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  • Europe Faces Reality

    The European economic model is dead. Don’t believe us? – Ask The Washington Post. Yesterday’s front-page story reported that the loans being made to stave off the debt crisis come with conditions which, if enforced, would require “European governments [to] rewrite a post-World War II social contract that has been generous to workers and retirees but has become increasingly unaffordable for an aging population.”

    There is an obvious and painful connection to the U.S. and our economic direction. Unless we adopt a much better set of economic policies, the American version of Europe’s crisis is inevitable.

    What’s worse, the Post and many other commentators have understated the failure of the European model. For two generations after post-war reconstruction, Europe and America have moved in different economic directions. The American model favored growth, income, and vibrancy; the European model was said to favor fairness, equality, and stability. The long-term superiority of the American model with regard to growth was well-established before the financial crisis, but the extent of that superiority may be surprising to some.

    In 2008, the average resident of the troubled state of Michigan, as well as 40 other American states, was richer than the average resident of Austria. Germany leads the European bailout but the average German, and the average Brit, is poorer than the average person in Alabama. In terms of personal income, Germany bailing out Greece is equivalent to Alabama bailing out Mississippi.

    It is especially relevant that Europe’s trouble spots – Greece, Italy, Portugal, and Spain – all have income lower than West Virginia, the second-poorest American state. They have been attempting to support a much more extensive welfare state than the U.S. on a much weaker economic foundation.

    That worked when Europe was growing on its own and when Europe benefited from strong American growth, for example via German exports to the U.S. Now too much social spending and not enough growth has brought Europe less wealth and dynamism but also less stability and, many on both sides of the bailout would argue, less fairness. The European model is finished; the remaining question is whether the Obama Administration and Congress will realize this before it’s too late.

    Posted in International [slideshow_deploy]

    8 Responses to Europe Faces Reality

    1. stirling, Pennsylvan says:

      Nice example of why the EU is a joke when it comes to prosperity, and shows clearly that GRE (Government Run Everything) is never the way to go for success. When Government makes promises (they can never keep), and citizens have no incentive to become financially independent the whole system will collaspe under it's own weight. EU will either break up or become financial slaves to it's debtors.

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    4. Chris, France says:

      Your figures are from 2008.

      It should be interesting to do it with 2010 figures (much more wealth has been destroyed in the US).

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    8. Joe says:

      You're using PER CAPITA PPP? That's a ridiculous measure. You should be using median PPP. One of the key strenghts of europe's model is to generate higher equality. Sure, our per capita PPP is higher, but that's because we have so many mind-bogglingly rich billionaires. As for 99.9999999% of us, the picture is not so pretty. Average PPP distorted this picture, and you are well aware of that. So you're lying to us. You're trying to mislead us through a figure you already know won't tell the real story. I'm not arguing that Europe is better, but i am calling out your lies. If the only way you can make a point is by lying, then perhaps you are wrong.

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