East Bests West

Over at Tech Central Station, Marian Tupy delivers good news from New Europe:

Economic liberalization in post-communist Central and Eastern Europe is paying off. Per capita incomes in that region are growing faster than those in Western Europe. The fact that the new poorer EU members are catching up with the old is a tribute to the power of the market. The reforms in the new EU countries are not over, but their success should serve as an example to the moribund economies of France, Germany and Italy.

Whole thing here.

Comments

[Larry Horse]

How's Merkel versus Schroeder going? Maybe this will inspire the German voters to make the hard decision between some liberalization and no liberalization.

[joe]

"The fact that the new poorer EU members are catching up with the old is a tribute to the power of the market."

So let me get this straight - because a much poorer country can show a higher rate of growth than a richer one, we can conclude that the poorer country has better economic policies?

The highest rates of economic growth in the world are found in Subsaharn basket cases, for the same reason that a starving horse will put on more weight than a healthy horse when they're both allowed to graze the same field.

TCS sucks.

[Ironchef]

joe, if the free market is not to take credit, where was all the growth in the Communist era?

[Larry Horse]

Joe,

I hadn't thought of it when I read it, but you do make a good point that there are dcreasing marginal returns to investment, so these countries should inherntly have a higher GDP growth. I guess it would be more apt to compare these country's GDP growth with other non-Russian ex-Soviet countries so that you can have a bit more of a ceteris paribus going on.

[Larry Horse]

Joe,

I hadn't thought of it when I read it, but you do make a good point that there are decreasing marginal returns to investment, so these countries should inherntly have a higher GDP growth. I guess it would be more apt to compare these country's GDP growth with other non-Russian ex-Soviet countries so that you can have a bit more of a ceteris paribus going on.

[Douglas Fletcher]

Hard to imagine joe would be against it.

[joe]

Ironchef, "joe, if the free market is not to take credit, where was all the growth in the Communist era?"

The comparison is not between those countries post-Communism vs. those countries during Communism, but between former Soviet Bloc countries and Western Europe.

[theCoach]

Isn't France more productive than the US?(hourly)

[sage]

"...a starving horse will put on more weight than a healthy horse when they're both allowed to graze the same field."

But they're not being allowed to graze in the same field. While the starving horse has rather unfettered access, the healthy horse is held back by wage and price controls, environmental regulations, and gargantuan amounts of bureaucratic red tape. The fact that the healthy horse makes any gains at all is not due to these obstacles, but in spite of them.

[sage]

I can't post here, can I?

[Nikita Khrushchev]

See, I was right! We WILL bury you!

(Well, sort of....)

[tarran]

Yes, but most people don't undertand why:

There is a level of productivity where it becomes uneconomical to hire someone.

In France it is higher than in the U.S.

So in the U.S. less productive people are able to find jobs. in France, those people would be permanently unemployed. Thus the U.S. average is skewed downward.

So France's higher productivity per worker is actually a bad thing and not a good thing, since idle workers consume wealth while active ones create it.

[Nikita Khrushchev]

See, I was right! We WILL bury you!

(Well, sort of....)

[Hakluyt]

Per capita incomes in that region are growing faster than those in Western Europe.

This isn't a particularly useful statement for obvious reasons.

theCoach,

Well, yes, because the labor laws there encourage greater hourly productivity from few workers (which is why France's unemployment rate is higher than found in the U.S.).

[Hakluyt]

Per capita incomes in that region are growing faster than those in Western Europe.

This isn't a particularly useful statement for obvious reasons.

theCoach,

Well, yes, because the labor laws there encourage greater hourly productivity from few workers (which is why France's unemployment rate is higher than found in the U.S.).

[fyodor]

Ironchef's point is that it was Communism that put those eastern European nations in the "starving" starting point in the first place. Joe's point is that we don't know if western European styled mixed economies wouldn't have grown eastern European economies even more. Both are correct based on the info provided. Ah, the perennial question: are mixed economies more a form of improved capitalism, or a more a form of halfway Communism? Personally I see the latter as being more accurate, at least in regards to economics, but joe is correct that the info before us does little to demonstrate that.

[Hakluyt]

fyodor,

well, the actual thing to do would be to compare developed countries with developed countries.

[dhex]

joe's right - tech central station does suck.

[joe]

sage, to beat the horse metaphor a little more,

Even a wholly unfettered healthy horse will put on weight more slowly. It's a lot easier to add 15% to Angola's economy, because 15% of Angola's economy ain't shit.

[just passing through]

UNITED STATISTS OF AMERICA

(recent Pew poll):

-Almost seven in 10 want the government to establish price controls on gasoline and want more spending on subway, rail and bus systems.

-Just over seven in 10 want to give tax cuts to companies to develop wind, solar and hydrogen energy.

-Just over eight in 10 want higher fuel efficiency required for cars, trucks and SUVs.

[John]

Joe,

You are right as far as it goes in that you can't compare the growth rates of mature economies to those of developing ones. You can however, compare growth rates of mature economies to other mature economies and developing ones to other developing ones. Looking at it that way. Eastern Europe is doing extremely well when compared to the economies of other former communists countries such as the Ukraine or Russia. Western Europe in contrast has an anemic economy compared to other mature economies such as the United States, Australia or even a recently improving Japan. I don't quite see what your point here is other than to be a gadfly. I don't know of anyone who claims that the Western European economy is performing anywhere near its potential or very well at all when compared to other mature, market economies and Eastern Europe is doing pretty well ignoring the third way and embracing the market like Ireland has done. That is really all the post is saying. Do you really believe that the economy in France or Germany is dynamic and healthy?

[John]

Just Passing Through,

Eight out of ten people are completly economically illiterate too. Popular support doesn't make dumb ideas any less dumb.

[Rhywun]

want more spending on subway, rail and bus systems

I'm going to assume that's a poorly-worded substitute for "want more PUBLIC spending on subway, rail and bus systems".

[Hakluyt]

John,

Joe has never been to a Parisian slum before.

joe,

Compared to the U.S., the mature European economies are doing quite poorly. Sorry, but double-digit unemployment cannot be defended.

[Hakluyt]

John,

You have to keep in mind that only one or two EU states (obviously this includes developed and developing economies) outshines (in GDP) any U.S. state.

[Stevo Darkly]

Eight out of ten people (30%) can't even do math.

[Deus ex Machina]

I thought the Irish still had the highest growth rate in the EU.

[Steven Crane]

Hakluyt, that's almost ridiculous. I mean... I'm pretty sure nearly ALL EU states outdo, say, either of the Dakotas in GDP.

[Hakluyt]

Steven Crane,

Nope, not in per capita GDP.

[M1EK]

Hakluyt,

A lot of the reason the more mature EU countries don't outdo some of our states is that some of our states are still stripmining their resources and counting it as 'production'. While true from a strict definition, it's not exactly relevant to what we're talking about here.

[Hakluyt]

M1EK,

Oh, I forgot, you're one of those silly fans of Garret Hardin. The sky is falling! The sky is falling!

[theCoach]

"So France's higher productivity per worker is actually a bad thing and not a good thing"
- tarran

Come on now. You are confused here. The above part makes no sense either. Now it may very well be true that France's unemployment outweighs its productivity, but productivity is, all other things being equal, an unambiguously good thing.

GDP, is Gross Domestic Product. Measuring it is fairly well understood (making it valuable), but it is a gross measure, and not a very important one in measuring in any detail economies.

Say for example, I make $100 a year, and I pay $10/year to some local guy for protection money. Another guy makes $200 and pays $120/year for protection money, and we have the same security.
His Gross is better, but I am better off.

Similarly, if I am a group of 10 people making $100/year, but one guy is getting paid $99, gdp would indicate they are better off than the group who split $50 evenly among the 10, although the median guy in the second group would actually be much better off.

This isn't to say that the Eurozone is doing better than the US -- IMO, they are not, it is just to point out the obvious fact that GDP is a gross measure.

[M1EK]

"No, with the exception of two EU countries, every U.S. state outdoes every EU country in per capita GDP,"

Perhaps I was unclear. I acknowledge that some of the productivity gap between our states and their countries is legitimate; I was pointing out that another chunk of it, though, is due to resource extraction in certain of our states.

Resource extraction can produce a lot of GDP per capita while it goes on, but it's not exactly a sustainable economy.

[Hakluyt]

M1EK,

Well, if you want to change the proper definition of GDP to something that's fine, but I'll ask you do the same for European nations as well. I am sure the Icelanders and Norwegians will be pissed when they find out that their oil and fishing industries are to be expunged from measures of their national economic performance.

[joe]

Hak, "Sorry, but double-digit unemployment cannot be defended." You might not have noticed them, but I never even mentioned them, much less defended.

Please stop putting the name "Joe" at the top of posts addressed to the liberal in your head. It gets confusing for me.

Also, M1EK did specify "strip mining," not just resource extraction. Norwegian oil platforms don't actually destroy value, the way West Virginia mountain top removal does.

[andy]

"Eight out of ten people are completly economically illiterate too. Popular support doesn't make dumb ideas any less dumb."

For the "economic illiterate," why are higher fuel efficiency requirements "dumb"?