In case anyone skipped their daily dosage of news over the three day MLK holiday, it was New York Times columnist Nicholas Kristof’s turn to pillory Republicans for acquiescing to the unequal income distribution in the United States, and more generally to defend the economic glory that is France. The highlight of his column for me (a native Peorian) was his inclusion of a pretend dialogue of a husband and wife from my burg celebrating a French-style life of eating croissants, getting a full month of vacation and watching documentaries, although I cannot fathom what its point was—perhaps that no one should fear becoming more like France? I think the typical Peorian’s reaction was “gee, these Times columnists can be unctuous.”
Kristof was unwilling to do more than nod to the fact that Europe’s essentially kaput. While he acknowledges that Europe’s been living beyond its means for some time and has an overly generous welfare state it can no longer afford, he also comes to its defense with two problematic factoids that veer in the direction of agitprop. First, he notes that Norway’s per capital income is higher than that of the U.S. and uses it to argue that the model can work in the right situation. Apparently that model necessitates abundant oil wealth--he fails to note that Norway has the same population as Alabama and produces about 3.5 million barrels of oil per day, and is sitting on over a half trillion dollars in the sovereign wealth fund that the oil revenue has been channeled to. While plenty of African countries have managed grinding poverty despite such wealth, most European governments can at least pull off a stable economy with that kind of head start.
The more egregious deceit was his celebration of the growth of the French economy over the last fifty years, arguing that the difference between the French and U.S. economy has scarcely moved in that time. He concludes that this is reason enough to dismiss any idea that generous unemployment insurance, 35-hour workweeks, and a welter of regulations somehow harm an economy.
This is a facile amd misleading analysis of the global economy in 1960 and 2011. For starters, it’s picking out two non-random points on the calendar that tell a substantially different (and incorrect) story than looking at the entire fifty year history: selecting these two years and using them as evidence that the French economy is copacetic is akin to looking at Derek Jeter’s OPS from 1996 and 2011 and concluding that he’s good for another fifteen years as the Yankees’ shortstop.
The story of the postwar economies of Western Europe and the United States is one that is well-trod by economists interested in issues of economic growth. It's also one that's quite uncomfortable for those who advocate for something akin to a social-democratic welfare state in the United States, such as just about every single employee of the New York Times.
In the fifties, sixties, and for most of the seventies the countries of Western Europe enjoyed robust growth rates. It was a time of postwar rebuilding, and Europe was starting its industrial base from scratch. It was essentially doing then what China is doing today--moving people from either the ranks of the jobless or from low-productivity jobs (such as peasant farmer) to a high productivity job in manufacturing or, later, services. The difference is that China still has a few hundred million underemployed peasants, but Europe had about exhausted this avenue for growth in thirty years.
It's easy (or at least easier) to have high economic growth when a country is starting from scratch. Achieving high economic growth in a mature economy where there's no one left to move to the factories is another thing entirely. At that point, a country can get growth by either having more and better machinery or tools, better trained or more productive workers, or what we might lump together in a category called "better processes"; think of companies like UPS who consistently rethink how they do things and become better each year without more workers or capital.
What's interesting to economists isn't so much the difference in the two economies between 1960 and 2011 but rather between the time when France reached "first world" status and had to go our route to improve the lot of its people and today. By all measures, France was not successful at this stage of development. After exceeding 80 percent of the U.S per-capita income in the late 1970s, the next three decades saw the French and U.S. standards of living diverge, and today the per capita income of France is scarcely 70 percent of that in the United States. That wide and growing between current U.S. and French per-capita income is worth exploring.
What happened? Upon reaching the ranks of the developed economies, the exigencies of the welfare state began to get in the way, with union strictures, high minimum wages, and an oppressive regulatory state pulling down economic growth. Unemployment in France has been high for decades—with youth unemployment hovering around 20 percent for a generation—with stagnant incomes and economic growth as a result.
The punitively high minimum wage may be the most damaging policy in France's panoply of growth-killing policies, since it makes getting a job on the first rung of the career ladder all the more difficult for those without the means or ability to go to college. The gravy job for high schoolers when I was in high school in Peoria 30 years ago was grocery store bagboy. In France, these jobs don't exist--Carrefour and its competitors can't afford to pay $12 an hour to someone bagging groceries, so customers do it themselves. Those who don’t learn the ins and outs of the workaday world at a young age often miss the lesson entirely, and suffer the rest of their lives as a result.
The French (and their enthusiasts on the Times editorial page) may reassure themselves by noting that while the French are poorer, at least they have a more egalitarian distribution of income across society. That may be; if we confiscated the income of everyone in the top one percent of the United States, the average income in the U.S. would fall by eighteen percent, and we would have a more egalitarian income distribution as well. Would that lead the Times and the Occupy crowd to declare victory? Why would that be superior to what we have today?
Economic growth may not be the answer to all that ails the United States, but it is a necessary component in any plan to reduce the massive government deficit, address the looming state pension crises, and achieve a better standard of living for people at the bottom rung of society. To pretend otherwise is the province of dilettante journalists.
Ike Brannon is Director of Economic Studies at the American Action Forum.