Thursday, September 13, 2012

Whose Worse Off? U.S. or Europe?

Conservative Americans love to drone on and on about how the European welfare state is bankrupting them. As the story goes, their too-generous "entitlement" policies are dragging down the entire economy. Thus, we here in the U.S. must also eviscerate our "entitlements" and welfare policies, or we shall face the shame dire consequences.

As usual, with Republicans, nuance, context, and the better part of reality are left out the analysis.

"There's a strong tendency to think of it as having a lot to do with the fundamental inequalities in overall productivity and economic development between euro members — backward, semideveloped countries like Greece or Portugal (not my view, but what you often hear) awkwardly tied to powerhouses like Germany. So it comes as something of a shock to look at Eurostat data on real gross domestic product per capita (or productivity, which look similar). Sure, Greece and Portugal are relatively poor, with G.D.P. per capita of 82 and 77 percent, respectively, of the European Union average; this means roughly 76 and 71 percent of the euro zone average, since the euro countries are a bit richer than the E.U. as a whole. Meanwhile, Germany is at 120 percent of the E.U. average, or 112 percent of the euro zone average. But it's no different, really, than the situation in the United States. According to data from the Bureau of Economic Analysis, Alabama is at 74 percent of the average, Mississippi at 67 percent, with New England and the Middle Atlantic States at 118 and 116 percent. In other words, as far as underlying economic inequalities are concerned, the euro zone is no worse than the United States," as Paul Krugman details.

Times are tough all around. These "worse off" hysterics are counterproductive and miss the point. We should be focusing on putting people back to work and not pointing fingers or worrying about whom is better off. A high debt as a percentage of GDP is nothing new. It's not optimal, but it's nothing new. We got ourselves out of this situation before by investing and putting people back to work. That same prescription will work again.

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