Paul Krugman is the gift that keeps on giving.
The debate over European economic performance has gone in two directions. One is the usual response of people when they get something very wrong: they start quibbling over minor details (which dataset was Manzi actually using? what about immigration?) to throw up dust clouds. The key thing to remember is that we had a flat assertion that social democracy leads to stagnant economies; that assertion is just wrong.
Datasets don’t matter. Immigration is a minor detail. I love it.
As for the flat assertion, I also think that it is wrong: social democracy does not necessarily lead to stagnant economies. There are a number of variables at work, including conditional convergence among broadly market-oriented economies. Rather, certain pathologies that are closely associated with social democratic policies dampen growth, including rigid labor markets. Some continental economies, like Holland, have fairly liberal labor markets (hence the Dutch “Polder model” associated with former premier Wim Kok) while also featuring heavy consumption taxes and social spending. Are these “social democracies”? In a sense, yes. But they also maintain crucial aspects of “Anglo-Saxon” systems.
As for the impact of social spending, it’s worth mentioning that family structure in France, Germany, and Sweden is very different in the United States: two-thirds of 15-year-olds in those countries live with both biological parents versus half in our country. It’s not clear where social policies begin and culture ends, and vice versa. Family structure: another minor detail.
Given that we’re debating growth-enhancing policies at the margin, you’d think that this would matter. Apparently it doesn’t.
Krugman wrote a column on U.S.-European differences in 2005 that reflects how he gets … more Krugmanish with each passing year. By Krugman 2010 standards, it is remarkably untendentious.
I’ve been looking at a new study of international differences in working hours by Alberto Alesina and Edward Glaeser, at Harvard, and Bruce Sacerdote, at Dartmouth. The study’s main point is that differences in government regulations, rather than culture (or taxes), explain why Europeans work less than Americans.
But the study also suggests that in this case, government regulations actually allow people to make a desirable tradeoff – to modestly lower income in return for more time with friends and family – the kind of deal an individual would find hard to negotiate. The authors write: “It is hard to obtain more vacation for yourself from your employer and even harder, if you do, to coordinate with all your friends to get the same deal and go on vacation together.”
Disappointing but not surprising that Krugman doesn’t reference Prescott, but that’s neither here nor there. This argument brings to mind a post at The American Scene by Pascal-Emmanuel Gobry.
When you run opinion polls in France, Germany or Sweden, on whether it is better to have more growth at the expense of equality, except during the pits of recessions, a vast majority of respondents say no. And outside electoral campaigns, so will politicians. Germans will tell you that the great thing about the Sozialmarktwirtschaft is precisely that it does not bow to the neo-liberal dogma of economic growth but privileges other, deeper values. Same for the vaunted (inside our borders) French “social model”.
But the bargain rests on a postulate, that social equality and cohesion are to be preferred over economic growth. And it is a moral and honorable one in principle — certainly if the choice was between sleepy Sweden and 1970s Brazil-style inequality, I know where I would stand.
Gobry’s post isn’t about point-scoring, and so there’s no need for him to malign or misrepresent anyone. How refreshing.