Is Europe becoming more like the US?
By Scott Sumner
A new article in the Financial Times got me thinking about the US and Europe:
Portugal is the EU country hit hardest by a Europe-wide demographic problem as falling fertility rates and ageing populations threaten economic growth and the provision of pension, public health and elderly care services.
The looming crisis, described in one newspaper editorial as “a perfect demographic storm”, results from a combination of Portugal’s plummeting birth rate, a deep recession and a wave of emigration that is fast turning the country into a society of one-child families. . . .
Portugal’s fertility rate — the average number of children in the population for every woman of child-bearing age — has been falling, from three in 1970 to 1.21 in 2013. This is the lowest level in Europe, with only South Korea having a lower rate among the 34 mostly wealthy nations in the OECD. . . .
“The high rate of youth employment and a precarious job market are critical factors in deterring young couples from having children,” says Maria Filomena Mendes, a sociology professor and president of the Portuguese Demographic Association. “At the same time, many young people are emigrating at an age when they might otherwise have been starting families in Portugal.”
Between 2010 and 2014, Portugal lost 198,000 inhabitants, close to 2 per cent of its population, as the number of deaths exceeded births, emigration rose to levels unseen since the 1960s and immigration slowed to a trickle. As the OECD put it in a recent report, “a further fertility dip is evident in Portugal since the onset of the financial crisis”.
If nothing changes, the worst-case projection by the National Statistics Institute (INE) sees the population of Portugal dropping from 10.5m to 6.3m by 2060, while the number of over-65s for every 100 under-15s — the so-called ageing index — would soar from 131 to 464, the highest in Europe.
There’s a lot of discussion about the differences between the US and Europe, and how those differences explain the failure of the euro. I partly agree, but think there’s much more that could be said about the subject. Here are a few scattered thoughts:
1. The US has traditionally been more ethnically diverse than Europe, and that is still true today.
2. Europe has traditionally been more egalitarian than the US, and some attribute the difference to the greater diversity in the US. The most pointed accusations suggest that in the US, whites fear that welfare spending would go to African Americans and other minorities.
3. In the EU there seems to be very strong resistance to fiscal union, with “the North” especially fearful that southern Europe would require frequent bailouts. In my view this supports the claim that the greater egalitarianism in Europe was at least partly due to greater homogeneity within individual countries.
4. It’s possible that the modern welfare state simply doesn’t work in some cultures. Perhaps as the weaknesses become apparent, people flee the resulting austerity. Then places like Portugal and Puerto Rico go into a sort of fiscal death spiral, which can only end with either mass emigration and default, or fiscal union.
5. The EU is becoming much more diverse. This claim is rather vague, as there’s still not all that much racial diversity. Rather I’m making a (subjective) claim that the ethnic or cultural gap between Germany and countries like Greece, Portugal, Bulgaria and Romania is much wider than between Germany and Austria, Denmark and the Netherlands. As the EU expands, the new members show greater cultural diversity. In that sense the EU is becoming more like the US, although it remains significantly less diverse. If Serbia and Bosnia and Macedonia and Montenegro and Kosovo and Moldova and Belarus and Ukraine and Georgia and Armenia and Turkey later join, it will become still more diverse.
6. As the EU expands, and becomes more ethnically diverse, it also becomes less equal. There are enormous gaps in living standards between places like Bulgaria and Portugal as compared with Sweden and the Netherlands. If we were to use an American analogy, an average European country like Spain is about as rich as an ethnic group like African Americans. European groups like the Roma are so poor that there is no American equivalent, except perhaps on some of the poorest Indian reservations.
7. If blacks, Hispanics, Asians, Native Americans and other minorities formed self-governing enclaves within the US, then the US economy would look more like the EU. But don’t be too hasty in assuming you know what that would look like. Black America is not just “Detroit”; it includes lots of middle class suburbs of cities like Washington and Atlanta. As I just indicated with the comparison with Spain, black (and Hispanic) America is not poor in an absolute sense; the average incomes are comparable to an average European country. (Of course many minority areas face other societal problems that don’t show up in crude (PPP) income comparisons.) Nonetheless, I believe that some of these minority enclaves would struggle in a fiscal sense, for much the same reason that southern Europe struggles, despite being in an absolute sense much richer than Bulgaria, or indeed most of the world. It’s quite possible that the European welfare state model only works in northwestern Europe, Japan, Canada, Australia and New Zealand. Not in the US, not in Brazil, and indeed not in 95% of the world.
8. It seems to me that Europe stepped right up to the edge of moving on a track to becoming the United States of Europe, didn’t like what it saw, and lurched back for essentially nationalistic reasons. Call it the impossible trinity: Big welfare states, fiscal union, and cultural diversity–you can only have two. The EU realized it would have to get rid of one of the three. America progressives were outraged that they stepped back from fiscal union, and didn’t write Greece a big check. But the alternatives were a polite version of ethnic cleansing and/or getting rid of the welfare state—I doubt American progressives would have approved of those choices either. Didn’t the German finance minister want Greece out of the euro? That’s the “clean” solution.
9. Indeed I don’t think American progressives who love Bernie Sanders and want us to become a big diverse version of Sweden have any idea of what they are up against. Their project will fail. If they don’t want it to fail in a Donald Trump direction, then I’d suggest they rethink their views on the applicability of the Swedish welfare state model to America.
There’s one weakness in the preceding argument—elsewhere I’ve argued that the euro is the key problem, not the impossible trinity. I still think the euro is “a” key problem, but the FT article on Portugal made me wonder if the problems aren’t even deeper.
This post is speculative; I’m not at all confident that it is correct.