The puzzle of Europe

Here are two unsettling slides I made for a talk. Here is GDP per capita in US, UK, France and Italy and China (2020 dollars, source world bank)

To make the comparison easier, here is each country not including China, divided by the US:

Here are the 2019 numbers (in 2019 dollars, again World Bank) US: $65,297. UK $42,330. That's 35% less than the US. Or, the US is 54% better off than the UK.. France: $40,494. Italy: $33,228 That's 50% less than US. Or the US is 96% better off than Italy. China: $20,261.

And it's been getting steadily worse. France got almost to the US level in 1980. And then slowly slipped behind. The UK seems to be doing ok, but in fact has lost 5 percentage points since the early 2000s peak. And Italy... Once noticeably better off than the UK, and contending with France, Italy's GDP per capita is now lower than it was in 2000.

GDP per capita is income per capita. The average European is about a third or more worse off than the average American, and it's getting worse.

What the heck happened? It could happen here too. Maybe it already has, just not as bad.

This should be profoundly unsettling for economists. Everyone thinks free trade is a good thing. The European union, one big integrated market, was supposed to ignite growth. It did not. The grand failure of the world's biggest free trade zone really is a striking fact to gnaw on.

Sure, other things are not held constant. Perhaps what should have been the world's biggest free trade zone became the world's biggest regulatory-stagnation, high-tax, welfare-state disincentive zone. Still, "it would have been even worse" is a hard argument to make.

Economists haven't been talking about Eurosclerosis for a while but I think we should.

These are huge numbers. The worst estimates of climate change are 7% of GDP in 2100. And those are surely overstated (see the excellent new paper by José Luis Cruz and Estban Rossi-Hansberg) You may admire the NHS for saving money, but even if the 20% of GDP we spend on health care is totally wasted, we're still ahead. Lots of people admire the European model. Just how far Europe is behind the US is remarkable -- and getting worse.

(Follow up post on productivity)

Comments

Brazilian Inflation

This marvelous plot comes from an interesting article, The Monetary and Fiscal History of Brazil, 1960-2016 by Joao Ayres, Marcio Garcia, Diogo A. Guillén, and Patrick J. Kehoe. The article is part of the Becker-Friedman Institute Project , complete with a big and now easily available data collection effort, and forthcoming book . If you want a deep historical and economic analysis of fiscal and monetary interactions, this is an amazing resource. And it summarizes historical episodes that North Americans just might want to know more about soon! (HT Ricardo Reis who pointed it out in a great discussion last week, that I will post as soon as it's available.) To me the graph is at first blush a reminder that inflation can stop on a dime, despite sticky prices, seemingly adaptive or sticky expectations, Phillips curves, and so forth. Brazil seems to have had 6 Tom Sargent "end of inflations" episodes in 10 years! (Reminder: Tom showed that inflation can end very quickly i...

Chinese Traders Still a Major Influence the Crypto Market, According to Experts Bitcoin

Chinese bitcoin traders still exert a major influence in the cryptocurrency market, even with all the distinct issues they must now face to operate. This is the opinion of several experts in the field that have weighed in on how the recent prohibitions and ban proposals from China are really affecting how Chinese bagholders that conduct their business in Asian and worldwide exchanges. Chinese Traders Still Big in the Market Chinese traders still have a big influence on how crypto markets move even with all of the difficulties they have to operate, according to different experts with knowledge about how Asian markets work. Even sidestepping all of the government regulations, these traders are still managing to do business, taking advantage of gray markets and other services that let them exchange the local currency for crypto. News of China invoking strict warnings toward cryptocurrency trading and initial coin offerings (ICOs) are not new: China has warned against these acti...

UK Bans 'Time to Buy' Bitcoin Ads on Buses and Underground for Being Misleading

The British Advertising Standards Authority (ASA) has banned a bitcoin ad campaign put up across the London Underground network and on London buses by cryptocurrency exchange Luno. The UK advertising regulator says the ads are misleading and irresponsible. ‘Time to Buy Bitcoin’ Ads Banned in the UK A bitcoin advertising campaign put up across London Underground and on buses has been banned by the U.K. Advertising Standards Authority (ASA). The ads contained an image of a bitcoin with the words “If you’re seeing bitcoin on a bus, it’s time to buy” or “If you’re seeing bitcoin on the Underground, it’s time to buy.” They were put up in February. The ASA said it received four complaints. Three complainants “believed the ad failed to illustrate the risk of the investment” and “challenged whether it was misleading.” One complainant “challenged whether the ad took advantage of consumers’ inexperience or credulity,” the regulator detailed. “We considered that consumers would interpret the...

collapse embox

Search This Blog