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Thread: Who's richer, Europe or America?

  1. #1
    Cyburbian jordanb's avatar
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    Who's richer, Europe or America?

    I wrote this for my new blog.

    Europe vs. America

    Western Europe has long defied economic growth models by remaining stubbornly poorer than the United States. In his 2002 paper Two Centuries of Economic Growth: Europe Chasing the American Frontier, Robert J. Gordon, an economist at Northwestern University, attempts to explain the paradox. His conclusion questions our assumptions about wealth, the wisdom of American post-World War II urban development policies, the GDP as an accurate measure of wealth, and the future viability of the American way of life.

    Mr. Gordon notes that European and American growth remained in parity between 1820 and 1870, and which point America began growing significantly faster. The growth rates remained constant, with American per capita GDP getting significantly larger than Europe’s, except during the two world wars when Europe did not grow at all and America pulled still further ahead. In about 1963, however, something happened. For the next decade, Europe’s growth rocketed ahead, and her per capita GDP nearly overtook America’s, but growth fell back into parity (with Europe’s per capita GDP still significantly lower than America’s) in about 1973. He also notes that, while Europe’s per capita GDP continues to trail America’s, her per hour GDP is actually higher than America’s.

    The reasons for America’s advantage between 1870 and 1913 are many, Mr. Gordon writes. He cites America’s superior natural resources (as she was still a developing country); her unified market and language; her quicker adoption of mass production and economies of scale; her quicker exploitation of the railroad, the automobile, and other great inventions; her higher-intensity and more modernized agriculture, and her massive government subsidies such as land grants. He also notes other advantages that are a bit more controversial such as America’s improved education and her quicker development of labor unions that made labor more expensive and compelled employers to seek improved productivity. Her improved education, in the form of engineers, and her ability to quickly take advantage of emergent technologies also help explain America’s productivity surges during the world wars.

    Europe’s postwar surge is more complicated, and more interesting, than America’s prewar advantages. A large part of it was simply due to the rebuilding from the devastation of World War II. In addition, Europe finally began to take advantage of the technologies America had exploited decades before, such as electricity and the automobile. European labor laws became ever more stringent after WWII, compelling companies to become more efficient. American natural resource advantages had been nearly played out (but America still fancied itself a developing country). Europe gradually closed the education gap. And while Europe managed to exploit the automobile by building modern motorways without abandoning her inner cities and existing transit systems, expensive American government policies enforced suburban sprawl to the detriment of her existing cities and infrastructure.

    So why did Europe never close the gap completely? America still had to her advantage a common language and market, but Europe is quickly unifying as well. Plus, that does not explain the disparity between per hour and per capita productivity. To explain that, Mr. Gordon attacks the GDP directly. He points out that America’s higher heating and cooling cost due to her harsher climate; the high cost of incarcerating such a large percentage of her population; and her less energy-efficient homes, appliances, and automobiles. All of those contribute to America’s GDP, but not to her standard of living.

    Even apparent US living standards improvements are questionable. It’s undeniable, for instances, that American homes are much larger than European homes, and that Americans can drive to large “big box” stores and buy a week’s worth of necessities in one trip, while Europeans have to shop multiple times per week at smaller shops with higher prices. European unemployment rates are significantly higher than American rates, and European employees spend less time working than Americans.

    Europeans may counter, however, that their smaller homes are not widely dispersed in traffic-clogged sprawl, enslaving them to their automobiles for all necessities. Their smaller stores are more aesthetically pleasing, provide better service, a better selection of higher-quality goods, and don’t require them to bear the economic burden of traveling long distances by automobile. European unemployment is higher, but it’s questionable how much of that is people choosing not to work (to retire early or to live with parents longer, for instance), rather than people unable to find work. Europe’s fewer hours per worker too, may sometimes be imposed on workers willing to work more, but most workers undoubtedly appreciate the longer vacations and shorter work weeks.

    Mr. Gordon hesitates to declare either American or European land-use patterns superior, as the advantages to each are highly subjective, but he “leans on the side of Europeans largely on the grounds of excessive American energy use.”

    If those living-standard advantages that the GDP ignores were factored in, Mr. Gordon estimates that at least half of the disparity between European and American measured living standards would disappear. With the continuing decline in America’s natural resource advantages, her continuing disinvestment in her existing infrastructure, the unwillingness of her corporations to make long-term capital investments in productivity, the short-lived nature of productivity advantages from computer technology and big box stores, and her continuing disregard for energy conservation, it is highly likely that Europe will soon be more wealthy than America by any measure.
    Last edited by jordanb; 27 Jun 2004 at 2:31 PM.

  2. #2
    Cyburbian AubieTurtle's avatar
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    The US is also losing the single language advantage that we've had over Europe.
    As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron. - H.L. Mencken

  3. #3
    Cyburbian el Guapo's avatar
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    Good Article jordanb

    The author misses one point. We have also toted the Foreign Aid, UN programs, and defense of democracy bill largely on our own. If the Marshall Plan and other generous gifts to other nations were to have been invested back in America the world would be significantly different, and the disparity between the US and almost all other countries would be much greater. If the US had not met the challenge of stopping the spread of Global Communinism (Said with a straight face) there would be a much lower world-wide standard of living. While It was to our benefit to provide those aid programs, if we were only out for ourselves much of the rest of the world would still resemble post war England or the former East Germany.

    I do agree with the article that much of what factors into our GNP doesn't increase the quality of life here.

    Unfortunately part of our National economic strategy rests upon having disposable infrastructures, communinites, workforces, and people. It sucks, but it is the "American Way."

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    El Guapo is certainly right about defense expanses (a big factor?) But I think he is wrong about foreign aid as a percentage of the economy???

    Edit: What I meant is the modern era. EG is certainpy right about the cost of the Marshal Plan.

  5. #5
    Cyburbian The One's avatar
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    El Guapo is Correct

    El Guapo- Good Call

    Think of the Trillions that we've spent on nuclear weapons alone, not to mention our massive millitary complex (was needed in my opinion due to the lack of moral and physical ability of others to provide for the same) Moral for obvious reasons in the case of the Germans Italians and Japanese. Those many trillions of $$ could have been well used in other areas.... (National Medical Care that would make Canada's system look positively draconian)

    The world has truely ridden our coat tails for over 50 years, in every economic sense imaginable (See potential spread of communism). The fact that Europeans consistently see fit to criticize our every short comming makes me sick

  6. #6
    Cyburbian el Guapo's avatar
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    Quote Originally posted by BKM
    El Guapo is certainly right about defense expanses (a big factor?) But I think he is wrong about foreign aid as a percentage of the economy???

    Edit: What I meant is the modern era. EG is certainpy right about the cost of the Marshal Plan.

    Just a guess, but I'd bet good money the US has given more in foreign aid since Dec 7, 1941 than all other nations on earth combined, and then some. Yes, I'm even including Soviet and Chinese aid to their client states. Anyone have the facts?

  7. #7

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    America has literally quadrillions of dollars worth of various capital segments. Europe cannot compete.

  8. #8
    The US federal deficit I beleive is in the region of $300 Billion with overseas investors owning about 45% of US government bonds, 35% of corporate bonds and 12% of equities. The US federal deficit can only be financed if these overseas investors continue to be willing to buy US federal debt securities.

    The dollar's slide is now forcing companies and investors to protect themselves against further falls in the US currency, this will erode the value of their US assets and/or undermine their position in the US market. They have been selling the US dollar forward to protect their huge stake in the US economy. This presents a risk of a vicious cycle developing which might seriously affect the overseas value of the US dollar and provoke a depression - not just in the USA, but world-wide.

    The US might be "richer", but it is the rest of the world that is subsidising it.

  9. #9
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    One should also notice that it's not so easy to see Europe as just one entity. Differences between countries are large; compare for example Sweden and Switzerland with Portugal or Greece (or even former Communist-states).

    On the Marshall-plan: USA also benefitted from that. Because of the economic rebuilding in Europe, a large consumer market for American products existed.

    And thirdly: is it all about being rich; or should we rather look at perceived quality of life?

  10. #10
    Cyburbian jordanb's avatar
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    Yes, I was going to say that back when this thread was more active. The Marshall Plan basically consisted of the American government paying American manufacturers to pay American workers to build stuff to send to Europe (using American shippers). The whole thing was, from the standpoint of America, a massive Keynesian stimulus for the American economy and had a lot to do with the lack of a postwar depression and the prosperity of the 1950s.

    That's not to say that there weren't costs to America and that Europe didn't benifit greatly, but the costs to the nation as a whole weren't nearly as large as the dollar amount flowing through the treasury because most of the economic activity stayed within America's borders.

  11. #11

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    Quote Originally posted by jordanb
    Yes, I was going to say that back when this thread was more active. The Marshall Plan basically consisted of the American government paying American manufacturers to pay American workers to build stuff to send to Europe (using American shippers). The whole thing was, from the standpoint of America, a massive Keynesian stimulus for the American economy and had a lot to do with the lack of a postwar depression and the prosperity of the 1950s.

    That's not to say that there weren't costs to America and that Europe didn't benifit greatly, but the costs to the nation as a whole weren't nearly as large as the dollar amount flowing through the treasury because most of the economic activity stayed within America's borders.
    Isn't that true of much of our vaunted foreign aid?

  12. #12
    Cyburbian Michele Zone's avatar
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    Quote Originally posted by BKM
    Isn't that true of much of our vaunted foreign aid?
    Unfortunately, yes. If you ever read "Diet for a Small Planet", our humanitarian food aid tends to result in foreign countries addicted to the American diet -- and many of the people there cannot afford the American diet. Sigh.

  13. #13
    Cyburbian jordanb's avatar
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    Off-topic:
    ^-- We've frequently been guilty of dumping our overproductions of food in poor countries (Europe has too and is probably worse about it than us). The cheap food typically destroys the local markets for food and ruins local farmers.

  14. #14
    Cyburbian
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    Quote Originally posted by jordanb
    Off-topic:
    ^-- We've frequently been guilty of dumping our overproductions of food in poor countries (Europe has too and is probably worse about it than us). The cheap food typically destroys the local markets for food and ruins local farmers.
    Too bad poor countries can't fight back exporting to the US or other rich countries cheap food and goods... to sell them even cheaper than the US and rich countries producers... that is Dumping... the other way around.. nope... that's life.

  15. #15
    Cyburbian Michele Zone's avatar
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    Quote Originally posted by SkeLeton
    Too bad poor countries can't fight back exporting to the US or other rich countries cheap food and goods... to sell them even cheaper than the US and rich countries producers... that is Dumping... the other way around.. nope... that's life.
    Off-topic:
    They do -- but it just makes things worse because it means the farms in poor nations raise beef to seel to Americans to get hard currency and their own people may be starving and cannot afford the beef that was raised to export anyway.

  16. #16
    Cyburbian munibulldog's avatar
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    From a personal point of view, I could have made a lot more money staying in Europa and working for a city, than I make now working in the USA doing about the same job.

    Real estate is more expensive in Europa, at least for similar properties in comparison with Michigan. I think that this indicates wealth as much as GDP. Maybe similar to more expensive areas in the US.

    Of course gas and auto expenses are way up there in Europa. But in 15 years, the US will be walking down a long dusty road with an empty gas can in its hand, while the Euros will be riding trains, buses and trams.

    From a personal perspective, Europe is richer than the US.

  17. #17
    Cyburbian iamme's avatar
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    Quote Originally posted by Agcrisco
    America has literally quadrillions of dollars worth of various capital segments. Europe cannot compete.
    You don't understand what a quadrillion is.

    http://www.wordreference.com/definition/quadrillion

  18. #18
          roger's avatar
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    Quote Originally posted by BKM
    Isn't that true of much of our vaunted foreign aid?
    Yes, and that doesn't even get into US farm subsidies which render much of our foreign aid to farm-based economies useless...we give with one hand and take with the other. Small time farmers in third world countries can't compete with our heavily subsidized producers, most of whom are big agribusinesses that don't really need handouts....

  19. #19
    Cyburbian Breed's avatar
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    European unemployment is higher, but it’s questionable how much of that is people choosing not to work (to retire early or to live with parents longer, for instance), rather than people unable to find work.
    If it's tabulated the same way in Europe than it is in the United States, then those who aren't looking for work aren't counted.
    Every time I look at a Yankees hat I see a swastika tilted just a little off kilter.
    Bill "Spaceman" Lee

  20. #20
    Cyburbian ablarc's avatar
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    Quote Originally posted by Breed
    If it's tabulated the same way in Europe than it is in the United States, then those who aren't looking for work aren't counted.
    American unemployment figures are a cruel joke. After six months, when you-re really unemployed, they stop counting you. I guess at that point you become a non-person.

    .

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    Quote Originally posted by Breed
    If it's tabulated the same way in Europe than it is in the United States, then those who aren't looking for work aren't counted.
    It's not. There are several different ways to calculate unemployment. As ablarc notes, our unemployment stats understate underemployment pretty seriously. Some suspect writers claim that the "horrible" German unemployment is not really any worse than the United States. of course, we have more McJobs than Europe probably does.....

  22. #22

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    jordanb is absolutely right -- use of GDP as a measure of a country's wealth tends to make America look wealthier than it would be by other measures -- huge houses, lots and lots of consumer goods, big cars. But one thing no one has mentioned that will make it difficult for Europe to compete with America (at least, so long as China continues to subsidize American debt) is the demographic crisis that Europe faces, and the difficulty that Europe has thus far had in integrating new immigrants. America has a higher birthrate and has been much more successful in integrating its immigrants (despite concerns that Spanish is taking over sizable parts of the country). Plus most of the cheap labor immigrants in Europe are Muslim, and a significant minority of them wish to destroy the society that they find themselves in, unlike Hispanic immigrants in the U.S.

  23. #23
    Cyburbian munibulldog's avatar
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    The main reason I don't care to return to Europe is the open racial hatred from the immigrants towards euros and to a lesser extent the reverse. There are just too many angry unhappy people in euroland now.

    I have a concern that US immigration policy is biased. Apparently nonenforcement of immigration policy is the policy for hispanics, while other nationalities/ethnicities are forced to follow the strict rules of immigration law.

    But the situation in the US is harmless compared to the muslim enclaves growing in Europe.

  24. #24
    Cyburbian jordanb's avatar
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    ^-- Might that have something to do with the 2nd class status of the immigrants? I hear there are third generation Turkish immigrants in Germany who are denied citizenship because they "don't have german blood."

  25. #25
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    Quote Originally posted by jordanb
    I hear there are third generation Turkish immigrants in Germany who are denied citizenship because they "don't have german blood."
    You might find some right-wing-extremist saying that. But only extremists like neonazi's would mention 'german blood''. Those words are directly related to nazi-propaganda, no serious people would use it.

    But you're right on the debate on immigrants. And it's likely this debate will continue for the coming years.

    For the demographic situation, you would need very much immigrants only to delay the demographic crisis.

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