Saturday, May 22, 2010

Another Clumsy Attack on the European Social Model

The New York Times, supposedly the reliable voice of bleeding-heart liberalism, has repeatedly attacked European welfare state institutions in its news pages. The latest assault was published today, informing us that pensions and other social benefits are no longer “affordable” and that the coddled European public must wake up and face reality. All such “analyses” require the reader to accept without questioning the strange notion that social programs that were instituted decades ago when Europe was substantially poorer have now become, after a long run of economic growth, too expensive to bear.

You might wonder how the article’s author (Steven Erlanger) deals with this conundrum. Wisely, he doesn't even try. A quarter of the article is taken up with man-on-the-street interviews, in which selected students, workers and pensioners say what Erlanger wants them to say. (No one says anything different; apparently European public opinion is monolithic on this issue.) The article tells us that the dependency ratio, the number of retired people as a proportion of the working population, has increased, but it doesn’t point out that economies have grown even faster. (The ratio of real economic growth to growth in the dependency ratio over the period 1980-2005 is 2.4 for the countries that now make up the Eurozone, and a whopping 6.6 for the US. Don’t let Pete Peterson hear about this.)

The article suggests that all sorts of damage has been caused by excessive concern for the old, the sick and other insufficiently productive citizens, with the result that “the region generally lacks competitiveness in world markets.” I have to rub my eyes every time I see a comment like this. Let’s get this straight: journalists tell Europeans to emulate America’s high-octane approach to economic efficiency when the Eurozone has approximately balanced trade with the rest of the world, while the US runs the largest trade deficits the world has ever seen.

It is true that the current economic stall, combined with immense, ill-considered financial bailouts, has diminished the fiscal space available to governments everywhere. This is a problem of, well, stalled economic growth and unwise bailouts. Europe, like the US, needs to deal with this. But those problems have nothing to do with “unaffordable” social welfare programs. On the contrary, maintaining transfers to the most vulnerable households is not only the right thing to do, it is also an excellent vehicle for sustaining effective demand in a downturn.

Maybe, if you prowled the cafes and restaurants of Europe long enough, you might find an interviewee or two to stick up for social solidarity.


Neil Cameron (One Salient Oversight) said...

I always appreciate reasonable criticism of Europe and the Eurozone. The problem is that many American commentators just seem to repeat the same old fallacies over and over and over again.

Obviously Erlanger didn't read this release from Eurostat, showing the comparison of unemployment rates between Europe and the US during the financial crisis.

Short summary: Unemployment in the US has pretty much doubled since the crisis began, while European unemployment has increased by around 50%. This means that the unemployment rates of the two economies has actually reached parity - the US recently had a higher unemployment rate than the EU and Eurozone.

And spare a thought for Japan: It's almost as if Japan has been in recession for 20 years if you believe what American commentators say. Certainly Japan has its problems, but unemployment there is half that of the US, and this despite some major downward hits on GDP.

My own research on Real Interest Rates indicate that the US is entering a period of monetary contraction - ie monetary conditions not being conducive to growth. By contrast the EU is entering a period of monetary expansion (monetary conditions being conducive to growth). I think we'll see a drop in EU27/16 unemployment rates over the next six months while US unemployment will either stagnate or rise.

Anonymous said...

another issue in the article is the repeated claim, that Europe would profit from military protection by the US. The reality is, since 1990 there is no enemy any more for Europe, and the US military actually provokes countries like Russia to have higher military spending than with less US military spending. So the high US military spending ENDANGERS Europe, instead of being of help.

Unknown said...

New York Times is a corporate voice box. It doesn't care about conservative or progressive thought; it doesn't much care about thinking at all, really. It's become propaganda. It's a shame.

After all, who besides a corporatocracy would be floating the idea that US social benefits are too expensive, and combine that with both pseudo-concern over the cost of Eurozone's health-care and their need for better military defense (from us, of course)?

It's good to read the New York Times. That way we know what they want us to think.

Anonymous said...

And how would pension costs in an aging society shrink if it wasn't run by government other then throwing a good part of your population into age poverty? You're not getting younger by paying into private pension funds.

And on the military spendings, this argument usually neglects that doing so US industry gets massive de facto subsidies and pushes US industry which, frankly, doesn't quite have enough to sell on it's own. Imagine US unemployment rates if people with no job percpective were not drawn into the army on a large scale.

Anonymous said...

People also forget that as a population ages, there are also fewer children. Children are unproductive, and very expensive to feed, clothe, and educate, for 18 years. Doesn't that cancel out part of the added burden of extra retirees? Why don't people ever mention this?

One of the most exasperating things people say is "if Europeans don't have children at the same rate at which they used to, they're going to have to import lots of immigrants and pay them peanuts." Since when does the welfare state rely on underpaid, black market, un-unionized labor? That's not the way it was intended to work.

BadTux said...

This same thing basically applies to Social Security in the USA. Yes, the Baby Boomers are retiring and will be dependent upon the wealth produced by others for their sustenance during their retirement. But: That was true during the 1950's when they were children, too, and the United States had a far smaller and less productive working population back then.

I think some people are unfamiliar with just how desperate the situation was in Europe in the post-WW2 period. here is an account of British austerity in the post-WW2 period. And Britain was actually in a better situation than the rest of Europe, yet still had rationing of many basic commodities such as sugar until well into the 1950's. Yet in 1948 during this post-war austerity they could institute the Public Health Service to provide health care to all Britons while people are saying this is "unsustainable" today? Utter balderdash.

But we're wasting our breath, of course. The right wing doesn't care about what's true. What they care about is what they wish was true -- "truthiness", as Stephen Colbert is fond of calling it. And the media is fond of repeating these "facts" as if they were Absolute Truth handed down upon from on high, never doing even the most basic fact checking to validate that they're not repeating lies. So it goes.... sigh, we need a real press in America. But I guess that's why we read blogs nowdays...

Martin Langeland said...

Badtux: "sigh, we need a real press in America. But I guess that's why we read blogs nowdays..."
And caveat lector still applies.
When there were multiple dailies the news was not necessarily more factual, or true. But readers new that the Trib was a Republican fount while the Sun Times offered a Democratic perspective. The more differing points of view available the better chance an active reader might discover the facts within all the partisan lens distortions. This situation has returned with blogging. But is slipping away as mega blogs and social network sites dominate reader's attention. Nothing new in that. --ml

Fabio Sabatini said...

Of course I agree that the way in which US commentators describe the EU scenario is most of the times superficial, slipshod and terribly biased.
But what first comes into my mind here as both Italian reader and economist is... how can I explain my fellow citizens that the NYT is not a communist newspaper? That its bias is liberalistic and, at least as regards fiscal policy, basically conservative? I understand how weird it may seem to your eyes of (lucky!) American readers, but in Italy, one of the countries whose welfare state is more severely under attack, Mr. Berlusconi's propaganda succeded in making people believe that the New York Times, together with The Economist, takes part to an anti-Italian conspiracy guided by communists. Yes, I'm not joking, I said "communists". That's the average level of our national public debate.