Another Reminder that the United States Should Not Become a European-Style Welfare State

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1913

One of the more surreal aspects of the 2016 campaign was watching Bernie Sanders argue that the United States should become more like a European welfare state.

Was he not aware that Europe had major problems such as high unemployment and a fiscal crisis?

Didn’t he know that America’s economy was growing faster (which is a damning indictment since growth in the U.S. was relatively anemic during the Obama years)?

Perhaps more important, didn’t he know that Americans enjoy much higher living standards than their European counterparts? Was he not aware that European nations, if they were part of America, would be considered poor states?

If you don’t believe me, here’s a chart I prepared using the “average individual consumption” data from the Organization for Economic Cooperation and Development. These are the numbers that measure the material well-being of households. As you can see, the United States is far ahead of other nations. Indeed, the only three countries that are even close are two admirable tax havens and oil-rich Norway.

What about Denmark and Sweden, the two nations that Bernie Sanders said were role models? Well, the United States could copy them, but only if we wanted our living standards to drop by more than 30 percent.

By the way, since the OECD is a left-leaning bureaucracy that is guilty of periodically rigging numbers against the United States, you can be confident that this AIC data isn’t structured to favor America.

So why does the United States have such a big advantage?

In a new study from the National Bureau of Economic Research, Professor Martin Feldstein addresses why Europe is lagging the United States.

Although the official statistics imply that the rate of growth of real GDP in the United States has declined in recent years, it has still been substantially higher than the real growth rates in Europe and the other industrial countries. The sustained higher rate of real GDP growth in the United States over a longer period of time has resulted in a substantially higher level of real GDP per capita in the United States than in other major industrial countries.

He lists 10 reasons for the growth gap. Here are the ones that are related to public policy, followed by my brief observations.

(4) Labor markets that generally link workers and jobs unimpeded by large trade unions, state-owned enterprises, or excessively restrictive labor regulations. In the private sector, less than seven percent of the labor force is unionized. There are virtually no state-owned enterprises. While labor laws and regulations affect working conditions and hiring rules, they are much less onerous than in Europe.

Given America’s high ranking in the World Bank’s Doing Business, this makes sense.

(6) A culture and a tax-transfer system that encourages hard work and long hours. The average employee in the United States works 1800 hours per year, substantially longer than the 1500 hours worked in France and the 1400 hours worked in Germany.

The U.S. subsidizes leisure, but not nearly as bad as Europe (think of Lazy Robert).

(7) A supply of energy that makes North America energy independent. The private ownership of land and mineral rights has facilitated a rapid development of fracking to expand the supply of oil and gas.

Apparently the United States is one of the few nations where you own minerals under your land. Good for us.

(8) A favorable regulatory environment. Although the system of government regulations needs improvement, it is less burdensome on businesses than the regulations imposed by European countries and the European Union.

Given the data from Economic Freedom of the World, I’m not sure I believe this.

(9) A smaller size of government than in other industrial countries. According to the OECD, outlays of the U.S. government at the federal, state and local levels totaled 38 percent of GDP while the corresponding figure was 44 percent in Germany, 51 percent in Italy and 57 percent in France. The higher level of government spending in other countries implies that not only is a higher share of income taken in taxes but also that there are higher transfer payments that reduce incentives to work. In the United States, …There is no value added tax. State income taxes vary but are generally about five percent… So Americans have a higher pre-tax reward to working and can keep a larger share of their earnings.

A smaller burden of government spending may be America’s biggest advantage. And that’s connected with our other big advantage, which is not being burdened by a government-fueling value-added tax.

(10) The U.S. has a decentralized political system in which states compete. The competition among states encourages entrepreneurship and work effort and the legal systems protect the rights of property owners and entrepreneurs. The United States political system assigns many legal rules and taxing power to the fifty individual states. The states then compete for businesses and for individual residents by their legal rules and tax regimes. Some states have no income taxes and have labor laws that limit unionization.

We still have some federalism, and that helps.

Overall, Feldstein’s list is impressive, though it fails to note that there are areas where Europe has better policy, such as lower corporate tax rateslower death taxesprivate postal services, and private infrastructure. There are even European nations with school choice and private retirement accounts.

Notwithstanding these attractive features, Feldstein is right about more economic liberty in the United States. And that helps to explain higher living standards in America.

What makes this especially noteworthy is that convergence theory says that poorer nations should automatically catch up to richer nations. Yet Europe’s catch-up period came to halt in the 1980s and the continent has since been losing ground.

And for fans of apples-to-apples comparisons, it’s very illuminating that Americans of Scandinavian descent earn about 40 percent more than those who didn’t emigrate and still live in Scandinavia.

  • James Andrews

    We already have….it’s probably too late anyway! The average, working class family in the U.S. is actually among the highest taxed group of civilians in the entire world. We are already one oft he most heavily socialized nations in the entire world.

  • Alberto Bencivenga

    You can blabber whateve you want, but let metell you a fact: my wife, an American fron New York, could have here in Italy, absolutely free of charge, a bilateral total hip joint replacement with the most modern ceramic prostheses simply because she is a resident and not because she is my wife (we got married in Kenya and the marriage is not yet recorded in Italy, because of the legendary red tape of the local bureaucracy).In USA she would have never been able to afford the expenses. And,by the way, the quality of life here is much better than there an we can walk everywhere, at any time of the day and the night, sure that we will nevermeet an insane with a gun that wants to rob us, because nobody goes aroundarmed!.

  • guestimate

    Business is very good posting charts & graphs to justify it’s position. In the words of Warren Buffet, “It’s we, the rich, who are waging the rhetorical war against the poor, and we’re winning, but we shouldn’t be.”

    EU has become the victim of the globalist lie, losing industrial capital & jobs to communist Red China, same as US. In other words, a mix of capitalism and communism is working quite well for the Chinese, because the red capitalists are free to pay slave wages (prison labor), operate unregulated (China has become an environmental catastrophe much like US was before Nixon created our EPA, if you’re old enough to remember) and freedom from taxation, and without US distributors passing the cost savings on to US consumers

    Most people alive today aren’t old enough to remember when USA thrived with much higher business tax rates and anti-business/anti-banking sentiment, along with greater personal citizen freedom. However lives were more regimented, white-collar crime was often overlooked or considered ‘normal.’ Americans were more blithe, prejudiced & uninformed (prior to the WWW.) Prior to WWII & unions, factory owners would mow down protestors with machine-guns. Those were “the good ol’ days” some would revert US all back to, because they themselves have either not out-grown them or prefer same as a practical model that works for them, or even further regressed to the gilded age of robber barrons.

    There is a relentless philosophical war being waged by business via articles and opinion blogs such as this, defending the pro-business position. However I’d encourage all readers to watch Richard Wolff’s & Abby Martin’s collaborative Youtube videos, explaining the weaknesses in capitalist ideology. Clearly it quit working for US when capitalist billionaire traitors began donning Chinese Red Star hats.

    The other issue is a bogus debt perception being foisted upon the public as if it were a fact. Readers need to grasp how money is created by banksters, literally out of thin air, as book entries, the original agreement the Uncle Sam signed with the private Federal Reserve banksters in 1913, which conveys ownership of all currency to the Fed at mere cost-of-printing (about 4 cents per bill of all denominations), the unwillingness of the Fed to be audited, the reason why sufficient money is not printed and never can be printed, to pay off the ostensible “debt,” i.e. 3% management fee, compounding; how the money supply (actually credit) is expanded by bankers exponentially to their exclusive profit, via requiring borrowers sign promissory notes, used as assets to extend even more loans, insulated from failure by taxpayer dollars even while banks corral 99% of all private assets.

    The western model is that by following and working with the private Federal Reserve banking system of bank issued credit, participants can prosper so long as the Fed can maintain its dominance & funny-money ruse, however with & under globalization, where Fed policies allowed for massive expropriation of national wealth, individuals lost their jobs, homes and livelihoods as factories were shuttered and moved like so much other trade goods. The banking system and capitalism have clearly failed US. What most people alive today don’t realize is that the system they’re familiar with and consider “normal” is not the way as has always been here, it’s getting meaner again (following a brief respite under Obama where he stopped blaming citizens for being jobless, and business presumptions of authority were challenged and shaken), however a fish born in polluted water has only those conditions in which its normalcy bias is acquired, and unable to imagine better, unless better examples can be shown.

    On the other hand, nordic socialist countries have been doing fine by their cooperative spirits, given the great loss & sacrifice they suffered during WWII, imparted a new ethic that supercedes individual greed and allowed those countries to thrive under a different model and understanding.

    There is no question that business wants to make the rules as in past decades, unquestioned, unchallenged and unregulated, where workers are too grateful just having a job, to peep, however this is no guarantee workers will receive a living wage, health-care, a quality of life or an equitable share of the wealth their input has allowed company management to become rich and hide the pea under offshore shells at workers’ expense. Certainly their whinings for more freedom only apertained to themselves and lavish lifestyles, to which working people can barely aspire much less identify with. To call it envy is a perversion of the facts, most people have too much decency to want or do what the rich do.

    Of course given the acrimony of CEO’s to paying taxes/sharing the load to create infrastructure and a civil society, some have considered 100% automation, too short-sighted to grasp that citizens without income cannot afford to buy goods so produced. A guaranteed income policy could address that but that capitalist business owners howls at any free dollar missing their wallets and bank accounts directly, even though they eventually arrive their indirectly, when consumers purchase goods. Rationality or systems approach is irrelevant where raw passions and terms of reward and feeling special are the real issue of the day.

  • Charlie Davenport

    If you have a health care plan and can afford it, Great! If not, die, sucker, it’s the American way!

  • skeptic

    Sorry, Kelly. We know what we know, trying to convince us with facts, as you can tell from the comments, is just whizzing into the wind!

  • Chief741A

    How right you are, skeptic.

    Charlie, I have “a health care plan” that I can afford. Any American can do what I did – but few do. I spent years with low wages (but with the promise of that health plan, among other things) and even at the pinnacle of my career I was considerably underpaid compared to my civilian peers. Today I have Obama-Scam-proof health “plans” from 3 sources because of decisions I made more than 40 years ago. Today I have more income than I need, own my home free and clear, and I never got close to a 6 figure paycheck so I’m a long way from wealthy.

    guestimate, you conveniently left out the fact that the wealthy pay the vast bulk of the federal income taxes. The 1% you love to hate pay 38%. The 10% you merely live to hate pay 71% (that’s the 1%’s 38% plus the 2-10%er’s 33%). The “middle class”, those between the 50th and 89th percentiles, pay a whopping 26% of the tab. Bet you have convinced yourself that the “middle class” pays everything – bet you claim that you pay 25% of your income in federal income tax because your pay (assuming you have a job) puts you into the 25% marginal tax rate.

    Yeah, and Warren Buffett’s “secretary” pays a higher “rate” than he does, too. That means that his “secretary” makes a 6 figure salary, probably close to $250k. You didn’t mention that. Probably because that puts his “secretary” in the 10%.

    My highest earning year was $67k, which put me into the 25% bracket. My effective tax rate was 9.9%, not 25. Today, I take in a tad more than half of that and my effective tax rate is not quite 3%, not the 15% marginal rate assigned to my income.

    I didn’t mention the other half, did I? The bottom half of the nation pays an astounding 3%. That’s not a typo, I said THREE PERCENT. Actually it’s slightly less, but I’ll call it 3%. If you remove the young singles just starting out and retirees like me from the equation, the bottom half pay NOTHING – zip, zero, nada, nothing – in federal income tax.

    They pay nothing but use most of the services. Many get “negative income tax” via the EITC.

    Alberto, I have lived in Europe, spent 8 years there. Born in Germany, by the way. The situation you describe might have been true 25 years ago, but not today. There are large parts of any European city where you can’t walk through today because your foolish governments have allowed people who refuse to assimilate into your culture set up their own cities. By the way, have you tried to find a job in Italy lately? Or any part of Europe? The union shop was created there!

    And the answer to any request for work in Italy (at least when I lived in Europe) was always “domani”. Always domai. A month from now it will still be domani.

    And, Jimmy, your response shows an abysmal level of ignorance. The “average working class family” in the USA pays less than 10% in federal income tax. If you are stupid enough to live in New York, Mexifornistan, or other state income tax states, that’s on you.

    Back in the mid 1990’s, I worked in Ohio earning $32/hr. My mother was struck with leukemia and I moved to Florida to spend what few months she had left with her. The job that paid $32/hr in Ohio only paid $25/hr in Florida – but put more $$ in my pocket. How is that? In Ohio, I was paying INCOME TAX to Ohio, Columbus (job), Dayton (apartment), and the freaking county – and commuting 70 miles each way. I was paying nearly 10% of my income to various political subdivisions of Ohio – so my take-home pay went up despite that $7/hr cut in pay.

    If you truly believe you are taxed too much HERE in the USA, Jimmy, feel free to move to Europe and discover the truth. I’m sure Alberto will be glad to help you… domani.

  • skeptic

    Thanks for your service, Chief! Glad you made it out the other side…!