Kuehn writes:

How is that "fine" in any sense of the word? If you're impressed with that, you haven't been reading Krugman's analysis closely.

First, the lesson that Krugman said we should learn from Europe isn't that they know how to do "dynamism" better than we do. The lesson he said we should learn is that social democracy doesn't kill growth, no matter how much you try to torture the statistics to suggest it does.

Second, Krugman addressed the per capita GDP question, which even a freshman econ student usually knows largely has to do with different valuations of leisure. So suggesting that Europe doesn't grow as fast as it's per capita GDP predicts ignores the fact that production isn't the same as utility.

All I've ever read Krugman as saying is "Europe isn't the cautionary tale you think it is", not "Europe is soooo much better than us". If you've read him differently you really oughta cite exactly what the hell you're talking about.

Doc Merlin writes:

@Daniel

Considering that the EU15 would as a state, be the second poorest state in the US, makes Krugman's point somewhat terrible. When our worst are better than their average, Europe IS a cautionary tale for Social Democracy.

pierre writes:

Didn't Krugman address these points from the very beginning by pointing out that GDP per worker hour in the US and Europe is nearly identical?

Doug writes:

First of all Krugman didn't say GDP per worker hour was "nearly identical in the EU15" he said it was "close in France and Germany." I don't have the statistics, but I'm confident that GDP per worker hour is more than 10% less in these two countries than the US, and much lower for the EU15 as a whole.

Second if that was true you can't compare GDP per worker hour, because of a little thing called diminishing marginal utility. If France/Germany had the quality economy as the US, but worked fewer hours it's GDP product per worker hour should be much higher. This is because were the US to reduce it's worker hours to that of Europe we would reduce our least productive marginal hours first, hence raising GDP per worker hour.

Third, because of the EU's astronomical tax rates and ridiculously burdensome labor market regulations a much larger proportion of labor is performed in the underground economy. This economic output is still very likely to get recorded in the statistics, e.g. someone working off the books at an office or a factory. However the worker hour almost will assuredly not be. So if you're going toc compare GDP per worker hours you have to deflate the US's worker hours to reflect this.

Lord writes:

Perhaps if Alabama had universal healthcare, broad public infrastructure, abundant higher educuation, he would. Alabama, richer and poorer at the same time.

geckonomist writes:

"Considering that the EU15 would as a state, be the second poorest state in the US, ..."


The GDP/Capita comparison rests on a PPP assumption that flatters the US figures and hurts the EU/Switzerland.
If the EU states would become US states, that would imply converting Euros for dollars at market rates,
and the GDP/Capita difference disappears overnight.

Mark writes:

Does this prove anything or simply prove that we don't know what we don't know?

Alabama typically ranks higher on best states to do business - it ranks 12th on ALEC/Laffer's state competitiveness ranking. And it has standard of living comparable to the EU...

Maybe the Alabama/EU comparison simply points out how little we know about creating the right conditions for better standard of living...

ziel writes:

We also don't know anything about the poorer sections of the E.U., except when something nasty breaks out, like the rioting in the Paris suburbs or thuggery in England. We know all about what poor areas in the South look like because our media elites like to show how backward the South is. Our assumptions about Europe's living standards are based on what journalists see in the flashy big cities.

David N. Welton writes:

ziel: 'We' know something about the poorer areas of Europe because 'we' live in Europe. I do at least, so be careful with your "we's".

I live in Italy, which is not one of the wealthier bits of the EU, although I'm in the north, which is much better off than the south.

All things considered, I think I'd much rather be here than some of the poorer bits of the US. Italy doesn't have all the benefits some of the more wealthy, northern countries do, but at least if you lose your job, you don't lose your right to see a doctor.

I could write a book about comparing US to Italy, and there are definitely some things that aren't as nice here, but plenty that are good, and some that are just a natural consequence of living in an area with a high population density (like, say, New York, Hong Kong or Puerto Rico): land is expensive and houses are smaller.

I make less money than in the US, but have other benefits that don't show up as numbers, so I am not sure I would say that the 'ridicule' was all that 'fine'. There's plenty of ridicule to go around (my white-bearded 60 year old father in law was carded going into a bar in the US) - so I'd save it and try instead to learn about what other places get right rather than get wrapped up in "go us!" (which Europeans are certainly susceptible to as well).

John S writes:

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baconbacon writes:

"Didn't Krugman address these points from the very beginning by pointing out that GDP per worker hour in the US and Europe is nearly identical?"

This is only an effective measure if you expect productivity to be linear. That would be a bizarre expectation since numerous studies have shown that productivity declines (after a point) with increases in hours worked, and additionally one would expect that those being excluded from the labor force would be on the lower margins of productivity given very basic assumptions.

AS an example of how strong these combined effects can be see how the productivity in the US has spiked strongly as the UE rate has spiked in the US over the past two quarters. The worst employees and the least valuable hours are being cut and the productivity rate grew at 6.9% and 8.1% (annualized) in the 2nd and 3rd quarters of 2009.

Windmill Tilter writes:

"which even a freshman econ student usually knows largely has to do with different valuations of leisure."

So, if a country enjoys more leisure hours it necessarily implies the total value of leisure there is higher? How do you know that the total value of my leisure time is less than that of an equivalent Frenchmen who goes on holiday for 12 weeks per year?

JoshK writes:

I never buy that argument that Europeans enjoy more leisure then we do. From what I've seen, they generally do not enjoy the kind of household appliances that we do such as dishwashers and dryers (washing machines are more common). I don't consider it leisure to wash dishes.

liberty writes:

Everything else is very expensive, but leisure is cheap. Hence, people buy a lot of leisure in Europe.

Yancey Ward writes:

It is so fortunate for Europeans that their free healthcare, education, and leisure time fall from heaven like manna and make no impact whatsoever on their GDP calculations, while Americans must spend a portion of their output on those same items.

Steve Roth writes:

1. Growth comparisons are painfully subject to what periods are being examined. It's important to look at all periods over a long range. I did that here:

http://www.asymptosis.com/europe-vs-us-who%e2%80%99s-winning.html

Short story, over the long term per-capita GDP growth has been the same, US versus EU.

2. Yes, growth correlations should arguably regress for starting points. (Which I didn't do in that post.) This makes Europe look less robust because they *should* grow faster. Why haven't they caught up yet?

3. There are many other possible factors to regress for, though arguably convergence is the best documented.

4. A crucial factor that is often ignored is hours worked per capita. Americans work 10% more hours per year than western Europeans. (Just pulled the OECD data and averaged '95-'08: An american worked 1,820 hours, a western european worked 1,646.)

Europeans choose to trade off cubic inches and sqare feet for time with their friends and families--an extra 4.35 weeks per year.

Since time with loved ones (think long, lingering lunches and lengthy vacations) is hands-down the best predictor of life satisfaction, that sounds like a great deal to me.

Can you say "family values"?

Nick writes:

Europe free-riders off of the American healthcare system, american consumers and tax payers subsidize the costs of most new drugs and technologies. I am happy we are able to afford the rest of the world such a wonderfully high standard of living. I am sad they are so reluctant to acknowledge it.

m writes:

The telling thing about this entire conversation is the Krugmanites are having to bend over backwards to legitimate a comparison between EU15 and...Alabama. Not the US. Alabama.

That's everything you need to know about Socialism, right there.

Steve Roth writes:

Oh and just to add:

It's kind of a cheap shot to resort to questioning GDP--it's kind of the best rough metric we have--but I think it's a propos, given the hours-worked issue, to remember that GDP only counts activiites that involve money exchange. Painting your own house or cooking dinner doesn't count.

My rough calcs based on the American Time Use Survey say that uncounted work, if counted, would increase GDP by about a third.

http://www.asymptosis.com/home-work-25-of-gdp.html

I have no evidence except the greater liesure time available to Europeans, but I would guess that their GDP increase would be greater than the U.S. if you counted nonremunerated work.

Thomas DeMeo writes:

If we were to take 1000 people (even if all of them were US citizens) and have them live for one year scattered around Alabama and one year scattered around the EU, my guess is that a significant majority would find the EU a better place to live overall.

Doug writes:

"If we were to take 1000 people (even if all of them were US citizens) and have them live for one year scattered around Alabama and one year scattered around the EU, my guess is that a significant majority would find the EU a better place to live overall."


Really? A majority of Americans? Maybe the StuffWhitePeopleLike demographic would, and maybe if the stay was short (notice you said 1 year, instead of 20).

Let's be honest and mark down the advantages that Alabama enjoys:
1) The typical Alabaman has a far bigger living space then the European, and is much more likely to have things such as a yard, a shower (instead of just a tub), higher ceilings, a dishwasher, a garbage disposal, air conditioning and a garage (see 2). Also the house in Alabama was most likely built much more recently then the house in Europe, which means that the finishings are more modern and the plumbing, heating and electricity are more reliable.
2) In Alabama you are much more likely to have a car, and if you do it will be a bigger, more luxurious car than what you can enjoy in Europe.
3) The typical Alabaman is much more likely to be close to a Wal-Mart, where he can purchase consumer items after tax for about 1/2 the cost of what he'd pay in Europe.
4) People in Alabama are much more likely to consume more meat and other luxury food items. Alabamans also eat out a lot more and enjoy larger portions when they do. Since we're talking about US citizens, I hope you understand just how much the typical US citizen loves large portions.
5) Someone in Alabama is more likely to have access to domestic help because of cheap black and Mexican labor.
6) Even though some parts of Europe have developed good broadband systems, compared to the average place in Europe, you have access to much faster Internet, more cable channels and more cable features (like On-Demand). This combined with the giant flat-screen TV you purchased at 3) or Best Buy has a multiplicative effect. Remember how much the typical American loves television.
7) Because of cheaper food and space Alabamans have more pets than Europeans which increases people's happiness by a lot.
8) Because of cheaper food, space and consumer goods Americans have more kids than Europeans which increases people's long-term happiness by a lot.

My guess is that most people pontificating on European superiority on this thread has spent a lot more time in London then Montgomery. If you go to Alabama believe it or not the cities are actually new and modern. The same demographic that supports Krugman probably likes to view Alabama's progess as on par with somewhere like Rwanda. "Err... I've never been there, but it's gotta be major screwed-up and backwards. How else do you explain that the state is so Republican???!!!"

People like to vacation to Europe and think it's wonderful because they only spend a week there. That "old-world rustic charm" has serious diminishing marginal utility. Try spending ten years in a tiny apartment with a family of four and bicycling to work everyday and it gets real old, real fast. It's nice for a vacation, but my guess is that over a 20 year span the typical American would be much happier sitting on his La-Z-Boy couch, stuffing his face with a TV streak dinner and watching WWE Raw three times in a row (because it's recorded on Tivo) on his 50 inch plasma, while drinking copious amounts of cheap Budweiser.

Josh Weil writes:

@Doug

Great post, thanks for the thorough response.

Windmill Tilter writes:

"Since time with loved ones (think long, lingering lunches and lengthy vacations) is hands-down the best predictor of life satisfaction, that sounds like a great deal to me. Can you say "family values"?"


Aren't their families smaller and shrinking faster?

By the way, which way are immigration flows larger?

David N. Welton writes:

I can't tell if Doug is being facetious or not:

"the typical American would be much happier sitting on his La-Z-Boy couch, stuffing his face with a TV streak dinner and watching WWE Raw three times in a row (because it's recorded on Tivo) on his 50 inch plasma, while drinking copious amounts of cheap Budweiser."

I don't know if he's right or not, but it sounds like a fairly sad existence to me, and I'm not exactly the type to sit around watching artsy movies and sniffing at Americans. I do live in 'Europe' though. Let's go through Doug's points:

1) Yes, the guy in Alabama likely has a bigger house. It's also further away from much of anything, so he has to get in his car to get anywhere, and it's very unlikely he can walk down the road and meet his friends for a beer. It's true that things like dishwashers have come later to Europe, but they're fairly common these days. Dryers aren't, here in Italy - solar power is more commonly used (hanging stuff up), which is likely also a cultural thing. Even the very wealthy people I know here simply aren't interested in dryers. Yards are bigger in the US - no question about that - it's something I miss. On the other hand, if everyone lives in sprawling cities because they want a big, one-story house and a big yard, then that means more time in the car, and less with friends and family.

2) 'Bigger, more luxurious cars'. Bigger isn't always better, as Mercedes, BMW, Porsche, Ferrari, etc... etc... demonstrate nicely.

3) Close to a Wal Mart. Yep, true - it's easier to buy lots more cheap stuff in the US, which is generally good. There are discount stores here, too, though. And you simply can't find stuff like this in Alabama:

http://images.google.com/images?hl=en&source=hp&q=palazzo+della+ragione

And to me, despite having lived here for a while, it doesn't get old. It's a positive aspect to living here to see all kinds of varied and interesting architecture - I feel it helps keep the brain alive, rather than seeing the same square cookie cutter boxes and suburbs.

4) "I hope you understand just how much the typical US citizen loves large portions." Sadly, in many cases, they value large portions over quality, and are often obese. Portions in the US are really ridiculous - I love a nice hearty meal, and don't like sheeshy restaurants with tiny portions of odd things - however, last time I was in the states, my wife and I could comfortably split a meal at most places and come away feeling quite full, which meant that for one person it was a truly ridiculous amount of food. Also, here in Italy (not true elsewhere in Europe), people care a great deal about good, fresh fruit and vegetables. The quality is higher than anywhere else I've lived.

5) There's plenty of cheap labor here too: eastern europe and northern africa are the main suppliers.

6) Europe, being more urban, actually has better broadband and mobile coverage. That's to be expected though: it's easier to cover one more apartment block, less so to lay fiber out to some remote farm.

7) Yeah, pets are probably a win for the US.

8) The kids subject is pretty complex and merits a long discussion of its own, but I think that the advantage is generally for the US, but also depends a *lot* on where in Europe you're talking about. Spain is very different from Sweden.

In short: it's a long, complex discussion where not enough people really have a good idea of what life is like in the 'other' place, and where personal preferences play a large role. If you like having a big backyard with lots of dogs, and, say, to go hunting for deer, then Alabama is going to be a better place to live. If you enjoy going for nice hikes and stopping at the trattoria for a fiorentina steak and good red wine, Italy's pretty good.

Anyway, it's frustrating to read these things at times because most people like to play 'score points against my adverseries' or explain why the place where they happened to be born is best rather than really look at the issues. If you'd like to hear more, my email address is easy to find.

Boomboom writes:

@David

I guess, while promoting the standard of western european living, you are forgetting some important things.

The first one is debt! While you might have some debt too (euphemism), yours has a better quality (investment, higher interest rate of return), ours, is creepy. It just served to pay inefficient workers or political projects (rafale, a400m, a380, inefficient universities, unused bridges i the middle of nowhere, but so great...). Our social security is going to go bankrupt someday (30% more expensive than yours), and it's gonna hurt...

So yes, when you borrow, your standard of leaving is so much higher... (you know that btw).

The second thing is freedom of economic choices... (I guess freedom of speech is nowadays irrelevant thanks to internet). It's hard to impossible to get a credit (only Gov does it), our cars are way better than yours... but so expensive (bought a bmw in us, drive a Clio in France...).

-Internet is slow in many area, and still much more expensive.
-Rent is unpayable.
-High unemployment rate (my Us friends all got a job in wall street, me and y French friends we get nothing in whole europe while our GPAs where significantly higher).
-Your quality food is not higher than ours, your meat is ten times cheaper (literally), and better.
-If you get surgery, you still have to pay, if you want quality, and end up in a scary building outdated.
-Eastern europe and nortern africa labors are not cheap (labor cost...)
-You try to avoid public transportation if you are a serious worker and try to buy a cheap car asap.
-Then you spend time in transportation as they are on strike... or because infrastructure are not well fitted for cars...
-If you get rich, you get 2 tax investigation per year (no kidding), and get hated by the rest of the population (get flat tires some times).


dieter writes:

Walmart couldn't compete in Germany with the local cut-throat competition from Aldi and Lidl.

You could of course turn that around and claim that the success of these small no frills stores in Europe as an indication of desperation. Even rich Germans shop there. It is a cultural thing.

Most of these qualitative comparisons follow a "heads: US wins, tails: Europe loses" rationale. (or vice versa)

I don't get the obsession with dishwashers and garbage disposals. The latter simply aren't popular. What's the point?

Dishwashers cost less than 300€. If, supposedly these are less common in Europe, it has nothing to do with affordability. Home appliances are cheap and have been for decades. They don't function as status symbols.

Air conditioning? Most of Europe has a rather different climate than Alabama and I find air conditioning to be irritating.

The divide on cars is befuddling. The last thing that comes to mind, when I see an american car, especially a pickup truck, is luxury or quality. The only thing that could be conceivably more comforting for many Americans are the ludicrously wide seats.

Jean writes:

Guten Tag Dieter!
Well, I'm moving back to the US this summer and I'm looking forward to having a garbage disposal again. I must trek back and forth from the sink to the bin 5 times a day emptying the drain guard. You, personally, may find air-conditioning irritating, but I think the 15,000 elderly french who died in 2005 heat-wave may have appreciated it.
I get, and actually agree with, your larger point: People on 'both' sides of the debate are trying to score points to say 'we're better.' Both the US and Europe have upsides and downsides. The thing that annoys me though, is that so many American expats 'enjoying Europe' are doing it on an American wage while paying American tax rates. Paul Krugman gets to stay in expensive hotels in Frankfurt, Paris and London and tells his fellow Americans that 'social democracy' is great - has he ever traveled to the suburbs around Paris where the youth unemployment rate is 40%? Additionally, the largest country in the EU has a population of 83 million, and is a federal republic. The US has a population in excess of 305 million, and Krugman and his ilk want to increase the power of the federal government! Why do people think that what 'works' in the more successful 'social democracies' (the Scandinavian countries with populations between 4 and 7 million) will work in the US? Deadweight loss anyone? Opportunity costs? The Hayekian knowledge problem?

David N. Welton writes:

@Jean - want to take a guess at what the unemployment rate is in poorer parts of the US? Not unlike the 40% in the Paris suburbs.

@Boomboom - debt? The US has a lot of it - more than many European countries:

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

eccdogg writes:

Had a discussion this weekend with my wife on the difference in quality of food between US and Europe.

At first I thought the statement that Europe had better food was obvious, but the more we thought about it I don't think it is true. I think it used to be true but the US has really caught up.

She and I have traveled to Paris, London, Ireland, Germany, and Amsterdam. And I have to say the restraunt food has been a disapointment. Got much better living in DC, and traveling around to big cities in US. And supprisingly even get better now that we live in Raliegh NC.

Street food was very good in Paris, and there is nothing to match it anywhere in US. And food in the train stations in Germany was much better than US.

As far as availabilty of good fresh food of high quality at least where I live (again Raliegh NC)the US is very comperable if not better. Being near the agricultural region of NC we have access to a very large farmers market. So we can have a huge variety of fruit/vegetables picked that day or very close plus meat/dairy. This compares very favorabley to the markets in Munich or Paris that we visited (much larger cities). We also had very good access to farmers markets when we lived in Virginia. Additionally we are members of a CSA so we get fresh produce year round. Last week picked up fresh sweet potatoes, kale, bok choi, spinach. carrots, and lettuce.

At our farmers market there are very high qualty baked goods (produced by European imigrants)French bread and German and Swiss pastries.

The groceries stores are not even close between the US and Europe. We have bought groceries in London, Paris, and Germany. The US grocery stores are obviously larger, but don't offer as many of the high quality products as Europe (although even this has changed our Kroger has two entire isles for imported products from around the world).

But in addition to standard grocery stores we also have higher end stores Whole Foods, Fresh Market, and Trader Joes that allow you to get almost anything that you could get in Europe. Plus there are numerous ethnic grocery stores where you can get Mexican, Asian, Indian, and Middle Eastern food.

Now I will admit that most Americans do not shop the way I do and that Alabama may not have the variety that Raleigh NC has (although I bet Birmingham does). But that is actually what I see as the big difference between the US and Europe. In the US you can live like a typical European by living in a smaller house inside a city, but I don't think you can live like a typical American in Europe. For those Europeans that would like a big house in the suburbs there is not a real option. For Americans who want to live as a European there are tons of options.

Maybe I am wrong, maybe that option does exist in Europe and I just don't see it.

Felipe writes:

"I can't tell if Doug is being facetious or not"

Appeal to ridicule invalidates your entire argument.

Anyway I think europeans are a little too happy to live under the thumb of the state.

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