The infamous passage from Jim Manzi’s mercantilist essay on preventing America’s decline:
From 1980 through today, America’s share of global output has been constant at about 21%. Europe’s share, meanwhile, has been collapsing in the face of global competition — going from a little less than 40% of global production in the 1970s to about 25% today. Opting for social democracy instead of innovative capitalism, Europe has ceded this share to China (predominantly), India, and the rest of the developing world.
On the economics, I’ve nothing to add to the demolition jobs by Jonathan Chait and Paul Krugman on this passage. Manzi apparently forgot that in 1970 Eastern Europe was not in fact operating under social democracy. Ahem.
As an aside, both he, and less forgivably Krugman, seem to think that you can look up time series of GDP data from Belarus in the 70s and 80s from USDA or wherever and hopper them into a spreadsheet for comparisons. You really can’t. Soviet era economic statistics were a branch of Kremlinology. In the Red corner, you had Gosplan and clones, publishing data in a neo-Marxist conceptual framework incompatible with Keynesian national income accounts. The raw numbers were generated by managers and officials with very strong incentives at every level to fudge them. In the Blue corner, you had the CIA and its affiliates, trying to correct these numbers and shoehorn them into the Western framework for comparison. This involved exercises like guessing the market value of exploding Russian televisions and East German Trabants – junk valued by their governments at input prices -, of ICBMs and tanks which worked fine but were concealed as state secrets, and services ranging from the Bolshoi Ballet to the empty-shelved corner shop, which were treated as transfers. The margin of error here was closer to 50% than 5%. The Soviet system collapsed in 1989-1991. The new régimes duly introduced Western national accounting, but in conditions of chaos. (Has Belarus done it at all?) Any numbers before say 1995 can only be accepted as guestimates.
My main point here is however Manzi’s use of the “dictionary definition” of Europe, which is de Gaulle’s l’Europe de l’Atlantique à l’Oural. This is wrong today and has been for 450 years.
Map of Europe from Sebastian Münster’s Cosmographia Universalis (1544).
Manzi defends his use of aggregate instead of per capita GDP on political grounds:
I believe it [absolute GDP] is, rather, a measurement of long-run geopolitical power potential.
If that’s the line, you have to take some set of European states that could plausibly exercise such power together someday. That means the EU (now 27 states). I used to work for the Council of Europe, which now includes Russia, and it is powerless by design outside the European Convention on Human Rights. There is no prospect of Russia joining the EU: neither side is in the least interested.
More, the Urals are not a frontier. I have more news for Manzi: Siberia is part of Russia. De Gaulle’s definition of Europe ceased to be useful in 1552 when Ivan the Terrible destroyed the Tatar Khanate of Kazan. As a barrier, the Urals a litle further east are less impressive than the Appalachians, and presented only a trivial obstacle to Russian empire-builders. Small forces of Cossacks swept aside the shadowy Khanate of (Western) Siberia in 1582 and pressed east along the three vast river systems, reaching the Pacific as early as 1639. Siberia has been in Russia ever since. There isn’t even a Siberian independence movement, as opposed to local demands for more autonomy from the bits that have the most natural resources.
In politics you can have a Europe without Russia, roughly the current EU and the Balkans, stopping on the Bug*; or a Europe with Russia, and it goes to the Bering Strait. Since Russia is currently in an Asian as opposed to a European cycle, the second looks a very unlikely prospect. But you’d be a fool to rule it out completely.
*Or a bit east. The Bug is the Polish frontier with Ukraine and Belarus, not Russia. But in the long run Belarus is unlikely to stay independent.
Do you think that Krugman “demolished” Manzi’s piece before or after Manzi pointed out that Krugman had made factual errors in his response (essentially accusing Manzi of mis-understanding his source data when it fact it was Krugman himself who didn’t understand what the sources were saying)?
http://theamericanscene.com/2010/01/11/keeping-america-s-edge-yet-again
To say that economic data from the USSR is unreliable is to understate things. The reported GDP figures from 1970 to 1988 grew at 3% per year, every year, with no fluctuations. Reported GDP per capita grew at 2% per year, every year, with no fluctuations. To which one can only say “R-i-i-i-i-i-i-i-i-g-h-t.”
(Source: World Bank World Development Indicators, adjusted to 2000 base and estimated values developed by the Economic Research Service.)
Even when you’re working within the developed-market-democracy framework output comparison are dicey at best. Things just don’t translate. And that’s even accepting the incredibly stupid claim that gross output is what you want to maximize…
Thanks for your detailed attention to this matter.
As per the earlier comment, I think you are somwhat remiss in not linking to the post in which I explain that Professor Krugman incorrectly identified my data source, and then misread the spreadsheet that he did cite.
Best regards,
Jim Manzi
For completeness, Manzi’s responses to Chait and Krugman. Krugman’s sort-of rejoinder here.
Economics has always given me a headache – especially because despite being difficult, even the big boys get incredibly partisan. Someone has to be right, but one is skeptical when their economic theories seem to match up so nicely with their sense of social fairness and human behavior.
But one thing that is always particularly irksome to me, as a leftist, is the degree to which the right blames leftist policy for a lack economic lack growth. So you have a principled opposition to redistribution as being illiberal, which then JUST HAPPENS to be bad for economic growth. Those to me seem like two distinct problems. If redistribution was illiberal, yet good for economic growth, it would still be wrong. And likewise, if redistribution was necessary for freedom, but bad for growth, it would still be right.
Of course, the devil is in just how far one influences the other. If any policy is bad enough for growth, leading ultimately to a decline, then whatever freedom gained would be irrelevant. And here is where, I believe, the right gets its wedge in: the immorality of social inequity is always justified by the larger emphasis on growth – the rising tide and all that. And to the degree that the tide just doesn’t rise high enough for those at the bottom to be considered truly free, well, THAT battle can be fought another day.
“Look at all the generational poverty!”
“Yes, but they have COLOR TVS!”
So here we have the “rising tide”, the “trickling down”, being philosophical gold. So much of the entire economic and moral construct becomes dependent upon its validity. Not only is redistribution wrong, it is actively harmful to the economy. Redistributive social spending, while well-intention, is actually hurting people by dragging down the entire economy. At the far end of this spectrum, you get the wingnuts claiming that any day now the hammer and sickle will replace the stars and stripes.
But what would a moderate increase on taxation really do? We know for certain that it would be helpful to many struggling Americans. There are any number of ways to do it effectively. There are also many ways to do it poorly, but the fact is that concrete things can be done if we believe in the idea. (Much of the outrage over wasteful spending has more to do with the fact that it is UNWANTED then that it is poorly executed).
But what we do not know for certain is how much of a drag any of it really is on the economy. It may be unfair, or immoral, but does that make it that bad for the economy? If I steal from my neighbor, and invest the money in something that creates growth, I’ve just done something wrong for one person, yet something right for the economy.
We can argue all day about whether social spending represents a better investment than private business investment. But the two are not mutually exclusive. Considering how much better – from a left perspective – Europe is on social initiative, I’m pretty happy about the margins of real disagreement on who is better at growth. One thing is certain, Europe isn’t painting a hammer and sickle on its flags any time soon.
I don’t see how the fact that Siberia is part of Russia makes it part of Europe. A nation can span across more than one continent, you know – and the Ural mountains are a natural geographical barrier to separate “Europe” from “Asia” (since they’re all part of the same supercontinent, I consider the whole division ultimately meaningless, but since we are separating them . . .).
That reminds me of Robert Heinlein’s essay on his experiences as a tourist in Russia with his Russian-speaking wife (I think). I remember that after spending time looking around Moscow, both he and his wife came to the conclusion that the Soviets were vastly over-estimating the size of the city, claiming it had a population of 6 million when the logistics, design, and crowds suggested that 750,000 to a million people was much more likely.
As I and others have commented elsewhere, the big mistake is not emphasizing that the decline in relative GDP is due entirely to a drop in relative population. On a per capita basis the GDP of the EU15 has grown as fast as that of the US since 1980.
This means that, whatever the importance of absolute GDP, the drop in Europe’s GDP cannot be attributed to social welfare policies, yet the implication that this is the case is clear in the original article.
“sort-of rejoinder” is, I suppose a good description of Krugman’s reply.
He argues that his critics in this matter are making a huge deal out of a tiny factual error. Of course, the matter was important enough for Krugman to cite in his original post. But that’s when he thought he was correct. When its demonstrated that he’s wrong, he whines that the matter is insignificant. So its an important enough issue to accuse Jim Manzi of professional incompetence over, but not important enough for Krugman to cop to any fault over getting wrong. Krugman can’t have it both ways. If a mugger swings a baseball bat at a pedestrian he can hardly cry foul when the pedestrian plucks it out of his hand and swings back.
Then of course Krugman claims that the real issue is the assertion that social democracy causes lower growth. Which is of course something that Manzi did NOT claim was proven by the data set in question.
sd: Come on. Manzi’s last sentence makes exactly that assertion. And it’s wrong, as the changes he attributes to social democracy are mostly explained by the fall of Communism, low population growth, and a preference for leisure. Where’s the residual? If there’s nothing to be explained, the explanation fails.
I am frankly baffled by conservatives who sneer at Germans today for not being keen enough on power. Keeping them uninterested has been a central objective of American, British, French and for that matter Soviet and Russian policy ever since 1945, quite rightly. How would you feel about a German politician campaigning for raising the military budget to US levels, building an aircaft carrier battle group, long-range airlift, a couple of paratroop divisions, bases in Central Asia and Africa and so on? Nothing is stopping this but common sense.
PS. Brett: is the USA competitive today with the Roman Empire?
Janmes,
Yes, Manzi asserts that social democracy is a drag on economic performance. But what he doesn’t do is claim that the relative output share data “proves” this to be the case.
And for what its worth – you cite three reasons for the relative decline of European global standing. The fall of Communism is of course an external. But a “preference for leisure” is just another way of saying “social democracy” and “low population growth” looks suspiciously like it might be correlated (who is more likely to have a 3rd child – they guy who thinks his purchasing-power-adjusted income is more or less stable once he turns 30 or the guy who thinks he might be substantially more well off later in life?).
Much is made in this debate of the fact that on a per-capita basis European growth has been comparable to U.S. growth for the past few decades. But starting in the late 1940s the European economies were devastated. The fact that Europe, with human capital just as good if not better than in the U.S. and with the same long period of peace and stability, didn’t close the gap more by growing much faster than the U.S. from its lower base suggests that indeed there is something dragging down European economic performance.
And BTW – as an American, I suppose I prefer that no nation save for my own amass military power (no need to have a lot of guns pointed at me thankyouverymuch). But if you must know, yes I would be OK with Germany building up military power if the alternative were Russia or the nations of the Persian Gulf region amassing military power. Because I believe (call me crazy!) that the events of the 1930s and 1940s, while tragic, are more likely the result of giving military power to totalitarian states than of any inherent genetic pre-disposition to warfare on the part of the German “race” (perhaps the gene for wanting to invade other countries is located close by on the chromosome with the genes for liking weird eyeglasses and the music of David Hasselhoff). The same goes for East Asia, where again I would prefer that only the U.S. have aircraft carriers but if that’s not to be the case would certainly prefer that Japan have them than China.
“low population growth” looks suspiciously like it might be correlated (who is more likely to have a 3rd child – they guy who thinks his purchasing-power-adjusted income is more or less stable once he turns 30 or the guy who thinks he might be substantially more well off later in life?).
I don’t buy this at all. First, why the assumption that European incomes are stable after age 30? Is there any support for this? Second, social welfare systems in many ways make having children more attractive. Think of better day care, more time off to care for newborns, guaranteed health coverage so an unhealthy or premature baby is not a financial catastrophe, etc.
Also, there’s a very good reason why Europe’s share in global industrial production has fallen: other people have industrialised, which is a factor that all such discussions of “decline” seem to ignore. Realistically, economies seem to get one double-digit industrialisation boom as they execute the take-off; is it realistic to imagine *maintaining* a constant share of growing world GDP when Chindia is growing at an 8-10% clip? I don’t think it is. Pretending that Chinese growth is European decline is a delusion that warps our thinking – it means that it’s our problem, and it brings with it a whole lot of value judgments without any empirical content. The German economy did not experience rapid industrialisation in 1880-1914 because the British had gone soft; similarly, the Chinese economy didn’t industrialise fast between 1978 and today because the Europeans went soft. The discourse of relative decline overstates our power to control events and denies other nations’ agency in their own development.
Some people are dishonest, and Manzi is one of them. He writes: “I was very careful to try to identify only economic output of those sub-components of the USSR that were West of the Urals, as per the dictionary definition of Europe.” Can anyone spot the lie in here?
Not only was Eastern Europe not a social democracy in the 1970s and 80s, there is considerable evidence that it is not a social democracy today. Read that phrase again. Notice a glaring word? DEMOCRACY. The Soviet Union was not a democracy. Not east of the Urals, not west of the Urals, nowhere. Is Russia a democracy? Is Georgia a democracy?
Manzi was caught red handed and is now attempting to shift the goalposts by calling Krugman a liar. Sorry Manzi, but your numbers are a fraud and you know it.
Even if Manzi had used numbers for -for instance- the EU-12 or 15 rather than the preposterous concept of a ‘dictionary definition’ of Europe,
the comparison would still be not much more useful than that between a box of apples and a fruit bowl. Social democracy itself can take many forms,
and there clearly identifiable differences between the economic and welfare systems of e.g. Germany, the UK, Sweden and the Mediterranean ountries. Lumping them all together
as a proxy for the success or lack thereof of ‘social democracy’ just doesn’t form even the basis for a conceptually sound argument.
By the way, one argument from Manzi just had me go WTF:
‘Yet the strategy of giving up and opting out of this international economic competition in order to focus on quality of life is simply not feasible for the United States. Europeans can get away with it only because they benefit from the external military protection America provides; we, however, have no similar guardian to turn to.’
America doesn’t benefit from the protection by its own military ? What am I missing here ?
Alex: If Europe’s declining share of industrial production post 1980 is inevitable given the rise of new industrial powers (China et. al.) then why has U.S. share remained roughly constant?
Benny: That’s as wrong as can be. Manzi was incredibly transparent in his argument. To the point of being didactic. You can certainly disagree with his reading of the facts, or with his conclusions. But he is consistently one of the most honest and even-handed commentors on the scene.
Jack: You clearly mid-understand the argument. Of course the U.S. enjoys the protection of its own military might. But it also PAYS for it, at the cost of several points of GDP. If you took the U.S. military budget down to European levels as a % of GDP you could fund a massive expansion of the U.S. welfare state. But you would also create a military power vaccum likely to be filled by Russia, China, etc. The entire world benefits from the fact that aspiring hegemonic military powers look at the U.S. armed forces and say “fuck no we can’t challenge that head on.” This was not always the case. Think 1939.
sd, thanks for the clarification. I didn’t mean to imply that the argument was crazy, I just didn’t understand it. Sorry if that came over wrong.
However, as was pointed out on another blog ( I forget which one just now), the US in fact now spends a little over 4% of its GDP on defense while countries like France and the UK spend around 2.5%. Would taking down military spending by 1.5 percentage point really fund a massive expansion of the welfare state ? Somehow, I doubt it. Moreover, the US at the moment spends about as much as the rest of the world combined on its military. You would have to have defense cuts of epic levels to create any kind of vacuum.
Also, this debate on military might is, I think, subject to the same flaws as the welfare state debate. You’re talking about ‘European levels of spending’, but does Europe mean England and France with nuclear weapons and an aircraft carrier ? Or does it mean the Netherlands with a good quality airforce but an army that would be highly dependent on the US for logistics ? Or does it mean Iceland perhaps (which I guess we can safely include here as being culturally European) which spends nothing at all ? There is simply, when you look a little more closely, no such thing as a European level of defense spending, let alone a real European military. Just as there is no European model of social democracy beyond the broadest of possible outlines.
It’s caricature, not comparison.
Another thing to note, by the way, is that there are in fact rather few European countries that ‘opted for social democracy’ (whatever that means) since the mid-1980s .
Most Western European countries actually opted to commit to greater or lesser degrees of liberalization, deregulation and privatization of state-owned enterprises. All EU members removed internal trade barriers as a consequence of the Single European Act. Many drastically cut spending in order to qualify for accession to the euro. No European country that I am aware of expanded the reach its welfare state in this time period. And of course, the former members of the Soviet bloc all moved from communist economies to more or less capitalist economies.
So you wouldn’t expect, by Mr. Manzi’s logic, that Europe’s share of global output would collapse to the extent that it did. It’s a puzzle.
Jack wrote:
“However, as was pointed out on another blog ( I forget which one just now), the US in fact now spends a little over 4% of its GDP on defense while countries like France and the UK spend around 2.5%. Would taking down military spending by 1.5 percentage point really fund a massive expansion of the welfare state ?”
In a word, yes. If the federal government consumes about 30% of GDP, but a big chunk of that is spending on fixed entitlements, then adding 1.5% of GDP to the discretionary spending totals would dramtically expand the opportunities to fund the welfare state.
Further, while France and England spend relatively large portions of GDP on the military, their GDP is much smaller than that of the US (France + England combined are less than 40% of the GDP of the US). Thus if the US were to retreat to spending a comparable % of GDP on the military (and let’s be clear – France and England are way at the top end of the European range), and if the European nations were to then decide that they needed to make up for the absolute dollar gap in spending to protect themselves against future Russian or Chinese hegemony, then they would end up spending way, way more than 4% of their GDPs. And it is indeed the absolute dollar amount that matters here. If Lichtenstein were to spend 15% of its GDP on its army it still couldn’t stand up to China.
Your point about that gulf between US spending and rest of world spending is valid. But let’s not forget that US spending is driven by weapons systems that allow the US to inflict maximum damage on the enemy at minimum risk of US life. If we were to go to war with China tomorrow, and each side lost 20,000 soliders in the first month, I suspect that US society would be shattered whereas the Chinese would shrug. We (rightfully) mourn the few thousand US lives lost in Iraq while forgetting that the WWII generation tolerated those types of losses every few weeks. Society has changed. If we are going to (rightfully) continue to insists on giving our soliders the ultimate in protection from harm, and if our likely strategic rivals can be expected to value the safety of their soldiers less, then we must outspend our rivals not by a little bit but by a massive amount to maintain a strategic edge.
Brett: “– and the Ural mountains are a natural geographical barrier to separate “Europe” from “Asia””
Which, as James pointed out, ceased to be a barrier in the 1500′s.
sd says:
“…(who is more likely to have a 3rd child – they guy who thinks his purchasing-power-adjusted income is more or less stable once he turns 30 or the guy who thinks he might be substantially more well off later in life?).”
Please note that this situation doesn’t apply in the USA; one’s PPA income is highly unstable, and subject to abrupt drops. I won’t be making what I was several years ago; many people are in that position.
sd says:
“Yes, Manzi asserts that social democracy is a drag on economic performance. But what he doesn’t do is claim that the relative output share data “proves” this to be the case. ”
Lie. That was the whole f*cking point of his original article – unless he was high and just giving us the dubious benefit of his stream-of-consciousness.
Thank you for that lie, by the way – when the supporters of a guy start walking his argument backwards, that’s a severe declaration of failure.
Barry – how charitable of you.
I do find it difficult to see how the relative output share data was the “whole f*cking point” of Manzi’s original article given that:
1) It comes up once (once!), in a paragraph roughly halfway through the article, as a throw-away factoid in the midst of a much longer argument.
2) Manzi suggests, over and over again, that resolving the tension between economic dynamism and social conhesion is difficult and that a one-dimensional strategy that seeks to maximize only the former at the expense of the latter is foolish and undesirable (i.e. he doesn;t say that Europe is categorically wrong at all).
3) Manzi’s thesis isn’t especially dependent on it at all.
Folks – the fact that there is a tradeoff between economic growth and investment in quality of life ain’t controversial. The Krugman article linked above (“French Family Values”) concedes that much of Western Europe has decided, via regulation and government social programs, to priortize quality of life higher that has the U.S. relative to economic production per capita. It seems to me that the “whole f*cking point” of the Manzi article was to explore what the right set of policies for the US would be given this tradeoff.
And contrary to the portrait of Manzi as a right wing hack that has been painted in much of the lefty blogosphere in the last week, he does not (repeat – does not) recommend a set of policies that are orthodox American conservatism. He recommends re-regulating financial services. He recommends against the creation of school vouchers that could be used at private schools. He does indeed recommend restricting the flow of unskilled immigrants into the U.S. but he does this as a balance to a recommendation of increasing the flow of skilled immigrants to the U.S. That agenda isn;t the agenda of the Democratic Party. But it aint exactly the agenda of the Republican party either.
That doesn’t mean that they lose their value as geographic boundaries. The isthmus of Panama is no longer a major barrier to North America-South America travel, but that doesn’t mean we’ve abolished the conception of them as two separate continents, has it?
“Manzi was incredibly transparent in his argument.”
I never said he wasn’t. I said he was dishonest by lumping non-democracies in with democracies to deflate his numbers. Which he is in fact guilty of. Why are you arguing this?