2004 May 08 Saturday
Robert Samuelson On The Drifting Apart Of America And Europe
Europe's working population is going to shrink.
From 1996 to 2003, economic growth averaged 1.3 percent annually in Germany, 1.5 percent in Italy and 2.2 percent in France (the U.S. rate: 3.3 percent). Many EU countries have taxes between 40 percent and 50 percent of national income. Aging populations intensify upward pressures on benefits. From 2000 to 2020, the over-65 population in the 15 countries of the "old" EU is projected to rise 38 percent, while the number of people between 25 and 49 falls 14 percent.
While the recently enlarged European Union now has a combined economy bigger than that of the United States it is pretty obvious that it will not continue to do so. The bigger birth dearth in Europe will shrink their working population so much that the US is most likely to pass it by and leave it well behind.
Europe's problem is that only is its population aging more rapidly but its governments are already larger portions of their economies than is the case in the United States. The US can increase taxes and spending to European levels in order to pay for aging populations. But Europe is already at those higher tax levels. Tax increases in Europe may decrease economic activity so much that the amount of money collected could decline as a result of the tax increases.
Europe is going to have to reduce welfare spending for those of working age in order to make more money available for retirees. Europe is also going to have to raise retirement ages. The United States will need to take both of these steps as well, but on lesser scales in both cases.
Samuelson comments that Europeans see their interests diverging from those of America to such an extent that George W. Bush is a blessing to them since he gives them an excuse to point to for why they are going to disagree and distance themselves from America. This seems very plausible to me. French elite dissatisfaction and general European leftist intellectual dissatisfaction with the United States are of very long standing.
The bigger picture is that China is going to surpass the United States as the world's largest economy. India may eventually do so as well.
The Economist has some good examples of how the new entrants are quite different from the "core" of Europe. Coming out of Communism they're in pretty bad shape, but their growing and they have fewer structural inefficiencies holding them back. Theoretically they could go positive population growth and continue growing past core-European levels, a'la the United States. It will be very interesting to see how the EU takes that. Will the Core adapt to compete with their co-Continentals, or will it tear the EU apart? The US fought a bloody Civil War to answer the secession question, but the EU has not had to address that yet, and hopefully it will not come to war.
At current rates of growth China is still at least 75-100 years from surpassing the US (we're a fast moving target, esse). However, much sooner than that China+Japan+Korea will be a larger unit that the EU or NAFTA. That's also interesting, and will have a strange effect on the world. Strange, but I believe good. OFTA (Oriental-FTA, what do 'ya think?) should have no incentive to be militarily competetive. We'd never be so stupid as to try to tie them down with a Treaty of Versaille.
Brock, China is a long way away from catching up to the US in per capita GDP. But it is within perhaps 20 years (maybe less) of catching up in total GDP. That is because there are just so many more Chinese than Americans.
This is demonstrated by their energy consumption. They are now using more energy than any other country besides the United States. They passed by Japan a year or two ago.
Brock, the Eastern Europeans also suffer from crashing birth rates. They are not going to demographically challenge the Western Europeans.
I know, which is why I qualified my statement with "Theoretically they could go positive population growth...." My presumption is that people who think they have a bright future, and that their children will be better off than they themselves are, will be more inclined to have children. See, e.g., the U.S. of A. Having kids is expensive, and you should only do it if you have confidence that you will still be able to provide for yourself and them.
In developing nations children are a net provider, because they pay for you in your retirement. In the modern West they are more of a net cost. Only those with a certain level of discretionary income can afford to do it. Core European nations deprive their citizens of that discretionary income through high taxation. A lot of it is returned in similar social services, but apparently not enough.
This is only one factor of course, and there are both trends that push towards more children and counter-trends that push towards fewer trends. For instance, take Ireland. When economic reform started back in the '60s and '70s there was a slight lag time, but then births started to pick up as young couples could afford it. Later, in the '90s the Irish economy reached a new inflection point. It started to REALLY take off and started drawing in women like never before. Their participation went sky high, and birth rates were cut in half during the '90s. The US went through the same cycle starting in the late 70s through the 80s. The 90's boom also kept women in the worforce, but now many women have started leaving the workforce despite good job offers.
These cycles are something that any _growing_ nation goes through. Largely, Europe is not growing. Ireland is. It went from last place to 2nd richest in 20 years because the Core is that slow and self-retarding. I am of the opinion that the Eastern European population problem is a legacy of Communism, and that it will work itself out if
I'm going to take back what I said about China, but do it in your Chinese Demand for Oil post, as it's more on topic there.