April 25, 2011
The Washington Post has frequently editorialized against welfare state measures in both Europe and the United States. It does not hesitate to use its news section to advance its editorial position. It did so today with a front page article stating that the welfare state benefits that Europeans have come to expect:
“increasingly appear to be luxuries the continent can no longer afford.”
The article includes a large number of inaccurate assertions to try to make this case. First, it is important to note that Europe is getting richer, not poorer. Every year the productivity of its workforce increases by approximately 1.5 percent. This means that each worker is producing 1.5 percent more for each hour of work. With productivity growing through time it is difficult to see why Europe would be less able to afford a welfare state in the future than it is today.
The article also cites globalization as a reason that Europe will be unable to afford a welfare state. Again, globalization is supposed to make countries richer, not poorer, so it is difficult to see why increased opportunities from trade should make a welfare state less affordable.
The article also points to the economic crisis as a reason that countries can no longer afford the welfare state. This is very confused thinking. The economic crisis stems from inadequate demand. The demand that was being driven by the housing bubbles in the United States and Europe disappeared with the collapse of these bubbles.
The current problem facing the United States and Europe is too little demand, not too much. Welfare state supports help to increase demand and generate more employment and output. The Post would have a better argument if Europe faced too much demand generating shortages and inflation — the opposite of the situation it faces today.
The article makes fundamental mistakes in logic elsewhere as well. It tells readers that:
“an hour of work costs $43 on average in France, compared with $36 in neighboring countries that also use the European currency, the euro, giving those other countries, particularly Germany, the edge in globalized competition.”
Actually, whether or not France can support paying its factory workers an average of $43 in compensation depends on their relative productivity. There are many workers who get much higher pay. For example, many Wall Street executives get compensated at the rate of more than $1000 an hour. However, in the current system, their employers can apparently make a profit paying these wages. Since France maintains near balanced trade (unlike the U.S., which has a large deficit), it seems that its wages are competitive.
The article also attributes an obviously untrue assertion to an economist featured in the piece:
“As a result, he [French economist Michel Godet] said, French workers on average show up at the office or factory 620 hours a year, compared with about 700 in Germany and 870 in the United States.” These numbers would be approximately accurate if 1000 was added to each one.
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