Learning From Europe

While I'm at it, here's another one for the Austrian Schoolers out there from the most respected scientific journal

http://www.scientificamerican.com/article.cfm?id=the-social-welfare-state

From the November 2006 Scientific American Magazine
The Social Welfare State, beyond Ideology
Are higher taxes and strong social "safety nets" antagonistic to a prosperous market economy? The evidence is now in

By Jeffrey D. Sachs

One of the great challenges of sustainable development is to combine society's desires for economic prosperity and social security. For decades economists and politicians have debated how to reconcile the undoubted power of markets with the reassuring protections of social insurance. America's supply-siders claim that the best way to achieve well-being for America's poor is by spurring rapid economic growth and that the higher taxes needed to fund high levels of social insurance would cripple prosperity. Austrian-born free-market economist Friedrich August von Hayek suggested that high taxation would be a "road to serfdom," a threat to freedom itself.*

Most of the debate in the U.S. is clouded by vested interests and by ideology. Yet there is by now a rich empirical record to judge these issues scientifically. The evidence may be found by comparing a group of relatively free-market economies that have low to moderate rates of taxation and social outlays with a group of social-welfare states that have high rates of taxation and social outlays.

Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post�World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.

Friedrich Von Hayek was wrong

On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.

The Nordic countries maintain their dynamism despite high taxation in several ways. Most important, they spend lavishly on research and development and higher education. All of them, but especially Sweden and Finland, have taken to the sweeping revolution in information and communications technology and leveraged it to gain global competitiveness. Sweden now spends nearly 4 percent of GDP on R&D, the highest ratio in the world today. On average, the Nordic nations spend 3 percent of GDP on R&D, compared with around 2 percent in the English-speaking nations.

The Nordic states have also worked to keep social expenditures compatible with an open, competitive, market-based economic system. Tax rates on capital are relatively low. Labor market policies pay low-skilled and otherwise difficult-to-employ individuals to work in the service sector, in key quality-of-life areas such as child care, health, and support for the elderly and disabled.

The results for the households at the bottom of the income distribution are astoundingly good, especially in contrast to the mean-spirited neglect that now passes for American social policy. The U.S. spends less than almost all rich countries on social services for the poor and disabled, and it gets what it pays for: the highest poverty rate among the rich countries and an exploding prison population. Actually, by shunning public spending on health, the U.S. gets much less than it pays for, because its dependence on private health care has led to a ramshackle system that yields mediocre results at very high costs.

Von Hayek was wrong. In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness.

interesting stuff

Stop spilling our secrets. we europeans are broke, sad, uneducated, lazy, individuals, and above all SOCIALISTS (GASP*) leave us be.

but we do all know the name of a country that starts with a U and it isn't Yugoslavia

bravo, that was a great read and confirms what I've always thought!

quality linkage.

I request material about beating the stockmarket next time~

Greg Mankiw (Harvard Prof, ex-CEA head, and general Krugman nemesis) believes Paul is being misleading:

Here is GDP per capita, adjusted for differences in price levels (PPP), from the IMF, for the United States and the five most populous countries in Western Europe: United States 47,440 United Kingdom 36,358 Germany 35,539 France 34,205 Italy 30,631 Spain 30,589 Readers of today's column by Paul Krugman might find these figures useful to keep in mind.

from http://gregmankiw.blogspot.com/

I don't get this post, Sick Macks (so Mankiw's one).
Does he want to prove economic situation is better in the US ?
So he would consider GDP as a self-consistent indicator ?

It's far to be one. About the purely ecocomic part. Gross national income (GNI), which also traduces the flows with other countries, would be better than GDP. And next you could compare with "The purchasing power parity" (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. (wikipedia).

But what Krugman wants to show is that the economy can'be resume with just incomes.
you can take into account healthcare, disparity, poorness, education... something that we could call quality of life.

I'm just saying, that the aim is not to have a better GDP but a better quality life.

Edit for mispelling Sick Macks.

Tada !!

I think that there is a disconnection with the principal economies indicators with the reality. And there is something one could question : is economic growth in the sense of the GDP really relevant ? About some areas like employments, incomes, I guess it is. But it fails to traduce a lot of other realities.

The english comission of the sustainable development studied this. I really advise to read at least the summary.

For example, they worked on an indicator of happiness. Studied the link between incomes and happiness. Obviously the relation is not linear. So it's kinda fresh.

http://www.sd-commission.org.uk/pages/redefining-prosperity.html

On January 12 2010 05:05 kingpowa wrote: I don't get this post, Sick Macks (so Mankiw's one). Does he want to prove economic situation is better in the US ? So he would consider GDP as a self-consistent indicator ? It's far to be one. About the purely ecocomic part. Gross national income (GNI), which also traduces the flows with other countries, would be better than GDP. And next you could compare with "The purchasing power parity" (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. (wikipedia). But what Krugman wants to show is that the economy can'be resume with just incomes. you can take into account healthcare, disparity, poorness, education... something that we could call quality of life. I'm just saying, that the aim is not to have a better GDP but a better quality life. Edit for mispelling Sick Macks.

I think Mankiw is using Purchasing Power Parity-adjusted incomes to get at quality of life better than the pure GDP-per-cap can. He's saying US citizens can consume over 50% as many goods and services (including many of the things you mention) relative to their European counterparts,

I've just read the second post of Mankiw's blog. And it's about the 290.000 speeding ticket (big topic on this). He presents his reflexion based on simple economical theory.

But still quite meh. I have lost an uncle in a car accident (in Switzerland...). Part of the accident is due to the over speed of the other car involved... So I can see other arguments than his but I still agree with what he put.

To Sikcs Macks.

It is indeed. My fault.
But I don't agree on the fact that it takes into account what I have said. As an average it doesn't consider the repartition.
And in the so called "Market basket" used to calculate PPP, we would have to see if a tooth surgery is in (^_^). I obviously mean something that is related to healthcare, social aid...

Here's an Austrian reply to your second article: http://stefanmikarlsson.blogspot.com/...effrey-sachs-on-nordic-countries.html

As for the first one, Krugman is very misleading about history, as usual. I'm sure Mises will have some sort of refute of that article up in the next couple days, but they don't at this point and I don't have time to write a response to it atm.