Sunday , April 11 2021
Home / John Cochrane - Grumpy Economist / The puzzle of Europe

The puzzle of Europe

Summary:
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: ,297. UK ...

Topics:
John H. Cochrane considers the following as important: , , ,

This could be interesting, too:

John H. Cochrane writes San Francisco bans affordable housing

Menzie Chinn writes Infrastructure Investment and Taxes

John H. Cochrane writes Defining inequality so it can’t be fixed

John H. Cochrane writes Testimony on financial regulation and climate change

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) 

The puzzle of Europe

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


The puzzle of Europe

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. 






John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

Leave a Reply

Your email address will not be published. Required fields are marked *