The euro crisis is supposed to be the death knell of cradle-to-the-grave government. But the reality is the only thing the euro crisis might be the death knell of is the euro. None of Europe's biggest welfare states are in trouble.
Let's look at some data. The chart below compares average social spending with adjusted per capita GDP growth since 2000. (Note: The y-axis shows social spending as a percentage of GDP; the x-axis shows percentage growth. Data is from the OECD and IMF). See if you can make out any kind of discernible relationship here.
I know this picture is worth 1,000 words, but here are four more. There is no pattern.
Okay,
here are some more words. You might be wondering just how the per
capita GDP growth figures are adjusted. If not, feel free to skip to the
next paragraph. The adjustment tries to control for how wealthy each
country is. In plain English, we'd expect poorer countries to grow
faster than richer countries. It's what economists call convergence.
Taking the purchasing power parity GDP per capita figures for each
country and using a simple convergence multiplier, we can estimate how
much faster (or slower) each country "should" grow compared to the
United States.
It hasn't exactly been a good
decade for growth anywhere in the rich world. But it hasn't been any
worse for countries with big welfare states versus countries with small
welfare states. Yes,
social programs can affect growth. But
so do other things. Like monetary policy. Or smart taxes. And that most
ineffable of qualities, a strong entrepreneurial culture. Which,
ironically, might be strengthened by some elements of the social safety net.
You
don't need to sacrifice economic security for economic growth. Other
countries manage both just fine. Actually, the U.S. is in better shape
than most other rich countries because our demographic crunch is much
less ... crunchy? Our society is still growing, if aging.
Hear that sound? It's the death knell of the death knell of the welfare state.
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