The European Story

Paul Krugman today writes about European vs. U.S. economic and social prosperity:

"But the story you hear all the time — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts."

Upon further investigation, many of the facts Krugman throws out to support his position seem rather to contradict it. For example, he talks about how European economies haven't lost their "dynamism," and then points to their 2.2% GDP growth, and 1.83% per Capita GDP growth. Someone remind me of a time in history where 2.2% GDP growth has been considered dynamic... Given U.S. GDP growth over the same period has been only 3%, it's not as though U.S. economic and political policy has vastly outpaced that of the Europeans. But 3% vs. 2.2% growth over a 30 year period can lead to pretty substantial differences.
Cue Greg Mankiw's assessment...

"Here is GDP per capita, adjusted for differences in price levels (PPP), from the IMF, for the United States and the five most populous countries in Western Europe:

United States 47,440
United Kingdom 36,358
Germany 35,539
France 34,205
Italy 30,631
Spain 30,589"

So yes, Krugman is correct in asserting that European political/economic policy 'works' and provides measurably better social care to its citizens than the United States. But he downplays the differences in economic prosperity enjoyed by the two systems. With every policy there is a trade-off. If you want universal health care, and you want better welfare programs, you will have higher taxes, and lower per capita GDP. Simple as that. I'm not saying one system is necessarily any better than the other, I'm just saying...