The latest debate in the blogosphere revolves around comparing the economic performance of the US relative to Europe. This is problematic, as people are not using a common metric or any real data analysis. Krugman has claimed
that any superior US performance in growth is only due to increased population.
Lets take a look at some actual numbers, shall we? These are from the total economy database
started by Angus Maddison, and taken over by Groningen University and the Conference Board. I am using the Table for GDP per capita in 1990 US$ (converted at Geary Khamis PPPs).
In 1980, where this debate seems to start, we can see that all the European countries I've chosen were considerably poorer than the US except for Switzerland.
Below I list Per Capita GDP as a % of US Per Capita GDP for selected European countries in 1980 and 2008:
Austria 74.06 76.72
Denmark 81.96 78.82
France 81.31 72.91
Greece 48.29 52.33
Ireland 45.97 90.70
Italy 70.78 63.70
Neth 79.15 78.83
Norway 81.15 93.01
Portugal 43.30 46.07
Spain 49.53 55.62
Sweden 80.40 78.81
Switz 101.0 79.56
UK 69.61 76.47
Germany 66.34 (2008 only)
As one can see, the European experience is quite varied. Greece, Portugal and Spain have done a little bit better than the US over the period but are still extremely poor in comparison at roughly half of US per capita GDP in 2008.
France and Italy have done notably worse than the US over the period and are at less than 75% of US per capita income.
Austria, Denmark, the Netherlands and Sweden have basically performed about the same as the US over the period and remain at roughly 80% of US per capita income.
Norway has done quite a bit better than the US over the period and is now above 90% of US per capita income. Ireland has done even better, going from around 50% of US income levels to 90% of the US over this period. The UK has also done better than the US in per capita growth but still has only reached about 3/4s of the US level of per-capita income.
Germany at re-unification (1989) was at 69% of US levels and has fallen to 66% by 2008.
So, it's very misleading to talk about growth or wealth levels in "Europe" as if one number captured the European experience. Italy and France appear to be from different worlds than Norway and Ireland!
It is also not correct that US growth has been higher only due to population growth. Many European countries, including large ones like France, Germany and Italy have seen their per-capita incomes fall relative to the US since 1980.
And, while it is true that many European countries have had very similar per capita growth as the US since 1980, these countries generally are quite a bit poorer than the US by this metric at least and thus perhaps should not be too proud of only matching our growth rates (you know, convergence and all that).
I hate to bring up neoclassical growth theory, but in the steady state of that model, all countries should grow at the same rate (in per capita terms). Differences in institutions or policies only result in permanent differences in income levels in the standard model.
Finally, big ups to Ireland and Norway for their amazing economic performance over this 1980 - 2008 time period. Ireland I know, changed their economic institutions over this period, but I don't really know anything about Norway (well, they do have oil, right?)
Labels: economic growth, economic policy, statistics