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.