They’ll always have Paris

This post is about the incredible shrinking European welfare state utopia.  Please don’t take it for more than what it is—a series of random observations, not a comprehensive examination.

Many American progressives like the European welfare state.  But which welfare state?  Surely not the Mediterranean welfare state, which is now bankrupt.  And even if the bankruptcy is partially attributable to the euro, there’s no doubt that the statist model in Greece/Italy/Spain/Portugal is flawed.  So most progressives focus on Northern Europe.  But not Britain, where Thatcher’s radical policy of neoliberalism opened up “savage inequalities.”  No, it’s the Northern European model of Germany, France and the Nordics.  Of course the Nordics have gone in for some fairly extreme forms of privatization—so much so that the conservative Heritage Institute rates Denmark as the most laissez-faire economy in the world, in the 8 out of 10 categories unrelated to size of government (taxes and spending.)  Indeed Germany and the Nordics don’t even have national minimum wage laws.

Maybe that’s why Paul Krugman likes to talk about France so much.  It’s got a huge government, and yet is relatively successful.

Nicolas Goetzmann recently sent me some data on Germany and France:

Germany has no minimum wage (for the moment)?

France has one, 9 euro /hour.

Germany has 5.000.000 workers below this level.

Germany has 5.5% unemployment

France has 10.5% unemployment

Same monetary policy.

Since that time we’ve had some back and forth, and Goetzmann discovered that the French minimum wage was recently raised to 9.43 euros/hour, and the following suggests that Germany now has more like 8 million workers making below that level:

The number of badly-paid Germans is rising, with around eight million (23 percent) German workers earning less than €9.15 an hour – 2.3 million more than in 1995, a new study published on Wednesday shows.

The study, which debunks the image of Germany as Europe’s last bastion of high wages, found that as many as 4.1 million Germans earned less than €7 an hour, 2.5 million less than €6. A further 1.4 million people’s hourly rate did not even clear €5 an hour.

Here’s another article:

Anja has been scrubbing floors and washing dishes for two euros an hour over the past six years. She is bewildered when she sees newspapers hailing Germany’s “job miracle.”

“My company exploited me,” says the 50-year-old, sitting in the kitchen of her small flat in the eastern German town of Stralsund. “If I could find something else, I’d be long gone.”

Stralsund is an attractive seaside town but Anja, who preferred not to use her full name for fear of being fired, cannot afford the quaint cafes.

Wage restraint and labor market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive.

But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.

Labor office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the “job miracle” has not prompted Germans to spend much more than they have in the past.

Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.

“I’ve had some people earning as little as 55 cents per hour,” said Peter Huefken, the head of Stralsund’s job agency, the first of its kind to sue employers for paying too little. He is encouraging other agencies to follow suit.

.  .  .

The contrast between Germany’s record levels of employment and the dire jobs situation elsewhere in Europe is stark.

Last year, the number of people in employment in Germany rose above the 41 million mark for the first time.

.  .  .

In 2005, Schroeder’s last year as chancellor, he boasted at the World Economic Forum in Davos: “We have built up one of the best low wage sectors in Europe.”

In some respects it seems Germany has followed the “EITC yes, minimum wage no” mantra that American conservatives claim to support (but are often too cheap to pay for.)

One out of five jobs is a now a “mini-job,” earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.

And the following is really odd, unless you understand that conservatives don’t actually favor free markets:

Angela Merkel’s conservative government is trying to water down the effects of some labor reforms brought in by her Social Democrat (SPD) predecessor Gerhard Schroeder, a year-and-a-half before the next federal election, when she is expected to seek a third term.

.  .  .

Chancellor Merkel plans to introduce a minimum wage for the sectors which do not already have one and Labour Minister Ursula von der Leyen is campaigning for temp workers to get paid as much as staff.

I don’t want to make too much of all this; it’s very dangerous to compare the overall performance of countries by focusing on a single dimension.  Unemployment rates change for all sorts of reasons.  And minimum wage laws tend to be complex.  Thus Australia has a very high minimum wage (although not nearly as high in PPP terms) but also has lots of loopholes.  Germany has no official minimum wage, but lots of industry level wage minimums.  So it’s not day and night.

What interested me most about the German data provided by Goetzmann is the huge number of German workers making low wages.  Combine this with the fact that Germany had very high unemployment as recently as the early 2000s, and then the rate plunged as the Schroeder reforms took effect.  Those stylized facts are suggestive, at a minimum.

I don’t think any of this is a definitive refutation of any single welfare state policy.  But I do think this shows that it’s an open question whether even a small homogeneous European country with a high degree of civic virtue can successfully do all of the things progressives like (avoid radical privatization, have fairly high minimum wages, provide a big welfare state, strong unions, etc.)   It’s even more doubtful that the full range of progressive policies would work in a huge, messy, complex society like America.  I think Matt Yglesias understands this.  Not sure if other progressives do.

PS. I am pretty sure that the Nordic wage policies more closely approximate a minimum wage than does Germany.  Can anyone confirm?

PPS.  Nicolas Goetzmann also told me that Berlin’s housing costs are barely one third the level of Paris.

PPPS.  After I wrote this I noticed a good article in The Economist suggesting Hollande may do a U-turn, but not too aggressively:

THE longer François Hollande spends in office, the more it takes sharp eyesight and a clear head to follow his economic policy. Since his election last May, the Socialist president has mixed tax-and-spend measures with efforts to improve competitiveness. The rich feel squeezed; firms are annoyed by anti-business talk. Yet,with GDP shrinking in the fourth quarter of 2012 and job losses mounting, the man elected on a leftist programme is accused of a swerve to the reformist centre. What is Mr Hollande up to?

In his first few months he ticked off items on his manifesto. He lowered the pension age for certain workers. He raised a family benefit. He capped petrol prices. He vowed to stop companies closing factories. He prepared a budget for 2013 that tried to keep the budget deficit to 3% of GDP, but chiefly through tax increases: it soaked the rich with a 75% income-tax rate, and hit companies and individuals with other higher taxes. Returning from his summer break, Mr Hollande seemed like a man with the luxury of time on his side.

What followed in October was, therefore, sprung on an unsuspecting public. After a damning report on French competitiveness by Louis Gallois, a left-leaning industrialist, Mr Hollande announced €20 billion of tax breaks for companies employing low-wage labour, to compensate for high social charges. A sense of urgency and realism began to creep in. Mr Gallois talked of an “emergency situation”. For the first time, the government acknowledged labour cost as a factor behind France’s loss of competitiveness to Germany over the past ten years. Mr Hollande even started talking of cutting public spending, which accounts for over 56% of GDP. This was followed in January by an unexpected agreement with the unions to soften labour-market rules, making it easier for companies to reduce hours and wages in a downturn.

.  .  .

Across the country, factories have been closing. Industrial production has stalled. Entrepreneurs feel penalised. Investment plans are on hold. Anecdotes abound of rich families leaving the country. Faced with this, and with poor poll ratings, Mr Hollande has begun to recognise the limits of state power, and of a tax-and-spend policy in a country that breaks records for both. Now Jean-Marc Ayrault, his prime minister, wants “to reinvent the French model”. Pierre Moscovici, the finance minister, even claims there has been a “Copernican revolution” on the left. By conceding the need for supply-side measures to reduce labour costs, he says, the French left has made a big shift. Indeed. Some say that those around Mr Hollande in charge of economic policy, including Mr Moscovici, Michel Sapin, the labour minister, and Emmanuel Macron, the economic adviser in the Elysée, have long understood what is really needed to solve France’s competitiveness problem.

The trouble is that the rest of the Socialist Party, particularly in parliament, does not agree.

Neither does the American left.

PPPPS.  55 cents an hour?!?!?  Who says labor markets can’t reach equilibrium?


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52 Responses to “They’ll always have Paris”

  1. Gravatar of Ray Lopez Ray Lopez
    25. February 2013 at 09:45

    France has less inequality than Germany, by region, according to a map of nighttime electricity consumption (correlates to prosperity). Germany had pockets of inequality in the old “east” Germany; France is uniform. France is also #1 for a place to retire if you are rich. I myself prefer 3rd world countries but that’s just me.

  2. Gravatar of Morten Morten
    25. February 2013 at 10:02

    In Norway many sectors have a minimum wage (by law) equaling the minimum ‘union wage’. This means that non-union workers can not be offered a lower wage than union workers. The union wage differs by industry. E.g. for non-skilled building site workers, the minimum wage is NOK 152 (USD 27) per hour. More information and other industries here (sorry, in Norwegian):

    http://www.arbeidstilsynet.no/fakta.html?tid=90849

    Anyway, funny Denmark is hailed as a free market heaven. They do have the HIGHEST tax burden in the world:

    http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

  3. Gravatar of errorr errorr
    25. February 2013 at 10:06

    Who ever said Germany was a bastion of high wages was smoking something. Germany is surviving because reintegration of the East forced it to halt all wage growth in the west and use painful reforms.

    I guess I am stuck in some American neo-lib bubble. If there were a quality center left or even European center-right part Sign me up for the Nordification of America

  4. Gravatar of errorr errorr
    25. February 2013 at 10:09

    Norway doesn’t count. It has a tiny population and is essentially a petro state. They keep the high taxes, and have a huge boost from natural resources and thus they are the wealthiest people on Earth.

  5. Gravatar of errorr errorr
    25. February 2013 at 10:22

    What bothers me is that people are blind to the fact that the us can never improve with the current political system. The deification of our constitution will prevent meaningful reform. Every presidential style democracy has failed at some point but ours. The only functional one left is Chile. I think even france with their hybrid system is massivly dysfunctional. Our system rewards extremism and empowers them with veto points. Of course many conservative libertarians may see this ase a feature and not a bug.

    Usually deadlocks are broken by the military but that is unlikely to happen in the US. When the Bush administration formed a government in Iraq they set a hard line position that the goverment had to be parliamentary because they knew a system based on the American one would fail. Afghanistan became presidential because the US compramised with anti-Taliban allies who demanded it and they are already far more dysfunctional than Iraq.

  6. Gravatar of Sven Sven
    25. February 2013 at 10:24

    I live in germany.

    The problem with current german labor market is, that on the one hand, you have these relatively good paying union controlled jobs which are protected by tight regulations. There is absolutely no hire and fire mentality there, so most people (especially older ones) are sitting on their jobs as hard as possible (just take a look at labor inflow and outflow statistics and compare that to US or UK).
    On the other hand, you have these subsidized 400 Euro jobs, where the employer has to pay no social security contributions and where there exist virtually no restrictions on firing. This job sector flourished for obvious reason when it was made possible by the Hartz reforms.

    But you also have to keep in mind, that germany has a culture of cheap, cheap, cheap… Most supermarkets are competing heavily about who sells milk or eggs the cheapist. I think there is no other country with such fierce competition about the most basic stuff you need to buy.

    I live in a west german city in north rhine whestphalia that is considered extremly economically underdeveloped with high unemployment. My mother has no labor qualification and was a housewife here whole life until like 4 years ago. She works now for like 6-7 Euros per hour full time. But that’s enough for here to make a living, even without getting additional benefits, because food is so cheap here and renting is cheap in most cities.
    But of course, she can’t quite afford a car (but she doesn’t need one anyway :))

    But given the current political climate and germany and the fact, that most germans seem to have a slight socialist bias and absolutely no sense for simple economic logic, minimum wage laws will eventually arrive and will most likely deprive my mother of the possibility to participate in the labor force. :(

    P.s.: Sorry for my bad english ;)

  7. Gravatar of Jason Jason
    25. February 2013 at 10:58

    Scott, you said: “In some respects it seems Germany has followed the ‘EITC yes, minimum wage no’ mantra that American conservatives claim to support (but are often too cheap to pay for.)”

    I think that gets close to the crux of it, but misses some of the nuance. Much like Obamacare, which is similar to the one of the policies of these northern European countries (and that Holtz-Eakin recently [last week?] thought should be replaced with … itself), there actually isn’t a conservative constituency for the realized policy. It’s not that they are too cheap to pay enough for it — they don’t actually want the policy and are too cheap to pay anything for it.

    Basically, the EITC, carbon taxes or Obamacare are all “conservative” ideas that are put forward to seem reasonable but if/when liberals ever got on board or the policy ever was funded at a level to accomplish anything it would become the target of cuts and/or ire. I mean, EITC itself is only a mild improvement on the dollar per dollar loss of welfare with increasing income vs a direct cash grant! But no conservative would ever stand up for a $30k/year no-strings grant to every citizen despite the economics.

    I understand the terrible economics of the minimum wage, but I’m totally for raising it! The deadweight loss is essentially a stupid tax on the country for wanting to be all moralistic about “hard work” and “handouts”.

  8. Gravatar of Cthorm Cthorm
    25. February 2013 at 11:05

    The “homogenous society” meme is such a consistent red herring. It has no relevance. The factor that differentiates successful welfare states is customer service. Public goods and welfare benefits can be delivered efficiently and in a manner that satisfies the customer; the Nordics, Germans, and Australians have been better at this than other countries.

    Personally – I’d be most comfortable with a welfare state that only offers bare minimum protection. I’m not a fan of the paternalism, work incentives, or mission creep that tend to emerge from welfare state policies. But bleeding heart types get more votes, so the sensible thing to do is to give them the perks they want but to do so in a way that maximizes return. Insist on the most automated, efficient, and transparent delivery possible.

  9. Gravatar of Gustav Uffe Nymand Gustav Uffe Nymand
    25. February 2013 at 11:08

    In Denmark (as far as i know) is the de facto minimum wage defined by the social transfers since they defines the minimum salary in order to create economic benefit from work. There are a number of sectors were the companies and unions have defined higher minimum wages. Nevertheless, such agreements between companies and unions are not laws and that makes a huge difference after Denmark opened it’s labour market for East Europeans with the EU enlargement. EU’s free movement of labour law (as far as i know) do only require compliance with legal minimum wage requirements defined in laws
    It is also worth mentioning, that in Denmark is it easy and inexpensive to sack in order to make it easy and low risk to hire

    Anyway
    The center-left government has today announced the details in it’s newest competitiveness improvement reforms:

    Certain social transfers are to be reduced and there will be even more tough budget controls until 2020 in order to finance reductions in corporate taxes and removal or reduction in certain fees paid by companies

  10. Gravatar of Asco Asco
    25. February 2013 at 11:17

    “In Norway many sectors have a minimum wage (by law) equaling the minimum ‘union wage’. This means that non-union workers can not be offered a lower wage than union workers. The union wage differs by industry. E.g. for non-skilled building site workers, the minimum wage is NOK 152 (USD 27) per hour.”

    -Morten

    It’s essentially the same here in Denmark. At the supermarket I part-time in, pay starts at around 105DKK (18.6 USD) per hour. I don’t know of any places that offer wages lower than that, at least officially.

  11. Gravatar of Mike Sax Mike Sax
    25. February 2013 at 11:25

    Errorr, in what way is a presidential system at a disadvantage to a parliamentary system?

  12. Gravatar of kylind kylind
    25. February 2013 at 11:48

    I almost can’t believe the 55 cents/hour figure.
    I’m from East Germany myself, so I know about the low wages.

    Even the lowest paid apprenticeships pay at least twice that amount.

    You’d get 1.25€/h from the make-work programs at the job agency and only have to work for 20-25 hours per week. (They make you take those jobs if you don’t find work after a couple of months.)

    Maybe it was a job offer that was hugely subsidized by the job agency and the amount the employer paid was only 55 cents/hour.

  13. Gravatar of Tyler Joyner Tyler Joyner
    25. February 2013 at 11:59

    Mike Sax,

    I realize that wasn’t directed at me, but a few examples come to mind.

    Parliamentary systems tend to be more representative of a greater number of people, because the ruling government is usually a coalition of different parties, rather than just one. By comparison, presidential systems like ours marginalize third parties and reduce voter choice to two brand names, each associated with a host of only marginally related positions.

    As a pragmatically-minded libertarian, in the US I get to choose between allying myself with the religious right and xenophobic scaremongers or nanny-statists who don’t think Obama’s drone wars merit any cognitive dissonance. Not much of a choice. At least in a parliamentary system if the big parties ignore the smaller members of their coalition, there are real consequences.

  14. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    25. February 2013 at 12:24

    Maybe the tire company guy got someone’s attention;

    http://www.dw.de/titan-ceo-taylor-delivers-second-broadside-at-paris/a-16622222

    ———–quote———-
    More details of the second letter to Paris, dated February 8, became known on Friday, showing that the US CEO of tire maker Titan had expressed doubt in the French government’s knowledge about how to run a company properly.

    Taylor said Montebourg “must be nuts to have the idea to spend millions of US dollars to buy a tire factory in France paying some of the highest wages in the world.” Paris had previously offered to invest in the struggling northern plant.

    Taylor also lashed out at “the wackos of the communist” French unions, saying they were destroying some of the best-paying jobs in the country. But he added that France also had a lot speaking for it, such as beautiful women and excellent wine.
    ————-endquote———

    Vraiment dit, non?

  15. Gravatar of Doug M Doug M
    25. February 2013 at 12:29

    Errorr,

    “Our system rewards extremism and empowers them with veto points.”

    I disagree entirely, our system gives extremist a voice, so our system is inherently noisy. But, the veto points, or checks and balances, mean that radicals rarely get much actual power.

    Mike Sax,

    In a parliamentary system, the party in power controls the executive and legislative branches. There is rarely the gridlock that we see in the US. It also means that the opposition party is effectively neutered. Their only check is to fracture the coalition, and force a vote of no confidence.

  16. Gravatar of Peter Peter
    25. February 2013 at 12:55

    No minimum wage laws in Denmark. Minimum wages are set in standards by unions and employers in agreement, but are in effect a product of high government support for the unemployed. Welfare pay is 1.400 euro per month for the unemployed, hence no employer can get employees at wages lower or even a bit higher.

  17. Gravatar of Scott Sumner Scott Sumner
    25. February 2013 at 13:19

    Morten, Reread my post. I excluded taxes from the ranking.

    errorr, Good points.

    Jason, Although conservatives are often too cheap to adequately fund EITC, they do support the minimum wage. Bush raised it sharply, and Merkel’s about to introduce one in Germany.

    Cthorm, You are mixing up several issues. I believe a homogeneous society is an advantage for income redistribution. (BTW, I don’t mean ethnically homogeneous, I mean in terms of productivity–which is often, but not always, correlated with ethnic diversity.) Canada is very ethnically diverse, but more homogeneous in terms of worker productivity than Brazil, for instance.

    Ability to provide effective public goods is a very different issue. France scores pretty high on that metric, despite not scoring all that high on various “civic virtue” measures.

  18. Gravatar of ssumner ssumner
    25. February 2013 at 13:25

    Sven, Gustav, asco, kylind, Thanks for that information.

  19. Gravatar of A.W. Carus A.W. Carus
    25. February 2013 at 13:28

    Cthorm –

    What rubbish. Germans accept German bureaucracy because they’ve grown up with it and accept it as inevitable. And “transparency”? In Germany??! “Customer service” is no better there than at the British NHS or the average American state DMV. And how can homogeneity not be relevant when these states (all European states but *especially* Germany & the nordics) devote such elaborate resources to keeping the poor out? France has lots of poor Africans and Arabs, but they’re kept safely bottled up in banlieues (mostly) and not allowed to like actually work or participate in civic life or anything.

    Scott Sumner –

    You might be surprised to hear that although the minimum wage issue is high-profile in current German public discourse, the high unemployment pre-reform, the turnaround in employment since then, and the connection between the reforms and employment are almost completely swept under the rug. (Kind of like the negative consequences of the Euro, which no one is allowed to mention.) A remarkable case of false consciousness.

  20. Gravatar of Geoff Geoff
    25. February 2013 at 13:44

    Nobody seemed to mention that low nominal wage rates (prevailing in Germany) do not ipso facto imply low purchasing power.

    For wages are also a business cost. Lower wages means lower business costs, which means lower selling prices from what they otherwise would have been.

    Combine this with the fact that allowing wages to fall to their market levels promotes more employment, and there is greater overall productivity, and a greater overall productivity means a further decline in prices from what they otherwise would have been. The net upshot is a higher purchasing power with the lower nominal wage rates!

  21. Gravatar of Anders Larsen Anders Larsen
    25. February 2013 at 13:45

    One thing also to be aware of is how much employers are mandated to pay for. Denmark has a very transparent system compared to Germany, where the company pretty much only has to pay wages and all benefits are then paid from the taxes.

    Germany on the other hand mandates employers to pay for a lot of different things, which means that there is less money for paying wages.

    This is perhaps why wages will seem extremely different in Denmark and Germany, even if the actual expenses from the employer’s perspective are quite similar. A point that frustrates me a lot, when I see the Danish media complaining about low wage competition from Germany.
    A good comparison is found here:

    http://www.economist.com/blogs/graphicdetail/2012/10/focus-4

    Notice how Denmark and Sweden stand out

  22. Gravatar of Cthorm Cthorm
    25. February 2013 at 13:46

    Scott,

    I was operating under the ‘ethnically homogenous’ assumption. I think we’re on the same page here – ethnicity per se doesn’t matter one iota. Productivity (which may be correlated with ethnicity/culture) is much more important, and probably increasingly so. There will always be the ‘ZMP’ workers, but at least in the US the bigger problem in productivity is the private/public sector split. Fixing that split, by making education/administration/healthcare more efficient, would do wonders.

  23. Gravatar of Cthorm Cthorm
    25. February 2013 at 13:57

    AW –

    I was not attributing transparency to the Germans. Those are goals that broadly lead to higher productivity. The Germans/Nordics/Aussies do some combination of those things better than others; if they did all of them they’d have a pretty idyllic society. Germany is not noted for friendly ‘customer service’ but it is very efficient (if rigid) with bureaucratic public services. Wait in line at the Los Angeles DMV or the Berlin equivalent and try to tell me they’re equals.

    See my reply to Scott regarding ethnic/productivity homogeneity.

  24. Gravatar of A.W. Carus A.W. Carus
    25. February 2013 at 14:21

    Cthorm -

    How are you measuring “efficiency”? Germany’s number of bureaucrats per capita stands out even by European standards, and the hoops you have to jump through to get anything done in daily life are arbitrary, time-wasting, and often pointless. They all require forms to be filled in and multiple bureaucrats to sign off on them; and German bureaucrats are well-paid, by American standards. While I have no figures, it’s impossible to believe German bureaucracy could be more efficient at delivering any specifically defined service than even the least efficient US state. And yes, Berlin is certainly much worse than even LA (which from my own experience appears to be an outlier in the US).

  25. Gravatar of napoleon napoleon
    25. February 2013 at 15:50

    Countries need to raise aggregate demand and even out some of the inequality that plauges the western world. To lower the wages is not a vision for the future. The unemployment just keep rising while the western world lowers wages for the poor.

  26. Gravatar of marcus nunes marcus nunes
    25. February 2013 at 15:57

    “They´ll always have Paris”, even if it becomes a bit shaby.
    http://thefaintofheart.wordpress.com/2013/02/25/vaffanculo/

  27. Gravatar of nickik nickik
    25. February 2013 at 16:07

    I think switzerland style democracy would work well for america, witch is funny because the swiss system was based on the american one.

    Change voting to a more representation based style would help a lot. Even from a libertarian perspective, I belive switzerland works so well because they never do much and it takes a long time until anything gets done.

    If you want to go extream, throw away this hole voting for a president and his friends thing. In Switzerland the 7 main ministers (forign, military, police&law, transportation …) get elected by the parlament and most importently they are from diffrent partys. Witch has the effect that we at the moment have four diffrent partys in these seven positions, witch I think is quite nice.

    The other main reason is that fedaralism would work nicly for america. We here have diffrent taxes in every of the 26 states and often even diffrent taxes in diffrent villages within these. Witch makes for a lot of competition getting taxpayers to live in your village.

  28. Gravatar of Errorr Errorr
    25. February 2013 at 17:35

    On parlimentary vs. presidential systems…

    The seminal paper on this topic from 1990 is by Yale professor Juan Linz. The argument revolves around the inherent instability of presidential democracies where the gridlock is usually broken by the military.

    http://www1.american.edu/ia/cdem/pdfs/linz_perils_presidencialism.pdf

    He wrote this during the transition of the Soviet bloc countries from Communism to Democracy. With the help of the US all the constitutions written were primarily parliamentary.

    The interesting thing is that the US was largely unique in that our political parties were not very disciplined and you got alot more in the way of compromise. The reason for this largely revolved around slavery and then civil rights where regional priorities allowed trade offs amongst and between parties between social and economic issues. Our parties are now much more disciplined (especially Republicans)

    This paper follows on from Linz’ to state that Parlimentary systems are not only more stable but much more responsive to the will of the people and are a better form of representative indirect democracy:

    http://www.ritsumei.ac.jp/acd/re/k-rsc/hss/book/pdf/no96_07.pdf

    This is more a dat driven evaluation of current systems…

    http://www.bu.edu/sthacker/files/2012/01/Are-Parliamentary-Systems-Better.pdf

    Tyler Cowen pointed to the above paper in response to an Yglesias comment.

    http://marginalrevolution.com/marginalrevolution/2007/02/are_parliamenta.html

    He pointed out that our country may be too big and Federal to allow for a parliament and that the States power was too strong in our system. Also it would marginalize the Supreme Court.
    These may be valid criticisms but there is no problem in Germany where there is a strong Fedralism and the States have certain powers reserved for them. Also, there is no need for a Supreme Court to be marginalized if the Constitution still protects certain rights instead of implementing the desires of the legislature.

  29. Gravatar of Greg Ransom Greg Ransom
    25. February 2013 at 19:20

    Would you stop kissing Matt Yglesias’s ass.

    It’s unseemly.

  30. Gravatar of Greg Hill Greg Hill
    25. February 2013 at 20:57

    Scott,

    Thanks for another provocative post. As someone who belongs to the “American Left,” let me give you a few quick responses to “They’ll always have Paris.”

    1. If we leave aside the income gains of the top 1% in both France and the U.S., average real income per family in France grew by 26.4% from 1975 to 2006, but only by 17.9% in the U.S. over this period. See http://economix.blogs.nytimes.com/2011/09/02/what-does-economic-growth-mean-for-americans/

    2. Suppose you don’t know whether you can earn a high income or only a low income. You have a choice between a scheme of cooperation in which: A) you have a small chance of earning a very high income [after taxes] and a significant chance of earning a very low income [after transfer payments]; or B) a scheme of cooperation with a much higher floor and a much lower ceiling. I suspect that, faced with a choice between an economy in which the average income of the top 1% is very high, versus an economy in which the average income of the remaining 99% is relatively high, many (most?) people would choose the latter. Surveys suggest that Americans greatly exaggerate their chances of earning a very high income.

    3. Inequalities of income and wealth in the U.S. have often been defended by pointing to the great equality of opportunity in the U.S., but, in fact, the U.S. now lags behind most of Europe in this regard.

    4. And then there are the other aspects of “Paris.” Parisians work a lot less than Americans do. They vote with greater frequency than we do. Finally, would you prefer to shop at Walmart or along the Rue de Mouffetard (which is simply to say that GDP is not a great measure of the good)?

    5. Granted, the pressures of global competition constrain the alternatives open to welfare (and other) states. But greater global cooperation could preserve or enhance the policy alternatives available to generous welfare states. Of course, your ultimate judgment will depend on your view of the relative merits of markets and democracies, the moral vision of Robert Nozick vs. that of John Rawls.

  31. Gravatar of A.W. Carus A.W. Carus
    25. February 2013 at 22:41

    “Finally, would you prefer to shop at Walmart or along the Rue de Mouffetard (which is simply to say that GDP is not a great measure of the good)?”

    Exactly. Much of European society is set up for the upper middle class, so of course well-off American social democrats like it. Who wouldn’t prefer to live in Paris; give me its retail sector any day over LA, certainly. But the French poor can’t shop there. You won’t find a lot of people from the banlieues in those shops. They’d love a Walmart, but of course they’re not allowed (in that way, Germany is somewhat better; but as Sven points out above, all the German parties are social democratic and the Hartz reforms will soon be undone, so that advantage will fade. . ).

    As to social mobility in Europe vs. US. Yes, sure, keep out all the riffraff and the seriously poor and you can have a lot more social mobility, over a much narrower range. — As long as you have a decent elementary and secondary school system that actually contributes to social mobility (as many European countries still vestigially do) rather than positively blocking it (as the US public education system does).

  32. Gravatar of Brett Brett
    25. February 2013 at 23:17

    I’ve heard that Germany is what you get when the unions are strong enough and collaborative enough to force the wage/cost/supply curve down when aggregate demand drops, so that instead of firing (which is difficult for the union-shielded jobs), everyone just gets stuck with lower wages and fewer hours. If you’ve got a decent enough safety net, it can work.

  33. Gravatar of The depressing state of the Eurozone | worldofinterest The depressing state of the Eurozone | worldofinterest
    26. February 2013 at 03:03

    [...] Wages in Germany must rise, because German workers are more productive. Germany currently has 1.4 million workers earning less than 5 euros an hour. The real secret of German success is a vast underclass that works for a pittance combined with [...]

  34. Gravatar of They’ll always have Paris | Fifth Estate They’ll always have Paris | Fifth Estate
    26. February 2013 at 03:56

    [...] See full story on themoneyillusion.com [...]

  35. Gravatar of Geoff Geoff
    26. February 2013 at 04:01

    According to FRED, Germany has a more volatile local “monetary policy” than France.

  36. Gravatar of Patriot Patriot
    26. February 2013 at 06:43

    Any examples of the loopholes associated with the Australian minimum wage?

  37. Gravatar of Jon Jon
    26. February 2013 at 06:47

    Errorr wrote, “Norway doesn’t count. It has a tiny population and is essentially a petro state. They keep the high taxes, and have a huge boost from natural resources and thus they are the wealthiest people on Earth.”

    But what does that mean standard of living wise? Prices are high in Norway and after tax incomes are low. They may be wealthy but consumption is low. For instance, Norwegians don’t eat out as much as Americans do. The cost would be prohibitive. The government spends a lot on ensuring the old occupations are sustained–subsidies to goat farming.

    The stores in Oslo have their Christmas sales in the summer. That’s when everyone buys presents because it is too much to do in December–both for people outside the city and people inside the city.

    Consumption is the metric we should be using in place of wealth or income.

  38. Gravatar of Geoff Geoff
    26. February 2013 at 06:59

    Jon:

    “Consumption is the metric we should be using in place of wealth or income.”

    Bad idea. A high consuming country could be impoverishing themselves through capital consumption, which reduces long term growth and standards of living.

    I don’t think it’s wise to call someone who is eating the seed corn and soon going to starve “wealthy.”

    A better metric, IMO, is accumulated wealth.

    Rich people are rich because of the factories and productive machines they own, not because they eat out at fancy restaurants.

  39. Gravatar of Errorr Errorr
    26. February 2013 at 07:37

    MY point about Norway is that it isn’t a useful proxy to learn from because of its size and natural resource wealth. Also, by any PPP measure out there Norway is richer than most any country although nowhere near as rich as the nominal income suggests. Norway’s per capita GDP is very very high, but its cost of living is also among the highest in the world. In addition most of the richest countries in the world are exceptions that it is hard to learn from for larger more diverse countries. Qatar, Kuwait, and Brunei are all high income states due to oil, however I would argue that much of that is soaked up by the ruling families and not the residents. Luxembourg as a tax haven has a huge financial services sector that would be impossible to emulate. Singapore is a model for some things, but if the US was as urbanized as Singapore I bet our GDP would exceed any of these countries. Same with Hong Kong and Macau. That is why I shortened the reasoning to just ‘Norway doesn’t count’.

  40. Gravatar of Errorr Errorr
    26. February 2013 at 07:40

    Jon, you are ignoring the distinction of stocks and flows. Using just consumption would leave you open to the broken windows fallacy where looking at the amount created ignores what happened in the past. Consumption is important because it lets us measure how good we are at producing ‘things’ that improve human quality of life. Does your TV and computer mean nothing because you bought it already?

  41. Gravatar of ssumner ssumner
    26. February 2013 at 07:59

    Thanks A.W. That doesn’t surprise me. The 40% rise in our minimum wage between 2007 and 2009 was also swept under the rug. Even the GOP refused to say it raised unemployment, maybe because Bush signed the law.

    Anders, Good point.

    CThorm, I agree.

    Nickik, I also like the Swiss system.

    Errorr, Very good points.

    Greg Hill, I think you misunderstood the post. I noted that France is “relatively successful.” And I wasn’t comparing France and the US—that wasn’t the point. I compared France and Germany, but in only one dimension.

    My focus was the jobs issue, where France has done very poorly–for more than 30 years.

    You said;

    “Of course, your ultimate judgment will depend on your view of the relative merits of markets and democracies, the moral vision of Robert Nozick vs. that of John Rawls.”

    I’m not impressed by either moral system, I’m a utilitarian.

    Patriot, The young have a much lower rate, and certain industries are exempted–I don’t know the details.

  42. Gravatar of Justin Irving Justin Irving
    26. February 2013 at 08:06

    Sweden has a de facto minimum wage system, due to the union control of the labor market. You’ll notice this anywhere there is customer service. Checkout clerks make something like $14 an hour, and you’ll be bagging your own groceries. This has skewed service industries in a high-margin direction. You can’t get a bad haircut in a Swedish city, but you’ll pay for it.

  43. Gravatar of Adam Adam
    26. February 2013 at 08:10

    I tell you what. You convince the GOP to give us the rest of Germany or Denmark’s welfare state (the latter has particularly robust unemployment benefits, for example, if I recall) and I’ll get the Dems to agree to no minimum wage.

  44. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    26. February 2013 at 08:34

    ‘Any examples of the loopholes associated with the Australian minimum wage?’

    Since Australia has a very high unemployment rate (for a country that’s been in economic expansion for over 20 years), there probably aren’t enough such loopholes.

  45. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    26. February 2013 at 08:38

    ‘If we leave aside the income gains of the top 1% in both France and the U.S., average real income per family in France grew by 26.4% from 1975 to 2006, but only by 17.9% in the U.S. over this period.’

    We’re a little too sophisticated here (contrairement peut-être en France) for that obvious ‘slight of statistics’.

    ‘Average’ of what exactly?

  46. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    26. February 2013 at 08:41

    I was going to correct the spelling on ‘slight’ above, but now that I think about it….

  47. Gravatar of Geoff Geoff
    26. February 2013 at 09:57

    “PPPPS. 55 cents an hour?!?!? Who says labor markets can’t reach equilibrium?”

    I thought labor markets failing to reach equilibrium was one of the reasons why MMs want NGDP targeting (avoid unemployment in a context of labor market rigidities).

    “I’m not impressed by either moral system, I’m a utilitarian.”

    I don’t think you’d support 90% of the population murdering the other 10% just because the 90% believed it would make them happier to murder them and make them unhappy not to murder them, even though it would lead to the utilitarian outcome of the greatest happiness for the greatest number of people.

    Ironically the most likely excuse for why a (sane) utilitarian might avoid supporting this utilitarian outcome would be along the lines of a Nozickean consideration of liberty or a Rawlsian consideration of justice.

    Nobody (sane) is really utilitarian through and through. They are only utilitarian by day when they want to avoid being libertarian or just by night, because these ethics imply moral rule(s) that the utilitarian by day doesn’t like for whatever reason.

  48. Gravatar of Doug M Doug M
    26. February 2013 at 09:57

    Errorr,

    And then parlementary stystem can turn out like Italy.

  49. Gravatar of bjssp bjssp
    26. February 2013 at 15:33

    In what sense has the raise in the minimum wage been swept under the rug? I’ve seen people like Tyler Cowen bring it up, but only in reference to a random blog post. Has there been any academic work on this?

  50. Gravatar of Greg Hill Greg Hill
    26. February 2013 at 18:16

    Patrick R. Sullivan,

    In regard to my comparison of “average real income per family” in the U.S. and France among the 99%, you write, “We’re a little too sophisticated here (contrairement peut-être en France) for that obvious ‘slight of statistics’. ‘Average’ of what exactly?”

    I provided a link that would have led you to a JEL paper by Anthony Atkinson, Thomas Piketty and Emmanuel Saez, where you can find the answer to your question, “Average of what exactly?”

  51. Gravatar of Rien Huizer Rien Huizer
    26. February 2013 at 18:41

    Scott,

    It appears that all kinds of issues play a role here. Why does no one mention things like stocks of human and other capital plus institutional frameworks (of course the discussion of morality and constitutional structure covers that partially)? I think that most differences between countries are related to (a) non-material resource endowments (incl initial human capital and basic BIsmarckian socializing institutions like universal education, compulsory military service and a basic social safety net, plus a predictable -not necessarily fair- legal system (2) quality of private sector management (3) ability of the political system to deviate not too far from managerial quality as observable in the local private sector (4) a steady monetary policy that keeps the price level from fluctuating wildly and protects the financial system from trauma. Virtually all supply side and virtually all hard to quantify, capture and export.

    Most OECD countries have some of it and I guess for each individual country there is usually very little that can be changed rapidly. The reformed welfare states (Sweden, Denmark, Germany, Holland come pretty close (but with wildly varying ways in which to deal with the bottom end of the labor market) but maybe that has something to do with the resource endowment these countries had when they went on to reform. I guess both France (no reform) and the UK (first Thatcher with blunt and rapid reform and then lots of reverse creep under Blair) are missing something that enabled the Greater Germans to do relatively well wrt their supply side -for a while…Or: Das Beste oder Nichts?

    Of course there is nothing the US can do. It is in a different league, it has a political system with too many checks and balances and the connection between the type of public education and focus of political awareness produces a totally different opportunity for political narratives than in NW Europe. The good thing about the US is that one way or another, the mavericks tend to get a lot of attention but little impact on outcomes. So it may be better off than Italy (this to demonstrate the absurdity of comparative rubbish)

  52. Gravatar of ssumner ssumner
    27. February 2013 at 07:23

    Adam, Denmark has a 104 week UI maximum, vs 73 weeks in the US.

    Geoff, You said;

    “I don’t think you’d support 90% of the population murdering the other 10% just because the 90% believed it would make them happier to murder them and make them unhappy not to murder them, even though it would lead to the utilitarian outcome of the greatest happiness for the greatest number of people.”

    I would if I thought it would actually make society happier, but I don’t think it would.

    bjssp, I see the minimum wage discussed, but not often in the context of the recent recession.

    Rien, I wouldn’t put too much weight on how things are at any point in time. 20 years ago the Nordics were doing poorly. 10 years ago Britain and France were doing better than Germany. Things change, and they’ll change again.

    Then there are the two Koreas, where different policies produce different results in culturally similar places.

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