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Thread: econ 101

  1. #1
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    econ 101

    this is a great agument for keeping america away from the "european model" of government entitlement. from the wall street journal:

    ACROSS THE POND
    Europe's '70s Show
    The Continent's economic death spiral.

    BY BRIAN M. CARNEY
    Sunday, May 15, 2005 12:01 a.m.

    BRUSSELS--Is the European "social model" doomed? It's a question that comes up with increasing frequency as unemployment across Western Europe has climbed into the double digits and economic growth has ground to a virtual halt across much of the Continent.


    Updated GDP figures for the euro zone came out last week, and growth in the first quarter was a disappointing 0.5%. Last month both the European Commission and the European Central Bank cut their annual growth forecasts for the euro zone to 1.6% from 2%, and that ugly word recession is in the air.

    The European Union's much-ballyhooed "Lisbon Agenda"--which was supposed to revive growth in Europe--was really not an agenda for reform at all. It was, instead, simply a statement of nice things the EU would like to see happen to the European economy to help it compete with the U.S.--such as raising employment levels, increasing R&D spending, and so on.

    Unfortunately, but not surprisingly, almost none of those things have happened, and halfway through the 10-year timetable of "Lisbon," the European economy is in at least as bad a shape as it was when Lisbon was announced in 2000.

    Given that Europe's streak of economic underperformance can now be measured in decades, perhaps a better question to ask is: Why does anyone think that a system of generous welfare benefits, high taxes and harsh restrictions on hiring and firing would ever produce anything like a dynamic, growing economy? Why does anyone assume that there is such a thing as a "European model," rather than just a collection of ill-conceived policies having a predictably depressing effect on the economy and job creation?





    Of course, Europe did have growth, once. Indeed, for 25 years or so after World War II, European growth was something of an economic miracle, bringing countries like Germany out of hyperinflation and poverty into the first rank of world economies. Along with Germany, Britain, France and Italy rank among the world's biggest economies; and the European Union, considered as a whole, rivals the U.S. for the title of the world's largest economy.


    In other words, per the conventional wisdom, Europe had low unemployment and high growth in the past, so it can again. Unfortunately, the argument is wrong. A fundamental change occurred in Europe between the salad days of the 1950s and '60s and today, and Europe never recovered. In a word, the 1970s happened.

    In 1965, government spending as a percentage of GDP averaged 28% in Western Europe, just slightly above the U.S. level of 25%. In 2002, U.S. taxes ate 26% of the economy, but in Europe spending had climbed to 42%, a 50% increase. Over the same period, unemployment in Western Europe has risen from less than 3% to 8% today, and to nearly 9% for the 12 countries in the euro zone. These two phenomena are related; in a country with generous welfare benefits, rising unemployment increases government spending rapidly.

    But here a third element enters the picture, creating a feedback loop that explains why the Continent will never regain the halcyon days of postwar growth. As spending goes up, higher taxes must follow to pay for those benefits. But those taxes, usually payroll taxes, must be collected from a shrinking number of workers as jobs are cut. This in turn increases the cost of labor and decreases the benefit of working rather than collecting unemployment or welfare checks. As Martin Baily, a former head of Bill Clinton's Council of Economic Advisers, has described, this can lead to a spiral of rising taxes and falling employment, especially when welfare payments are high, as they are in most of Western Europe.

    The result is predictable--more jobs are lost, the tax base shrinks, and taxes must go up further to pay for yet more welfare benefits, making work less attractive and not working more attractive.





    In the 1970s, unemployment went up everywhere in the developed world. But on the Continent, it never went down. Britain and the U.S. both saw major economic reforms in the early 1980s and subsequently recovered from the '70s. The Continent did not, and it's endured the pain of that lost decade ever since. As the nearby chart shows, growth has gone up a little at times, then back down, but unemployment in Continental Europe has remained stuck in a narrow range for three decades.


    Western Europe jumped the track and fell into an economic ditch in the 1970s along with the rest of the world. But the Thatcher and Reagan reforms that pushed Britain and the U.S. back onto the rails were never tried on the Continent, and most of those countries have been spinning their wheels ever since.

    Rather than ask whether the "model" is doomed, it would be better to question how it ever attained the status of a model at all. The welfare state worked in Europe for two decades because so few people needed it; growth was strong, employment high and actual benefits paid were low. When the world economy hit a speed bump following the collapse of the Bretton Woods arrangement in 1971, both government spending and unemployment went up, and the system of incentives and benefits now enshrined as the "European model" was tested and found wanting. The result is permanently higher unemployment and taxes, a nasty mix.

    In the U.S. and the U.K., a combination of tax cuts, labor-market reforms and deregulation starting in the 1980s broke the downward spiral in which the Continent still finds itself. In the 1990s, the U.S. added welfare reform to the mix. Unfortunately, the prospects for Europe are not particularly bright right now. German unions--and even some members of the German government--have in recent weeks taken to denouncing American capitalists as "locusts" and "bloodsuckers." Italian Prime Minister Silvio Berlusconi, perhaps the only politician in Europe who counts Ronald Reagan as a hero--and admits it--just had his coalition emasculated by special interests at home.

    Sadly, it appears as if Europeans will be watching reruns of their own version of "That '70s Show" for years to come.

    Mr. Carney is editorial page editor of The Wall Street Journal Europe.

    Copyright 2005 Dow Jones & Company, Inc. All Rights Reserved.

  2. #2
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    Re: econ 101

    Great article.

    Even with all this historical perspective that offers yet more proof that socialist systems simply do not work, we are nevertheless bombarded almost daily by the effete leftists of big media implying that we should be copying the EU "system".

  3. #3
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    Re: econ 101

    Good article.
    Jordan Mills on choosing Tech:
    Its a great experience seeing them play. It was a good atmosphere. The fans stood up the whole game and never sat down. They have a great fan base.

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    Re: econ 101

    Don't post entire articles. It violates copyright. The image request informs opinionjournal.com that the full article has been posted somewhere.

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    Re: econ 101

    Sorry, Bob, did not mean to get you in trouble.
    Jordan Mills on choosing Tech:
    Its a great experience seeing them play. It was a good atmosphere. The fans stood up the whole game and never sat down. They have a great fan base.

  6. #6
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    Re: econ 101

    Quote Originally Posted by duckbillplatty View Post
    Don't post entire articles. It violates copyright. The image request informs opinionjournal.com that the full article has been posted somewhere.
    look at the date. that was two years ago, when it was common practice to post entire articles on this board. i don't remember the context, but i think i posted it in response to another conversation about free market economy.

    thanks for digging it up, guisslapp. it didn't get much of a response the first time.

  7. #7
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    Re: econ 101

    I know I am thread hijacking but I am still pissed that the S-Port rag got pissed at us for doing that. They should feel blessed that we post any of their tripe on this board.

    Sorry, go back to your Econ class.

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    Re: econ 101

    I have a very interesting man working for me. He is originally from Ethiopia. He worked the docks unloading food we sent to that country in relief. He watched as the government sold that food to other countries so they could buy weapons while people literally starved in front of him. His crime was giving food to starving people. When the government came for him he fled. 7 days he walked through the desert and encountered all types of dangers. He made his way to europe and as he entered a country he learned a new language. He explained that learning a new language is not hard when you are hungry. Eventually he came to the US. His story once he entered the US is just as facinating but too long for this post. The point? I asked him why he came to the US? His reply "Europe is too socialist". "You can't get a job there". We talked about Americans and our lack of appreciation for what we have but he ended the conversation with this "this is still the greatest place to live in the world".

  9. #9
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    Re: econ 101

    Quote Originally Posted by arkansasbob View Post
    look at the date. that was two years ago, when it was common practice to post entire articles on this board. i don't remember the context, but i think i posted it in response to another conversation about free market economy.
    sorry arkbob, didn't see the date. That was way before they were really checking those things.

  10. #10
    Dawg Adamant Argument Czar Guisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond repute Guisslapp's Avatar
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    Re: econ 101

    Great! So we all agree:

    Capitalism = good
    Socialism = bad

    I guess there is no need to beat the dead horse.
    Jordan Mills on choosing Tech:
    Its a great experience seeing them play. It was a good atmosphere. The fans stood up the whole game and never sat down. They have a great fan base.

  11. #11
    Champ Bill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the roughBill Pup60 is a jewel in the rough
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    Re: econ 101

    I think we need to beat that horse a lot more because there are lots of ultra leftist cultural Marxist moonbats out there who want us to be exactly like the EU. In fact, we have a number of them running for president.

  12. #12
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    Re: econ 101

    Quote Originally Posted by Guisslapp View Post
    Great! So we all agree:

    Capitalism = good
    Socialism = bad

    I guess there is no need to beat the dead horse.
    The best of capiktalism and the best of socialism equals the best of all poswsible worlds.

  13. #13
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    Re: econ 101

    Quote Originally Posted by saltydawg View Post
    The best of capiktalism and the best of socialism equals the best of all poswsible worlds.
    You are delusional. There is NO good to socialism.
    Jordan Mills on choosing Tech:
    Its a great experience seeing them play. It was a good atmosphere. The fans stood up the whole game and never sat down. They have a great fan base.

  14. #14
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    Re: econ 101

    Socialism = horrible system
    Dems want socialism
    Dems are horrible!

    That's why libertarian's are the best party and the repubs are the second best because they like to........

    "help, help, I'm being repressed!"

  15. #15
    Dawg Adamant Argument Czar Guisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond reputeGuisslapp has a reputation beyond repute Guisslapp's Avatar
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    Re: econ 101

    Quote Originally Posted by Ken_Horndawgs View Post
    Socialism = horrible system
    Dems want socialism
    Dems are horrible!

    That's why libertarian's are the best party and the repubs are the second best because they like to........

    "help, help, I'm being repressed!"
    "Now you see the violent that is inherent in the system..."
    Jordan Mills on choosing Tech:
    Its a great experience seeing them play. It was a good atmosphere. The fans stood up the whole game and never sat down. They have a great fan base.

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