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Thursday, January 20, 2005


This is the 5th article in a long mini-series --- now about 6 weeks old, with roots back to early December 2004 --- on the unique nature of the American ideological spectrum, both on the left and right, and how in turn that spectrum has helped to encourage the innovative prowess of the US compared to other countries, making it the richest country in the world in per capita income for well over a century.

Right now, that lead is greater than at any time since the late 1950s. We're roughly 55% richer than either Japan or the European Union average, and since the 4 big EU countries' per capita income is either at that average (Germany) or slightly above it --- Britain, Italy, and France --- that huge lead applies to them as well.

A Problem for Economics

Mainstream growth theory in economics can't explain this persistent US lead, far from it. Essentially, despite some qualifications, it postulates a variety of convergence catch-up variants, all of which predict that rich follower countries able to sustain long-term GDP growth should, at some point in the future, catch up to the leader's levels of productivity and per capita income. That future point is called the steady-state, a hypothetical end condition. In it, all advanced industrial countries with good human capital and institutions should be equally rich, and they should all be on or very near the technological frontier. The large gap with the US --- now 10-12 decades old --- defies all these variants.

Not so our buggy analysis.

In particular, the much more ambitious series on the US economy that the current mini-series is part of --- the wider series stretching back over the months to July 2004 --- seeks to make sense of that huge American lead, past and present. That long-lived lead --- greater now than at any time for the last half century or so --- isn't an accident, even if mainstream economic growth theories can't account for it. On the buggy view, it's the persistent outcome of a specific complex of national culture and institutions --- political, legal, administrative, financial, business, and educational (especially on the university level) --- that don't have full counterparts elsewhere, despite some overlapping similarities in many of the institutions with other English-speaking countries.

From Culture and Behavior to Ideology

The key cultural traits in American life that operate here are easy enough to pin down, even if harder to explain. They reflect uncommonly flexible attitudes and behavior toward change, risk-taking, and entrepreneurship that have no full equivalents abroad . . . even in the English-speaking world. An unusual work-ethos with roots in Puritan traditions that stretch back to colonial times is another uncommon American trait, and since hard work has generally paid off for almost everyone (except slaves in the Antebellum South), the trait has been reinforced over time and internalized in American mind-sets long after Puritanism itself disappeared as a specific Protestant religion. One result? For the first time in history, a large society has emerged in which the rich and the affluent now work longer and harder than poor people.

Something else. To this list of unique cultural and behavioral traits, add the persistent impact --- past and present --- of a politically charged set of values and beliefs regarding the proper roles of the state and private sectors of American life, both on the right and left of the US ideological spectrum.


How Other Industrial Countries Differ

In contrast to the US, powerfully institutionalized regulations and controls over the economy flourish everywhere on the Continent of Europe and in Japan, with a large regulatory-and-welfare state in place. The following table, which traces government spending as a percentage of GDP since 1870 in major industrial countries down to the mid-late 1990s, captures the huge differences with the USA that follow from these statist traditions. The table, as you'll note, doesn't cover Japan. No matter. A second table --- set out immediately afterwards --- will bring out the sharp increase in Japanese governmental spending since 1960, a surprise to many people.

Untitled Document
All Government Spending % of GDP
  1870 1920 1937 1960 1980 1990 1996
Canada n.a. n.a. 25.0 28.6 38.8 46.0 44.7
France 12.6 16.7 29.0 34.6 46.1 49.8 55.0
Germany 10.0 27.6 34.1 32.4 47.9 45.1 49.1
Italy 13.7 25.0 31.1 30.1 42.1 53.4 52.7
Sweden 5.7 10.9 16.5 31.0 60.1 59.1 64.2
UK 9.4 26.2 30.0 32.2 43.0 39.9 43.0
USA 7.3 12.1 19.7 27.0 31.4 32.8 32.4
Average 10.8 19.6 23.8 28.0 41.9 43.0 45.0

Source: Vito Tanzi and Ludger Schuknect Public Spending in the 20th Cen-
tury: A Global Perspective
(Cambridge Univ. Press, 2000), chapter I

In Britain, Australia, and New Zealand, an advanced statist apparatus with high levels of taxes and welfare emerged after WWII too, exactly as it did in the EU and in Japan. All that changed in the 1980s for these three English-speaking countries, whose statist traditions were never as extensive, historically, as on the Continent or in Japan.

The causes of the change? Sluggish economic growth and lagging competitiveness brought about major free-market reforms in those countries; these, in turn, moved their economies closer to the American system, much to their benefit. Since the reforms, Britain--- once a near laughing-stock in the EU at the end of the 1970s --- has outperformed almost all the EU countries save Ireland, another relatively free-market country by European standards; it has not only closed the per capita income gap with Germany and France, but today has a clear lead over them. Australia and New Zealand too have regained much of their earlier lost ground in an era of anti-welfarism and deregulation. And Ireland's pro-business policies, implemented in the 1980s too, transformed that country from one of the two or three poorest in the EU into the very richest.

Only Canada --- ruled for almost all of the 4 decades since the start of the 1960s by the Quebec-based Liberal Party --- has let the state sector and welfare transfers grow in a semi-EU way, making their economy something of a half-way house between the EU welfare state and the Anglo-American model. And even Canada has begun in the last few years to retrench, cutting back government spending to regain more dynamism.

Even so, the ideological legacies on both the left and right in Britain, Australia, and New Zealand --- not to forget Canada --- still differ from those in the US. Statist tendencies are particularly strong on the left, but they also exist in some sectors of the conservative and liberal parties in those countries.


Here's another way to gauge the large differences in the size of the governmental sector across industrial countries, particularly since 1960 . . . a period in which full employment and prosperity had been achieved everywhere in the industrial world, but in which the welfare state continued to expand with high-pulsating speed in almost all the EU and Japan, along with Canada and New Zealand. Note how government spending climbed almost 4 times as fast on the average between 1960 and 1996 than it did in the USA.

Note: Make sure you interpret the average increase of spending as a % of GDP in those three and one-half decades properly.

Look at Sweden in 1960. Government spending absorbed 31.0% of total GDP that year. In 1996, such spending had more than doubled as a % of GDP, not just gone up by 35.1% over the initial figure. It's an astounding surge, all occurring after the initial rationale of high taxes and welfare redistribution was achieved: ending poverty and ensuring that the sick, the old, and those who can't work for mental or physical reasons were taken care of.

What has gone on there --- as in other advanced welfare states --- is that organized groups vie with one another to get governmental benefits, including wage increases given governmental controls over labor markets. In Sweden, virtually everyone is organized in a trade union or business association, and the huge state sector is no exception to union membership. For their part, politicians --- eager to get re-elected --- then repeatedly make concessions to various groups. If certain groups --- think of French unions that are ubiquitous in the transport systems, telecommunications systems, the postal system, and the media --- don't get their way, they can play havoc with the economy by going on strike. In Sweden, strikes are fairly rare by French or Italian standards, but the prospect of losing the next election can force governments there or anywhere from pursuing necessary reforms to restore economic vigor.

Country 1960 1970 1980 1990 1996 1960-1996
Australia 21.2 25.5 34.0 37.7 37.5 16.3
Belgium 34.5 36.5 50.7 54.6 54.5 20.0
Canada 28.6 35.7 40.5 47.8 46.4 17.8
Denmark 24.8 40.2 56.2 58.6 60.8 36.0
Finland 26.6 31.3 36.6 46.8 59.4 32.8
France 34.6 38.9 46.1 49.9 54.7 20.1
Germany 32.4 38.6 48.3 45.7 56.0 23.6
Ireland 28.0 39.6 50.8 40.9 37.7 9.7
Italy 30.1 34.2 41.9 53.8 52.7 22.6
Japan 17.5 19.3 32.6 31.9 36.9 19.4
Netherlands 33.7 46.0 57.5 57.5 58.1 24.4
New Zealand 27.7 34.4 47.0 50.0 42.3 14.6
Spain 13.7 22.2 32.9 43.0 45.4 31.7
Sweden 31.0 43.7 61.6 60.8 66.1 35.1
Switzerland17.2 21.3 29.3 30.9 36.9 19.7
United Kingdom 32.2 39.2 44.9 42.3 43.7 11.5
United States 28.4 32.5 33.7 34.8 34.6 6.2
Average 27.0 33.3 42.8 46.3 48.0 21.0

Source: James Gwartney and Robert Lawson, Economic Freedom in the
World 2001: Annual Report

To Clarify American Exceptionalism

On the political right, American conservatism has never been statist in the sense found in conservative parties in both Japan and all over the Continent of West Europe even now. Not only that, it has also has lacked the patrician and paternalistic influences that have marked the Tory wing of the British Conservative Party, routed --- possibly for good --- by Margaret Thatcher's anti-statist reforms of the 1980s.

On the left --- which our chief concern in this and the last three articles of this mini-series --- the Democratic Party has no socialist or Marxist legacies in its history and so differs from all other left-wing democratic parties on this score, whether in Europe, Latin America, or Asia. The British Labour Party, note quickly, is no exception here. Even though it was never heavily influenced by Marxism, it was formally committed to the full nationalization of British industry between 1918 and the late 1950s --- a sweeping, full-blooded socialist program . Only under the deft leadership of Tony Blair, who has won three general elections, has the party swung around to accepting the free-market reforms of the Thatcher era . . . and even then only after protracted internecine conflicts.


Our Chief Aim Can Be Rephrased As A Question . .

Specifically, what explains the unique lack of socialist and Marxist influences in American politics, past or present? Supplying an answer is what the current article is about, a direct continuation in this endeavor of the three earlier installments in this mini-series . . . which pinned down some influences so far, all economic in nature.

A key point rears up here. Try to keep it in mind.

Plainly put, the various influences in American history that immunized our politics from socialism have been multiple and range across politics and socio-cultural developments as well as economic ones . . . each and every one with roots that extend back over the centuries to colonial and early post-revolutionary times. So far, the three immediate articles have probed economic influences only. For that matter, another such influence --- income inequality, always comparatively viewed --- is the chief topic of today's article.

Note quickly though. None of this means that we're slighting political institutions and policies, or socio-cultural trends over the centuries, in shaping our ideological spectrum, whether on the left or right. It does mean that it takes time to set out a complex, multi-faceted argument, and it will take at least one more article --- dealing with the raw entrepreneurial energy and risk-taking in American life, a major source of both jobs and innovative technologies --- before we can move on and focus on politics and eventually social and cultural influences.



Three Related Economic Developments Have Been Dealt With So Far

Each of these has been probed at length, and what follows is a capsule summary, with some pivotal implications teased out in graphic form.

1. An uncommonly high standard of living marked American development from the outset, with US per capita income the highest in the world for well over a century now --- something, as we've repeatedly noted, that mainstream economic growth theory can't easily explain, just the contrary. These days, hard as it might be to believe, that lead over others is greater than at any time since the 1950s: nearly $40,000 compared to the EU average of around $26,000 and Japan's per capita income of $28,000.
 2. An unique pattern of highly diffuse land ownership prevailed in the 18th and 19th centuries, with an astonishing 80% of the entire American population owning land --- agriculture the predominant source of GDP in those days --- in 1830 at the start of the Jacksonian era. Fifty years later, the equivalent figures in France and Holland for their populations still living off agriculture were only 60%. It was far worse elsewhere in Europe. The further east and south you went in Europe, the more a tiny feudal-like oligarchy of aristocrats and landlords monopolized almost all the land, a system of a social and economic hierarchy that created a sharply defined class structure without any parallel in the United States.

3. American workers enjoyed the highest wage level by far in the 19th century, even at a time when Britain --- the pioneer industrializing country --- had a higher per capita income. Unskilled laborers, to put this plainly, had a real wage double that of Britain's in the 1840s, and as late as 1914 --- despite roughly 30 million poor immigrants streaming into the US after 1840 --- it was still 55% higher. The 20th century has been no different. These days, despite slow growth between the late 1970's and mid-1990s, the American wage lead over the EU and Japan is nearly as great as it was in 1914 over Britain --- the 2nd richest country at the time.


Two Present-Day Illustrations of the High Standard of Living

Here, in the first table below, you'll find a vivid comparison between what American households have been able to afford compared to their EU counterparts, thanks to the wage advantage . . . as well as lower income taxes and consumption taxes, with the EU's value-added tax system increasing the costs of goods and services by 15% or so. A far more efficient distribution system --- both wholesale and retail, with much greater productivity levels --- also contributes to the much higher private consumption here. In much of the EU, by contrast, large discount stores are restricted by state regulation.

Note that the two following charts are taken from the strikingly informative article by two Swedish economists, published in June 2004, and all references should be strictly to that original. Fredrik Bergstroem and Robert Gidehag, EU Versus USA (p. 16, p. 22). Among their other findings, the big 4 EU countries have a standard of living that would place them among the poorest US states . . . more or less on a par with Mississippi, West Virginia, and Arkansas, all heavily rural. The richest EU country, Ireland, would still be the 14th poorest US state if it joined the federal union. Sweden itself would be the 7th poorest.


Here, for instance, is a second table of what the 12% of Americans living in poverty have been able to acquire, thanks to their own efforts and a high living standard in our country . . . not just to welfare transfers, large as the latter are. (Income-tested social spending, according to a well-known demographer, tripled in constant 1998 dollars between 1973 and 1998: from $136 billion to $392 billion. (See
Nicholas Eberstadt)

The Surprises Mount Rapidly Here

They will be set out at length, these numerous surprising facts, in the next article in this series. Here note only that the 12% level of poverty doesn't take into account non-cash benefits --- medicare, food stamps, rent subsidies, and the like --- that reduce poverty by about a third. What's more, few people stay in poverty very long. More generally, of the bottom 20% of Americans in income --- tracked by the US Treasury for a decade-and-a half from the end of the 1970s to the early 1990s --- the vast majority had risen out of that category in that period to a higher income quintile.

And get this. A clear majority of those who started out in the lowest quintile actually spent some time in the top income quintile between the late 1970s and early 1990s. Then, too, regular surveys carried out by the Bureau of Labor Statistics's Consumer Expenditure Survey find that the bottom 20% of American income-earners --- who include most graduate students in law, medicine, engineering, architecture, public administration, and the arts and sciences --- regularly spend an average of $2.31 for every $1.00 of income they report! Yes, no typo; $2.31 more. Partly for this reason . . .


Sidebar Clarification

Even the EU Commission's Eurostat wants a statistical change here, a shift to looking at how household expenditures differ from reported income. That was in the late 1990s.

For scholarly observers, there´s a problem right now: a wall of ignorance surrounds the household expenditures of the EU's poorer populations. Whether they spend as many times more than reported income as Americans happen to isn't known, largely (it seems) because no statistical agency in any government has looked into it; at any rate, the buggy prof couldn't find any publications to that effect. What we do know is how huge the underground economy of reported income is in the EU compared to the US. In the Protestant northern countries there, it's twice as high --- 15% compared to 7.0% here; and it's almost three times higher in Latin Europe and Greece. The main reasons? Partly very high taxes that people seek to avoid; and partly cultural --- hence the higher rate of tax avoidance in Catholic or Orthodox Europe.

Would the higher underground economy increase household expenditures in the low income quintiles within the EU countries to equal or surpass the $2.31 ratio of expenditures to income reported here by the bottom 20%?

Possibly, but unlikely. The opportunities for tax evasion are much greater for the well-to-do than others, with one exception: outright crime. Even then, street crime of the sort that some low-income people might engage in nets very little money. There's little dough to get by holding up people on the streets or breaking into a small shop and robbing the till; the same is true for petty burglary; and then, too, fences pay only about 10% on the dollar for stolen property except for cars. That leaves drug money as the major source of revenue for low income criminals. Most, of course, don't flourish. Sooner or later, most get killed or die from the drugs themselves. The big bucks go to organized crime syndicates everywhere that run drug money from the top and have international contacts.



Something Else of Importance

As the initial article in this mini-series noted, in all of West Europe save Britain --- never mind southern and eastern Europe --- trade union legality and democratic rights materialized much later than in the United States, and even then only after intense social and political conflicts. Small wonder that, in the late 19th and early 20th centuries, the new urban working classes that emerged as those countries industries felt alienated and flocked to socialist and other Marxist parties, including after 1918 the new Communist parties. Small wonder, for that matter, that the new European Socialist parties in the 1870s and later all joined the Second Marxist International, committing themselves formally, in writing, to class warfare and socialist revolution.

The British Labour Party, created in 1900, was the exception. It was admitted to the Socialist International only after the Continentals agreed that Labour might not be committed to class warfare, but did engage in class conflict. Still, as we've repeatedly noted, between 1918 and the late 1950s, Labour did commit itself to the full nationalization of British industry.

What follows? Well, quite simply . . .


American Political Evolution On the Left Always Differed

Add up the three economic influences dealt with in the three earlier articles --- don't forget to add unusually early voting and trade union rights for males (and whites only in the South after the 1870s) --- and it's not hard to grasp why Americans in vast number never adopted a socialist or Marxist view of capitalism.

Few Americans, to put it in plain English, ever saw capitalism as basically exploitative. Few of them embraced views that it operated solely or mainly for the benefit of a small group of plutocrats and aristocrats, and few thought that they were under the thumbs of a Lord, a Prince, a Cardinal, or a Boss-Class (African-American slaves the blatant exception here). And so? And so scarcely any of them --- whether in the late 19th century populist period in the South or Plains states or later at the height of the Great Depression in the 1930s --- saw American capitalism as beyond reform, in need of either socialist revolution or, after 1945, the sort of large welfare-and-regulatory state that emerged with speed everywhere in West Europe . . . Britain included down to the 1980s.

Marx and Engels themselves, as the initial buggy article in this series noted, were themselves under no illusions on this score. The US lacked a feudal system, the working class wasn't wholly exploited, and it would never likely have a socialist revolution that was considered essential everywhere else except --- here they were less certain --- for Britain.



Economic Equality In The Sense of Income Redistribution Has Traditionally Been Less Important In the US Than Elsewhere

So much less, believe it or not, that American trade union leaders were found in surveys carried out in the late 1980s to be less concerned with a narrow --- read: more equitable --- distribution of income than Swedish industrialists! The same was true of the leaders of American civil rights movements. (See Sidney Verba, Steve Kelman, and others, Elites and the Idea of Equality: A Comparison of Japan, Sweden, and the United States (Cambridge, MA: Harvard University Press, 1987). Americans have been concerned, ever since the origins of the Republic, with two other notions of equality:

(i.) Equal opportunity ---- first, confined to white males, then later as racism and sexual discrimination were contested and fell in impact to include African-Americans and women --- with affirmative action programs carried out for women and minorities that have no counterpart in the EU historically or even these days in most EU countries. France, for instance, just introducing such programs last month (December 2004), with lots of controversy. That includes court-ordered school busing, something that has never happened in the EU, and probably won't ever happen.

(ii.) Political equality, or at least mass participation and accountability to the electorate . . . and in ways without parallel in the EU or elsewhere. Again, there were blatant exceptions with the treatment of African-American slaves, and tolerance of Southern repression of freemen, at any rate until the 1950s. Even so, the US pioneered in the Progressive Era of the early 20th century primary nominations for all political offices --- including the President; popular referenda; the recall initiative (used with telling effect in California in 2003); the election of all District Attorneys and Judges at all levels, local, state, or federal, either directly or (for federal appointees) by means of Congressional approval.

Note right off too: the ideals of political equality have always pulled hard in American life, for all the hypocrisy and tolerance of repression of African-Americans in the South until the 1950s.

Still, the key point here lies elsewhere.

These ideals were always actively at work in American life to shame American leaders into action: first, in a brutal civil war waged to destroy slavery, then in the aftermath of WWII with repeated civil rights decisions by the courts and legislation. Hence school bussing was introduced for integration, something unthinkable in Europe, along with other affirmative action programs. Hence Virginia, a segregated state where Nancy, prof bug's wife grew up in the 1950s, had a black governor within three decades. Tens of thousands of black Congressmen, state legislators, Senators, sheriffs, police chiefs, and mayors show how far and how quickly the US has evolved since then. For that matter, the current president of the USA --- denigrated as a reactionary by his foes on the left --- appointed the first African-American man to head the State Department and now the first African-American woman --- and he has promoted Hispanic Americans in number to important Cabinet heads of other major departments.

And note another pivotal point, at the heart of today's argument:


Despite Relative Ideological Indifference to Economic Equality in American Life, The US Was Historically the Leader:

American wage-earners --- including unskilled laborers --- were not only always richer than Europeans after 1800 or so, but (contrary to left-wing mythology here) income distribution in this country was also more equal than anywhere in Europe . . . as late, believe it or not, as 1970. The table below brings this out graphically.

When I would inform my students of all this in the 1970s, 1980s, and 1990s, they almost all registered disbelief. How could this be possible? Well, no surprise for their confusion; not really. After 1968, they had grown up in a school and university system --- reinforced by lots of liberal media hype --- in which politically correct arbiter dicta prevailed; and it was hammered into their minds that the US was exploitative, repressive, plutocratic, and . . . well, in politically correct lexicon, the list runs on and on. Naturally, then, most students came to believe that, whatever virtues American capitalism had, the rich and affluent had clawed their way to the top on the sweat-and-brows of half-downtrodden workers and minorities.

So here are the stats, taken from UN studies of income distribution in the mid- and late-1960s, compiled by a noted left-wing sociologist in the mid-1970s, S.M. Miller . . . a committed egalitarian.

Percentage of the National Mean Income Received by Quintiles; and Spread Between the
Mean of the Top and the Mean of the Bottom Quintiles (Mean = 100)
In The 1960s

Country Year Income quintiles Income range
between mean
of the top
and bottom quintiles
Bottom 20% Middle 60% Top 20%
United States 1964 26.0 89.0 205.5 1:7.9
Denmark 1963 25.0 86.0 216.0 1:8.6
United Kingdom 1969 25.5 84.0 221.0 1: 8.7
Norway 1968 22.0 93.0 197.0 1: 8.9
Sweden 1969 23.8 87.0 214.5 1:9.0
West Germany 1964 26.5 69.0 265.0 1:10.0
Holland 1967 21.4 83.0 227.3 1:10.6
Finland 1962 12.0 80.0 246.5 1:20.8
France 1962 9.5 74.0 268.5 1:28.3
Sources: 1) Adapted From Dr. Paul Stevenson,
Globalization and Inequality
2) Stevenson, in turn, has based his table on the work of S.M. Miller and Martin Rein. "Can Income Redistribution Work?" Social Policy, May/June 1975, Table 1, p.4.



The Marked Changes In The US Income Distribution Charted

Since 1970s, capitalism has underwent one of its recurring transforming upheavals, something it has done with regularity --- roughly every 50-60 years --- since the start of the industrial revolution. We'll clarify these upheavals in a few moments. In the meantime, here are two graphics that bring out the noticeable changes in the distribution over the last 35-40 years. (Both graphics are taken from Schmeeding, and all references should be strictly to him.)

Changes in US Income Distribution 1979-1999

Changes In The Growth of Income In US Quintiles Between 1947-1999, Plotted By Decades.

A Comparisons With Other Industrial Countries:

What has gone on since 1970 --- when the US was still the historical leader in equal income distribution among industrial countries --- is brought out in comparative form in the following graphic, a more complex one. For the time being focus only on the first couple of rows, which use a different way of organizing national income distributions that is associated with a number of scholarly works dubbed the Luxembourg Income Studies . . . so named because of an initiative of the Luxembourg government, which headed the EU Commission at the time.

The studies have tried to pin down a common set of measures and other methodologies for comparative purposes. The main comparison is now not across arbitrarily defined income-quintiles in each country, but rather the ratio between the top 10% income earners (the rich and very affluent) and the bottom 10%.

Here is the graphic. Remember, pay attention to the top row; nothing else right now. The other rows bring out something else --- the tradeoffs in per capita income growth, job growth, housing, and the like --- that the egalitarian thrusts in the EU entail . . . all matters that we will deal with in the next article in this mini-series.

The Distribution of Income, Per Capita Income, Unemployment, & Housing

Untitled Document
USA UK Australia Canada France Germany
Inequality (1994-97)

Ratio Of Top 10% Income Earners
To Bottom 10%
4.6 4.3 4.1 3.5 3.2
Per Capita Income
$32,184 $39,334
$21,673 $28,370 $24,192 $29,890$25,179 $32,320 $21,132 $28,452 $23,010 $27,090
Work Effort
% of Pop Aged 18-64 Working
FullTime (2004)
Hours Worked Yearly







GDP per worker (2003)
GDP per hour (2004 est.)
$73,097 $44.00 $51,522 $33.00 $61,100 $35.00 $59,535 $39.00 $63,131$41.00 $58,000 $37.00
Unemployment Year 2004 5.4% 4.7% 5.2% 7.3% 9.9% 10.8%
Dwelling Space
(Sq. Feet Per Person)
Poor USA Households

All Households




N .A.




Sources: Smeeding, OECD, Bergstroem & Gidehag, Australian government, The Economist, OECD

Brief Clarification

Note that the US --- in a topsy-turvy change ---- is now at the bottom of the industrial countries in "equality" of income. How did this happen?

Well, as we'll see in the next article --- a continuation of today's argument --- capitalism has undergone one of its huge technological upheavals, something that has occurred with regularity every 50-60 years since the start of the industrial revolution. A knowledge-based economy has emerged, favoring educated people: in particular, creating an income premium for college grads. For another thing, globalizing forces have picked up in vigor thanks to the new radically restructuring technologies --- computers, the internet, 24-hour capital movements, an acceleration of multinational activity --- shifting economic dynamism, in part anyway, to Pacific Asia and India. For a third thing --- the most important in the US economy, even if it's ignored by egalitarian enthusiasts on the left --- 35-40 million legal immigrants have moved to the US since 1965, most of them poorly educated, keeping wages down for the less educated native-born. Add in what Bear Stearns brokerage service just found out in a careful survey carried out in major US cities of school enrollments, use of social services, and the like --- namely, there are about 18-20 million illegal immigrants residing and working here, double what the Federal government claims --- and you'll have a pretty good working idea of the major causes of lagging income at the bottom. See
The Underground Labor Force

There's more. As the rest of the graphic here indicates, there are big tradeoffs between the growing tax and welfare burdens in the EU and both slower growth in GDP and per capita income and, more worrying still, lagging job-creation. Don't worry. We'll deal with these tradeoffs in the next article. For now, look at one of the implications drawn by a left-wing government in the EU:


A German Welfare Somersault Carried Out By The German Left

Is this an ideological position? Not much. The ideological thrust lies mainly with the egalitarian-enthusiasts who have written hundreds of articles published at the Luxembourg Incomes Study site and refuse to look at the tradeoffs.

Look at the site if you want. You'd be amazed --- as prof bug has found wading through several dozen scholarly articles the last month published there by specialists on income distribution --- how almost all of them, egalitarian in thrust, won't delve into the trade-offs. As Smeeding, a well-known American specialist, does in admiring tones, they will point optimistically to how Germany is one of the three industrial countries that has prevented a worsening distribution of income over the last 30 years . . . the other two very small countries, Sweden and Holland. No tradeoffs are mentioned with jobs and GDP growth, though Smeeding --- publishing his latest article there less than a year ago --- said that the tradeoffs need to be studied (they have by others, for decades now). Never mind. If only we could do as well as Germany . . .


What, Germany an exemplar?

The funny thing is, the left-wing coalition government in Berlin --- headed by the Social Democrat Gerhard Schroeder --- has no illusions on these scores.

In particular, for the last 14 years Germany has compiled the worst record of an industrial country since the Great Depression of the early 1930s. It has done even worse in growth and job creation than Japan, another country with an even more egalitarian distribution of income. To reverse this stagnation --- with all the huge threats to the German standard of living that it entails --- the Green-Socialist government has drastically reformed the German welfare system in ways very similar to those carried out in Thatcher's Britain and Clinton's America: thrusting cuts in both the length and levels of welfare benefits, with a clear work requirement for those on welfare for a year. That work requirement is unusually stringent. In ways that even US law hasn't emulated, those still on welfare after the year expires will be required to take public-financed jobs at a minimum wage level. That level will be lower than the benefits received over the previous 12 months.

Does the left-wing German government know something that our left-wing enthusiasts who write for the Luxembourg Income Studies refuse to come to terms with? (For a good NY Times article on this, click here.)