CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Robert Samuelson Celebrates Stagnation in Europe

Robert Samuelson Celebrates Stagnation in Europe

Print
Monday, 08 October 2012 07:59

Robert Samuelson is excited by the fact that Europe's economy faces stagnation. Unfortunately he gets almost everything in the piece wrong.

First, his central point, that the stagnation is due to overly generous welfare state, is 100 percent at odds with reality. The countries with the most generous welfare states are the Nordic countries and Germany, all of which are doing fine. The problem countries are Greece, Italy, Spain, and Ireland, all countries that rate near the bottom in the generosity of their welfare states.

The proximate cause of stagnation is quite evidently the decision by the European Central Bank to require austerity across the continent. In case anyone disputed this fact, the Conservative government in the U.K. agreed to prove the point by implementing an austerity plan in that country, which quickly threw it back into recession. In short, the immediate problem facing Europe is hardly overly generous welfare states; it is contractionary fiscal policies being pursued by European governments, in many cases against their will. 

Other items that Samuelson gets wrong is his obsession with GDP growth. There is no obvious reason to be interested in growth per se, as opposed to per capita growth. China is not richer than Denmark even though its GDP is more than 80 times as high. The reason is that its population is more than 400 times as high. Economists focus on GDP per person, not absolute levels of GDP.

Furthermore, if GDP per capita grows less rapidly because people opt to take the benefits of productivity growth in leisure time or in quality of life improvements that may not be picked up in GDP (e.g. more park space), there is no economic basis for objecting to this decision. Samuelson is just expressing a personal preference for people working longer hours and getting rewarded with more consumption goods.

Samuelson urges the removal of constraints on growth. While this is a good idea, the top of the list would probably include things like patent protection for prescription drugs, which raises prices by around $270 billion a year and the removal of obstacles to trade in professional services. While Samuelson was no doubt thinking of cuts to Medicare and Social Security, my list would have a much more positive impact on growth.

 

Comments (17)Add Comment
...
written by liberal, October 08, 2012 9:32
While this is a good idea, the top of the list would probably include things like patent protection for prescription drugs, which raises prices by around $270 billion a year and the removal of obstacles to trade in professional services.


Small beans compared to the 10--20% of GDP that landowning sucks out of the economy every year.
...
written by PeonInChief, October 08, 2012 10:25
As I recall, in the NYT, every economic problem is the result of an overly-generous welfare state, encouraging people to take vacations and, eventually, retirement.
welfare has a positive income elasticity.
written by pete, October 08, 2012 11:17
this is kind of what you are saying...the better off a society (northern europe, U.S., Canada) the more it is able to provide great benefits to those in need. the u.s. has a positive gdp growth while having about 20% or so real unemployment, most of whom receive like 10-20X global gdp per capita in benefits.

careful with leisure = consumption...I mentioned that a while ago and many disagreed...they thought unemployed received no benefits from leisure.
land and the social net?
written by David, October 08, 2012 11:35
Is there some reason land is being brought up in the context of this blogpost? I don't see the connection to the attacks on medicare/medicaid or social security. Enlighten me.
ownership in general
written by pete, October 08, 2012 1:34
I think the point is if there should be no intellectual property rights, then might as well have zero property rights anywhere.

Let me tell you who owns the land. In Fort Worth, we pay 3% property tax. With an interest rate of 3%, well, you do the math. Essentially half of my property is owned by the government. These are efficient taxes, those on higher order goods, per Henry George. As is the health care head tax...everyone pays the same tax to be alive, regardless of income...unless they buy health insurance. Very efficient. Gotta love these guys.

Anybody in a solid red or blue state should exercise the right to choose by voting for an anti-wall street, anti war party like Green or Libertarian.
...
written by fuller schmidt, October 08, 2012 2:30
Me and the boys now own this land that your living on, David, so I'm afraid you're going to be working for us. And we need lots more GDP growth, so get a move on.
A Lie?
written by Frankly Curious, October 08, 2012 3:53
"100 percent at odds with reality." You mean a lie?
...
written by PeonInChief, October 08, 2012 5:01
Apparently the Conservative government in the UK has decided that if a lot of austerity causes a recession, they can solve the problem by doubling down. What will the NYT say when this has the expected impact?
even worse ?
written by David, October 08, 2012 10:35
...
written by fuller schmidt, October 08, 2012 1:30
Me and the boys now own this land that your living on, David, so I'm afraid you're going to be working for us. And we need lots more GDP growth, so get a move on.


"Me and the boys own the mineral rights to the land underneath your property. Please excuse the oil rig in your living room."
Mr.
written by Nlutz, October 09, 2012 7:38
How does the WAPO allow someone (a political science major) without basic economic knowledge pontificate about economic matters? Next they will let Thomas Boswell (sports columnist) tell us how to evaluate the various cures/treatments for brain cancer and provide recommendations.
The proximate cause
written by Floccina, October 09, 2012 11:20
The proximate cause of stagnation is quite evidently the decision by the European Central Bank to require austerity across the continent.


The proximate cause may not be austerity but too tight a monetary policy. That is what I would vote for.
...
written by liberal, October 09, 2012 12:21
pete wrote,
I think the point is if there should be no intellectual property rights, then might as well have zero property rights anywhere.


Not really. My point is that economic rents are parasitic. Some property ownership does indeed yield rent, but not all property ownership.

In the case of IP and land, though, private land ownership in the absence of high land value tax---ie, land ownership allowing private capture of most land rent---land is worse in three senses. First, land rent is clearly a much larger share of GDP. Second, in the case of IP there's at least some chance that the collector of the rent did make a positive (ie, non-parasitic) contribution to production en route to collecting his rent; in the case of land, the chance is zero. Finally, one can live without access to the intellectual "capital" hamstrung by IP; one cannot live without access to land.

Don't get me wrong---our current IP regime is an evil. But it's not as evil as our current land ownership regime.
...
written by liberal, October 09, 2012 12:29
pete wrote,
These are efficient taxes, those on higher order goods, per Henry George.


Only the part that falls on land is an efficient tax. Not the part that falls on improvements.

As is the health care head tax...everyone pays the same tax to be alive, regardless of income...unless they buy health insurance. Very efficient. Gotta love these guys.


Not sure what your point is. Land value taxation is entirely just, because it follows both the ability to pay and beneficiary pay principles. (Ability: someone owning land has wealth. Beneficiary: the landowner collects land rent (owing to a title granted by the state), which he in no sense created, so it's just that the state recoup the rent.)

If you're asserting that land-value taxation is efficient but somehow wrong, you'll quite misinformed.
...
written by liberal, October 09, 2012 12:33
Nlutz wrote,
Next they will let Thomas Boswell (sports columnist) ...


Well, a few years ago they "let" Sally Jenkins (sports columnist) write about creationism and intelligent design: http://www.washingtonpost.com/...00964.html
...
written by liberal, October 09, 2012 12:39
pete wrote,
Essentially half of my property is owned by the government.


Apart from the fraction of tax landing on improvements (which I don't agree with, in the context of this discussion anyway), so what?

Yes, if the government "owns" half your land (in the sense that it mandates you return that fraction of land rent), that means you get to collect less land rent. Since you didn't produce the value yourself, why is that bad?

Furthermore, if land taxes are higher, then when one purchases the land to begin with, the cost is that much lower.

If I were to move to another state/locality, I'd strongly prefer it be a place with high land value tax rates. If the rates are high, they go the government to pay for schools and the like. If the rates are low, the portion of capitalized land rent that would have gone to the government has gone into the pocket of the guy I'm buying the land from. Probably to be made up by sales or income taxes.

...those on higher order goods...


Intertubes implies that some kind of Austrian shibboleth. Yuck.
...
written by liberal, October 09, 2012 12:45
fuller schmidt wrote,
Me and the boys now own this land that your living on, David, so I'm afraid you're going to be working for us. And we need lots more GDP growth, so get a move on.


Huh? That happens all the time when renters lose their lease to their home (for whatever reason).
samuelson's mistakes
written by mel in oregon, October 09, 2012 8:04
the two major errors in the article pointed out well by cepr are trying to suggest as samuelson does that european economic woes are caused by an overly generous welfare state, which i have pointed out hundreds of times flies in the face of reality since germany & the scandinavian countries are doing far better than their southern neigbors where the real austerity is going on. gdp growth & a rising stock market mean very little to those that are suffering from high debt, foreclosures, unemployment & the like. i would argue more growth doesn't necessarily mean a better quality of life. the united states is projected to have almost 600 million people by 2100. do we really think having more crowding like new york city, los angeles & miami is what we want for our kids, grandchildren & the future of america? i believe samuelson should have studied harder when he was at harvard. then he might have learned to think for himself instead of parroting the views of wallstreet & the chamber of commerce.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives