From: Paul Krugman nytdirect@nytimes.

com
Subject: What’s the matter with Europe?
Date: 31 January 2024 at 04:56
To: kyle.martelle@gmail.com

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Illustration by Sam Whitney/The New York Times; images by Shana novak/Getty Images
 Illustration by Sam Whitney/The New York Times; images by Shana novak/Getty Images

Europe has problems, but not the ones a

lot of people seem to think it does
By Paul Krugman
Opinion Columnist

In my most recent column I had a bit of fun with Kristi Noem, the governor
of South Dakota, who has ominously warned that President Biden will turn
us into Europe. I joked that this would mean adding five or six years to our
life expectancy. When I shared Noem’s remarks on social media, some of
my correspondents asked whether this meant that we’re about to get good
train service and better food.

A note to younger Americans: We already have better food. It’s true that
Bolognese remains infinitely better in Bologna than anything you can get
here, even in New York, but you have no idea how bad American cuisine
was in the 1970s.

But Noem’s remarks were part of a long tradition among U.S. conservatives:
insisting that Europe is already experiencing the disasters they claim will
happen as a result of liberal policies here. Right now, the issue in question
is immigration. In the past, however, the imagined European dystopia was
supposed to be a result of high taxes and generous social benefits, which
allegedly destroyed the incentive to work and innovate.

So it seems worth asking what problems Europe really has — that is,
problems that are different from our own.

In discussing Europe-U.S. comparisons, I find it helpful to distinguish

between developments before the Covid pandemic and developments since,
as we have followed quite different policies in response to that upheaval.

So, how did Europe and America compare economically in 2019? Overall,
they were surprisingly similar.

I fairly often encounter people who believe that Europe suffers from mass
unemployment and has lagged far behind the United States technologically.
But this view is decades out of date. At this point adults in their prime
working years are actually somewhat more likely to be employed in major
working years are actually somewhat more likely to be employed in major
European nations than in America. Europeans also know all about
information technology, and productivity — gross domestic product per
hour worked — is virtually the same in Europe as it is here.

It’s true that real G.D.P. per capita is generally lower in Europe, but that’s
mainly because Europeans take much more vacation time than Americans
— which is a choice, not a problem. Oh, and it should count for something
that there’s a growing gap between European and U.S. life expectancy, since
the quality of life is generally higher if you aren’t dead.

Just to be clear, Europe isn’t utopia. There are many real problems, even in
nations with social safety nets that American progressives can only dream
of. Sweden has a problem with gang violence. Denmark is one of the
happiest nations on the planet, but there are nonetheless a significant
number of melancholy Danes, and the country has experienced a rise in
right-wing populism.

Nonetheless, Europe is in astonishingly good shape, economically and

socially, compared with almost any other part of the world.

All that being said, most people have the sense that Europe is in relative
decline and that its economy has grown more slowly than America’s over
the past few decades. And this sense is correct. But the explanation may
surprise you: It’s essentially all about demography.

Here’s a chart comparing growth in the United States and the euro area
from 1999, the year the euro came into existence, until 2019, the eve of the
pandemic:
 OECD, World Bank

In real terms, the U.S. economy grew a lot more over those two decades —
53 percent versus 31 percent. But almost all of that difference is explained
by the fact that the U.S. working-age population (conventionally, if
somewhat unfortunately, defined as adults 15 to 64) grew a lot, while
Europe’s hardly grew at all (and has been declining in recent years). Real
G.D.P. per working-age adult rose 31 percent in the United States and 29
percent — basically inside the margin of error — in the euro area.

Is Europe’s stagnant population a problem? It does raise fiscal concerns:

Can a shrinking work force support a growing number of retirees? (This
problem would be alleviated if Europe were to accept more, um,
immigrants.) But it’s hard to look at these numbers and see them as a
picture of economic crisis.

But that’s a portrait as of 2019, before the pandemic. What about

developments since then?

In Europe, as in the United States, disruptions created by Covid and then by

Russia’s invasion of Ukraine led to inflation. In fact, if you use comparable
price indexes, cumulative inflation since early 2020 has been almost the
same on the two sides of the Atlantic:
 FRED

This similarity, by the way, casts doubt on claims that Biden administration
policies, as opposed to pandemic-related disruptions that affected the whole
world, are to blame for U.S. inflation.

The United States has, however, had a much stronger economic recovery
than Europe — more than can be accounted for by differences in population
growth. And this probably does in part reflect Biden policies: America did
much more to stimulate recovery with government spending.

Furthermore, while inflation has been plunging in Europe in much the

same way it has in the United States, officials at the European Central Bank
at least sound much more reluctant than their U.S. counterparts to reverse
recent rate hikes, so Europe is running a much bigger risk of recession.

So what’s the matter with Europe? No, the continent hasn’t been overrun by
immigrants. No, strong welfare states haven’t stifled the incentives to work
and innovate. But Europe does suffer from policymakers who are
excessively conservative, not in the left-right political sense, but in the sense
of being too worried about inflation and debt, and too hesitant about
promoting economic recovery.

Quick Hits
Don’t believe me about American food in the 1970s? Consider this recipe for
cherry-pineapple bologna.

When the euro crisis supposedly marked the collapse of the welfare state.

Immigrant workers have played a big role in America’s recovery.

Italy could really use some immigrants.

IN THE TIMES
IN THE TIMES

Evergrande Will Be Dismantled, a ‘Big

Bang’ End to Years of Stumbles
After multiple delays and even a few faint glimmers of hope, a
Hong Kong court has sounded the death knell for what was
once China’s biggest real estate firm.
By Alexandra Stevenson

The Big Number: 3.3%

The U.S. economy grew at a vigorous pace in the last three
month of 2023, despite the high interest rates handed down by
the Federal Reserve.
By Marie Solis

Economists Predicted a Recession. So

Far They’ve Been Wrong.
A widely predicted recession never showed up. Now,
economists are assessing what the unexpected resilience tells
us about the future.
By Jeanna Smialek and Ben Casselman

Panama Canal Drought Slows Cargo

Traffic
The lake that allows the Panama Canal to function is at the
lowest water level ever recorded for the start of the dry season.
By Mira Rojanasakul

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