June 15, 2012 · 1 Comments
By Dean Baker:
That probably was not his intention, but that is the only conclusion that numerate readers can take away from his column. He tells readers that:
“But many Republicans have now come to the conclusion that the welfare-state model is in its death throes.”
He points to the crises in Greece, Spain, and Italy and then adds:
“In the decades after World War II, the U.S. economy grew by well over 3 percent a year, on average. But, since then, it has failed to keep pace with changing realities. The average growth was a paltry 1.7 percent annually between 2000 and 2009. It averaged 0.6 percent growth between 2009 and 2011. Wages have failed to keep up with productivity. Family net worth is back at the same level it was at 20 years ago.”
There are a number of problems with this story. First Greece, Spain, and Italy have among the least developed welfare states in Europe. If someone wants to make an argument that there is some inherent problem with the welfare state model then we should look for crises in Sweden, Denmark and Germany, all states with far more generous welfare states than these Mediterranean countries. In fact, the welfare states of northern Europe are doing relatively well through the crisis, it is difficult to understand how anyone can look at the pattern of the crisis across Europe and conclude that it implies that the welfare state model has reached its end.
Brooks account of U.S. growth is just bizarre. Did he somehow miss the collapse of the housing bubble? If he excluded the period since the crisis then there is not much of a case for a weakening economy. The economy definitely did better in the three decades immediately following World War II, when the top marginal tax rate was between 70-90 percent than it did in the post-Reagan years, but there was a substantial uptick in productivity growth in the mid-90s. The second half of that decade saw the strongest sustained growth since the early 70s, with workers up and down the income latter sharing in the gains of productivity growth.
The economy did turn down with the collapse of the stock bubble in 2000-2002, but it is hard to see how Republicans tie the collapse of this bubble to the death throes of the welfare state, just as it is difficult to see how the more recent collapse of the housing bubble implies the death throes of the welfare state. In principle the Los Angeles Kings victory in the Stanley Cup could also signal the death throes of the welfare state, but it is not easy to see the connection. The more obvious take away from this story is that a corrupt financial sector can wreck the economy.
In terms of the link between wages and productivity growth, Brooks Republican friends seem to be in an inverted world. If this is the concern, then the welfare states in Europe would seem to be the answer, not the problem. Workers have certainly seen more of the benefits of productivity growth over the last three decades in northern Europe than in the United States. If Brooks has a point here, it is very difficult to see what it is.
He then comments:
“Money that could go to schools and innovation must now go to pensions and health care. This model, which once offered insurance from the disasters inherent in capitalism, has now become a giant machine for redistributing money from the future to the elderly. “
Brooks is presumably referring primarily to health care (assuming that he has an idea of the numbers involved), since that has been the sector showing rapid increases in costs. Of course here also the story is 180 degrees at odds with what Brooks has in his piece. All the welfare states in Europe have much lower per person health care costs than the United States. In fact, the average is less than half as much. If the U.S. paid the same amount per person for health care as Denmark, Germany, or Sweden we would be looking at massive budget surpluses.
The idea that Mitt Romney expects “an efficiency explosion” from relying more on the market in the health care sector defies both common sense and a massive amount of evidence. It is more likely that he expects a big jump in profits for private insurers and other powerful interests in the health care sector.
In short, if Brooks hoped to show why Republicans rationally concluded that the United States should further cut back its welfare state he fell way short of the mark.