USA and Europe Diverging

[Annie]

NYTIMES



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November 25, 2003
OP-ED COLUMNIST
Refuting the Cynics
By DAVID BROOKS

he Economist magazine recently observed that in the 40 years following World War II, "America and Europe seemed to be growing more like one another in almost every way that matters." Demographically, economically and politically, the United States and Europe seemed to be converging.

Then, around the middle of the 1980's, the U.S. and Europe started to diverge. The American work ethic shifted, so that the average American now works 350 hours a year — 9 or 10 weeks — longer than the average European.

American fertility rates bottomed out around 1985, and began rising. Native-born American women now have almost two children on average, while the European rate is 1.4 children per woman and falling.

Economically, the comparisons are trickier, but here too there is divergence. The gap between American and European G.D.P. per capita has widened over the past two decades, and at the moment American productivity rates are surging roughly 5 percent a year.

The biggest difference is that over the past two decades the United States has absorbed roughly 20 million immigrants. This influx of people has led, in the short term, to widening inequality and higher welfare costs as the immigrants are absorbed, but it also means that the U.S. will be, through our lifetimes, young, ambitious and energetic.

Working off U.N. and U.S. census data, Bill Frey, the indispensable University of Michigan demographer, projects that in the year 2050 the median age in the United States will be 35. The median age in Europe will be 52. The implications of that are enormous.

As we settle down to the Thanksgiving table in a few days, we might remind ourselves that whatever other problems grip our country, lack of vitality is not one of them. In fact, we may look back on the period beginning in the middle of the 1980's as the Great Rejuvenation. American life has improved in almost every measurable way, and far from regressing toward the mean, the U.S. has become a more exceptional nation.

The drop in crime rates over the past decade is nothing short of a miracle. Teenage pregnancy and abortion rates rose in the early 1970's and 1980's, then leveled off and now are dropping. Child poverty rates have declined since the welfare reform of the mid-1990's. The black poverty rate dropped "to the lowest rate ever recorded," according to a 2002 study by the National Urban League. The barren South Bronx neighborhood that Ronald Reagan visited in 1980 to illustrate urban blight is now a thriving area, with, inevitably, a Starbucks.

The U.S. economy has enjoyed two long booms in the past two decades, interrupted by two shallow recessions, and perhaps now we're at the start of a third boom. More nations have become democratic in the past two decades than at any other time in history.

In his forthcoming book, "The Progress Paradox," Gregg Easterbrook piles on the happy tidings. The air is cleaner. The water is cleaner and we are using less of it. Our homes have doubled in size in a generation and home ownership rates are at an all-time high. There are now fewer highway deaths in the U.S. than in 1970, even though the number of miles driven has shot up by 75 percent.

Obviously, huge problems remain. But the overwhelming weight of the evidence suggests that despite all the ugliness of our politics, this is a well-governed nation. The trends of the past two decades stand as howling refutation of those antipolitical cynics who have become more scathing about government even as the results of our policies have been impressive. The evidence also rebukes those gloomy liberals who for two decades have been predicting that the center-right governance of Reagan, Bush, Clinton and Bush would lead to disaster.

Most of all, the evidence rebuts the cultural critics of the right and left, who have bemoaned the rise of narcissism, cultural relativism, greed, and on and on. And while many of these critics have made valid points, if you relied on their work you would have a horribly distorted view of the state of this nation.

In his book, Easterbrook seeks to explain why we feel gloomy even as things go well. I would only add that the beginning of political wisdom in times like these is realistic optimism, and the proper emotion at this season is, as always, gratitude.

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And the immigration isn't such a small factor, as this current Yahoo! news item shows: http://news.yahoo.com/fc?tmpl=fc&cid=34&in= us&cat=immigration

 

[MtnBiker]

Interesting read Kathianne, thanks for posting it. Perhaps the Czech President would agree with the article.
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'dream world' woes

By Arnaud de Borchgrave
THE WASHINGTON TIMES

Czech President Vaclav Klaus said Europeans are living in a "dream world" of welfare and long vacations and have yet to realize "they are not moving toward some sort of nirvana."
The Czech Republic is a candidate for European Union membership, but Mr. Klaus, who was elected president in February, made clear in an interview his distaste for the organization.
However, he conceded during a visit to Washington last week that "the political unification of Europe" is now in "an accelerated process ... in all aspects and in all respects."
Mr. Klaus said the movement toward a single political entity of 25 European nations "will not change until people start thinking and realizing they are not moving toward some sort of nirvana."
The Czech president remains convinced that "you cannot have democratic accountability in anything bigger than a nation state."
Asked whether he could see the nation-state disappearing, Mr. Klaus replied, "That could well be the case, [but] it remains to be seen whether it will be the nominal disappearance or the real disappearance.
"We could see the scaffolding of a nation-state that would retain a president and similar institutions, but with virtually zero influence," he said "That's my forecast. And it's not a reassuring vision of the future."
Last week, the European Court of Auditors in Luxembourg released a 400-page report that found "systematic problems, over-estimations, faulty transactions, significant errors and other shortcomings" in the EU budget.
EU auditors could vouch for only 10 percent of the $120 billion the bloc spent in 2002. It was the ninth successive year the auditors were unable to certify the budget as a whole.
Europeans have not yet faced up to such "serious underlying issues," Mr. Klaus said, because "they are still in the dream world of welfare, long vacations, guaranteed high pensions and cradle-to-grave social security."
The biggest challenge for the Czech Republic, Mr. Klaus said, is to avoid falling into the trap of "a new form of collectivism." Asked whether he meant a new form of neo-Marxism, he said, "Absolutely not, but I see other sectors endangering free societies.
"The enemies of free societies today are those who want to burden us down again with layer upon layer of regulations," Mr. Klaus said.
"We had that in communist times. But now if you look at all the new rules and regulations of EU membership, layered bureaucracy is staging a comeback."
The European Union's 30,000 bureaucrats have produced some 80,000 pages of regulations that the Czech Republic and the other applicants for EU membership will have to adopt.
Mr. Klaus dismissed anti-Americanism in Europe, which he sees as "more a reflection of American anti-Europeanism than European anti-Americanism."
He said those who organize demonstrations in Europe are a tiny minority of the population. "The majority doesn't care to demonstrate."
Asked about the U.S.-led war on terrorism, Mr. Klaus said, "It is quite normal that the principal targets of al Qaeda are the U.S. and the UK, as they have taken the lead to do something about those who launch the terrorist attacks.
"We understand the fragility and vulnerability of today's world and we know these attacks are coming close to us, but as someone from a small country, I have a tendency to take domestic issues first and then look at the external ones."
The Czech Republic is one of 33 nations with troops in Iraq, but Mr. Klaus has been critical of the postwar transition to an Iraqi civilian government.
"My concern was always what to do after the end of the war because I know something about the transition from a totalitarian regime to a free society," he said. "This cannot be done by soldiers, or by foreigners.
"After we won back our freedom at the end of the Cold War, there was a proposal to bring back Czechs who had escaped to Western countries and make up a new government of those people who had been living in free countries.
"Those who had lived the tragic communist experience said no to the idea of foreigners organizing our transition back to freedom. We said we had to do this ourselves without outside influence dictating what we should do."

link

 

[Annie]

Thanks Mtn. Biker,
I do think that President Klaus would probably agree with the article that I posted. It's funny, back in the late 70's I was a sociology/political science major, more conservative, a tad-only-really!,and I thought the European Union was going to really help both them and the US.

At the time, the countries making up the EU, like the US, were entering a recession, not terrible, but the worse I knew at 20 some years old. During this period, I guess in my defense, the US and Europe were still very much convergent on most issues-it was still the Cold War, obviously. They just seemed to need so much infrastructure work, that a 'super-government', I and I think most American academics were thinking 'US federal model', that it seemed such a good idea.

For the next 20 years or so, I married, raised 3 kids, and in 1995 earned a history degree. I was a bit involved in politics and had read a lot. I think going back to school, mostly with 20 year olds, made me realize just how idealistic that age is, and the world HAD changed drastically.

So many Europeans are offended by the more informed American commentators, (not those that just snear at Euros in general), that scoffed at the many hundreds of pages, Proposed European Constitution, intuitively assessing that anything that long, couldn't possibly be workable. Unfortunately that intuition is proving to be justified, country after country is finding their people are distrustful of the major countries dominating any union. France and Germany already are ignoring the agreements to reign in debt and increase productivity.

Last week, the European Court of Auditors in Luxembourg released a 400-page report that found "systematic problems, over-estimations, faulty transactions, significant errors and other shortcomings" in the EU budget.

The minor European powers are finding it difficult to be protected, while encouraging their people to work harder and follow capitalistic models.

Europeans have not yet faced up to such "serious underlying issues," Mr. Klaus said, because "they are still in the dream world of welfare, long vacations, guaranteed high pensions and cradle-to-grave social security."

It's all very discouraging.

My opinion now is that the EU will never work, they cannot possibly follow a US model, each nation is a nation. We are not a conglomeration of 'states' in the sense that Europe is, the Civil War put an end to any such idea. The two major wars in Europe in the past century were NOT Civil Wars, and the reconstruction afterwards was spearheaded and mostly paid for by an outside force, the US.

The Czech president remains convinced that "you cannot have democratic accountability in anything bigger than a nation state."

 

[Annie]

Austin Bay responds to the Czech President Vaclav Klaus' NY Times piece:

http://www.strategypage.com/onpoint/articles/20031125.asp

European Fat Cats Lack Will and Courage
by Austin Bay
November 25, 2003
Discussion Board on this On Point topic
Czech Republic President Vaclav Klaus last week blistered a fossilized but politically potent cohort of Europeans when he observed that too many people on the Continent inhabit a "dream world of welfare, long vacations, guaranteed high pensions and cradle-to-grave social security." The dreamers, Klaus added, have yet to realize "they are not moving toward some sort of nirvana."

Klaus, interviewed by the always trenchant Arnaud de Borchgrave, was specifically addressing the EU's failure (for the ninth straight year) to certify its budget. The extensive problems led Klaus to suggest "democratic accountability" can't exist "in anything bigger than a nation state." That's a smart guy's slap at the glazed brains who believe the Brussels government will morph into a superpower utopia of eternal peace and easy prosperity. Frustrating, isn't it, that European intellectuals like Klaus get zip air time with Peter Jennings.

Klaus' comments also have resonance for the United States and the entire "Western world," and not merely in terms of echoing classic democratic propositions like the government that governs best governs least or the more "local" the democratic action the more accountable.

Klaus touches on "the West's" most troublesome strategic weakness: the fat cats' lack of will and courage. The "dream world" of wealth and leisure is dandy as long as someone with courage and competence is policing the real world's vicious nightmares.

The United States didn't sleep during the 1990s. Washington fought a slow war with Saddam. Al Qaeda, however, declared war on the United States, and until 9-11 Washington thought it could keep that war "over there." On 9-11, responsible Americans woke up, though two years on, a predictably irresponsible clan willfully buries its fossil hippie head in pillows.

Klaus recognized the War on Terror implications of his insight when he added: "It is quite normal that the principal targets of Al Qaeda are the U.S. and the U.K., as they have taken the lead to do something about those who launch the terrorist attacks. ... We understand the fragility and vulnerability of today's world, and we know these attacks are coming close to us, but as someone from a small country, I have a tendency to take domestic issues first and then look at the external ones."

Translation: You do what you can do, but recognize the sacrifice of those doing the most.

Though the Czechs have contributed troops to coalition forces in Iraq, it is the bitter lot of America that in defending liberty and the lives of innocents from Al Qaeda's sociopaths, we are required to "do more." Some Americans bear a greater burden of that defense than others, such as soldiers and police. It's a damned lousy lot.

I recall sitting in my tank along the old East German border watching Russians watch me. Winter is a curse in Germany, for field soldiers. For Alpine skiers, of course, it's winter wonderland. December 1975, and I asked myself why the heck am I here freezing in a tank? The answer: Only America could "contain" the Soviet Union. In Frankfurt, fat cat turf, American troops were dirt. In border villages, Germans who lived near the communist guard towers smiled and gave us absolutely superb beer. The residents of Muhle -- a real kuhdorf -- weren't in Frankfurt's dream world.

I admit it. In 1989, when the Berlin Wall fell, I hoped America would no longer have to "do more," at least with tanks and rifles. That hope was a short, sweet dream.

Recently, a radio interviewer asked me how long attacks on U.S. forces in Iraq would continue. His anxiety and concern were genuine and palpable. I hated my response: This war will go on a long time, not simply in Iraq and Afghanistan, but in other sad corners on the planet. There isn't an easier way.

That's why I'm thankful for soldiers courageous enough to face the violence. I should have added I'm also thankful -- 365 days a year, not merely on the last Thursday in November -- for aid and relief workers, and diplomats who risk their lives in a long, tough struggle to build a more secure and democratic world.

 

[Bry]

Just out of curiosity, is it something to be proud of that US workers work 9-10 weeks more each year than the average European? Is it "normal" that most Americans don't take more than two weeks of vacation each year? Has anyone noticed that the more Americans work, the less secure becomes their social security, and pensions, and the wider becomes the gap between wealthy and poor? Is Klaus to be applauded for supporting these trends when his own country is busy providing the rest of Europe with its cheap labor through immigration? At what cost is America supporting it's position of front-runner in every economic indicator? Who exactly reaps the benefits of such success, 'cause it sure as hell isn't the average American? Work more, less benefits: what a miracle!

I'm against the EU as well: I agree with Klaus that the proposed organization of the EU does not promote democracy, but rather limits it. But his economics is decidedly pro-corporate (i.e. he subscribes to a model of constant growth, which many are coming to realize is unsustainable.) The numbers also ignore the very heavy immigration trends in Europe: while rightly crediting similar growth of immigration with saving the US (while misrepresenting the actual effect as "keeping America young" when in reality it is just keeping America in cheap labor...), it ignores the impact immigration will have in Europe. Meanwhile, the Euro, after two years of life, has gained considerably in value while the dollar has fallen (not that the Euro is in danger of replacing the dollar anytime soon as the currency of choice around the world, but it's certainly turned some heads, and some even think that the pre-emptive strike on Iraq was in reality nothing more than a pre-emptive strike on the Euro).

Of course he's right that the proposed structure of the EU is no paradise, nor is living in any country that comprises the EU even while they maintain their status as independent city-states. (for the record, I still prefer living in Spain to living in the US.) To a certain extent this speaks to the content of the other thread on "the new enemy" and the potential evils of socialism. I can't speak for all countries in Europe, but I can speak somewhat for Spain (which at the moment has one of the highest growth rates of the EU) when I say that while the benefits and general protection of labor rights are decent, big business is getting away with murder. Civil Servants are the only people here that actually pay their real tax responsibility, while it would be difficult to convince me that any private business in Spain conducts less than 25% of its business in cash (undeclared). If Spain would crack down on the sherkers (private business), they could lower their tax rate and simultaneously reap significant improvement of their Social programs.

From the other direction, it must be acknowledged that another reason for the woes of Germany and France is that in agreeing to the EU, they have sholdered the costs of modernizing those countries farther from the center of Europe; and one of the reasons Spain has managed to grow in these last years is that they were the recipients of significant payouts from the EU to improve infrastructure and economy which were mostly paid for by France and Germany. The Czech Republic stands to be one of the greater beneficiaries of this redistribution.

Every country has it's problems, but American commentarists and the president of the Czech Republic are not going to convince me that wringing hurculean work hours out of workers and simultaneously cutting their benefits while few get filthy stinking rich is going to save the world. But I can certainly see why some would want us to believe that that were the case.

 

[Bry]

FINANCE & ECONOMICS
Productivity in Europe and America
Statistical illusions
Nov 8th 2001
From The Economist print edition
Europe's productivity growth has been almost as rapid as America's
IMMEDIATELY after September 11th the dollar weakened against the euro, and economists
predicted that this would mark the end of investors' love affair with the greenback. Yet, despite a
small drop this week after the Federal Reserve cut interest rates by half a point on November 6th (a
move followed by the ECB's own half-point cut on November 8th), the dollar has returned close to
its level before the attacks—so the euro is still 25% below its value at birth in January 1999. Why is
the dollar so strong against the euro, despite the evidence that America is in recession?
A popular argument is that productivity growth is faster in America than in the euro area. America's
productivity growth has dipped in the downturn, but it is argued that it will bounce back and even
outpace growth in Europe for years to come. Figures this week showed that America's productivity
growth has held up surprisingly well, rising by 1.8% in the year to the third quarter. America, so it
is said, will remain the best place in which to invest—so the dollar will stay strong.
Yet in recent years productivity growth in America, if
measured correctly, has not been much faster than in
Europe. International comparisons are tricky because there
are so many ways to measure productivity (see chart). The
simplest is GDP per worker. In the five years to 2000, this
rose by an annual average of 2.5% in America, and by just
1.2% in the euro area. But this is misleading, because a big
increase in part-time working in Europe has depressed
productivity growth. Better is GDP per hour worked: over the
past five years this rose by 2.1% in America and by 1.6% in
the euro area—a narrower gap.
To confuse matters more, the most popular productivity
measure in America is output per hour in the non-farm business sector, which grew by an annual
average of 2.5% over the past five years. Lazy economists compare this number with the 1.6%
growth in total GDP per man-hour in Europe, exaggerating the productivity gap.
Another problem is that American statisticians count firms' spending on software as investment; in
Europe it is treated as intermediate consumption. The surge in spending on software in recent years
inflates American growth, but not Europe's.
One solution that partially gets around this problem is to use net domestic product (NDP) rather
than the more common gross domestic product (GDP). NDP subtracts capital depreciation, and is
1 of 2 12/14/2001 1:23 PM
considered a superior measure of economic progress. Normally, the two measures grow at the
same pace, but in recent years a gap has opened up. That is because the average rate of
depreciation of the capital stock has risen as investment has shifted from traditional machinery to
shorter-lived assets such as computers and software.
Julian Callow, at CSFB, has calculated NDP per hour worked in America and the euro area. He finds
that, over the past five years, America's productivity growth has only slightly outpaced that in the
euro zone, at 1.8% and 1.5% respectively. However, over any period longer than the five years of
America's boom, the euro area's productivity growth pulls well ahead. In the seven years to 2000,
NDP per hour rose by an average of 1.8% in the euro area, but by only 1.4% in America.
These calculations also ignore the fact that American number-crunchers have done more than their
European counterparts to take into account improvements in the quality of goods and services.
Europe's productivity growth is therefore probably understated relative to America's.
None of this is to deny that America's productivity growth has accelerated from its dismal rate in
the two decades before 1995. But compared with Europe's productivity growth, it no longer looks so
miraculous. Once investors wake up to this, their fondness for the dollar and disdain for the euro
could quickly change.
Copyright © 2001 The Economist Newspaper and The Economist Group. All rights reserved.

 

[MtnBiker]

Copyright © 2001 The Economist Newspaper and The Economist Group. All rights reserved.
???

 

[Bry]

??? what?

 

[Bry]

That first article shows the dangers of looking at productivity figures with an untrained eye. As of 2001, over the previous seven years, Europeans had actually been more productive than Americans when comparing NDP (which, as the article points out and explains, is a more telling measurement.) Since 2001, the Euro has come roaring back, and is now worth more than when it was first made available, as discussed in the following article:


I’d buy that for a dollar (and two dimes)

Nov 28th 2003
From The Economist Global Agenda


The euro is worth $1.20 for the first time in its history. That may hurt Europe. Will it help America?

TIME to hail the almighty euro? During trading on Friday November 28th, the currency was worth $1.20 for the first time in its history. Europe's exporters will bewail (not hail) this development, but for everyone else involved in the European project, the currency's strength will bring some satisfaction. After being introduced at a rate of $1.17 in 1999, the euro slumped to become worth less than 83 cents the following year. But the euro’s weakness in those humiliating days was not evidence of a congenital defect in the new-born currency. Rather, it reflected the unusual strength of its older rival, the dollar. Likewise, the euro’s rise since February 2002 should not be taken as a great vote of confidence in the economies of the euro area. It is, instead, the flipside of the dollar’s fall.

What is pulling the dollar down? For one thing, America is currently spending over $500 billion more per year than it produces. To finance this unprecedented current-account deficit, it needs to attract about $2 billion of foreign capital every business day. Much of that capital comes from Europe. Every month from January to August of this year, Europeans poured an average of $28 billion (net) into American stocks, bonds and notes. But in September they reversed course, selling off $403m. Their second thoughts are easy to explain: if the dollar loses value, Europe’s dollar investments are worth less in their own money. But some wonder if Europe’s doubts will endure beyond that one month. Since September, after all, America has posted breathtaking third-quarter growth rates and healthy corporate profits. Surely the prospect of higher returns will entice Europeans back into American assets, despite the Damoclean dollar hanging over their heads? Maybe, but this week’s currency traders don’t seem willing to bet on it.

Of course, one reason the dollar has fallen so sharply against the euro is that it cannot fall freely against Asia's major currencies. China’s authorities have kept the yuan controversially pegged to the dollar and Japan’s have spent well over ¥13 trillion ($120 billion) so far this year to keep the yen's value down. Asia’s central banks do not buy dollars as a rational investment; they are not looking for the best mix of risk and return. They are buying dollar assets to keep their own currencies competitive. If they think the dollar is going to fall, they may well buy more of them, rather than less.

Some, such as Peter Garber of Deutsche Bank, see Asia’s official purchases of dollars as part of a grand bargain: Asia ploughs its savings into America, and America, in return, remains open to the products of Asia’s export industries. But protectionist pressures rising in Congress raise worries that America may fail to keep its side of the bargain. If so, the central banks of Asia, the dollar’s most loyal customers, may threaten to switch, or at least spread their allegiance to euros. That would put intolerable pressure on the dollar. It would also drive up American interest rates, as Asian capital flowed elsewhere.

Though they will welcome the dollar’s steady decline, America’s authorities must tread carefully. Washington may complain about Asian currency manipulators, but without them the dollar could easily go into free fall. As Stephen Jen of Morgan Stanley points out, Washington’s best hope for a soft landing is for East Asia to try but fail to resist the dollar’s fall. America wants enough Asian money flowing into American assets to keep yields (and therefore interest rates) down, but not so much as to keep the dollar up. In so far as a “dollar policy” exists, it is being set in Tokyo and Beijing, not in Washington.

 

[MtnBiker]

Originally posted by Bry
??? what?

Nevermind