GDP Per Capita in the E.U. and U.S.: Changing Perceptions

Historically speaking, the E.U. and U.S. are relatively large in territorial expanse and population, so it is only to be expected that significant economic (and cultural) differences exist from state to state in the respective unions of states. In Europe, some medieval kingdoms have relegated to being but regions in E.U. states. Holland, for instance, is a region in The Netherlands, which in turn is a E.U. state. The same can be said of Bavaria (and England, were the United Kingdom still a E.U. state). To compare the economic inequality in such a region with the inequality in the E.U. (or U.S.) over all would be deeply misleading. For example, rural/urban economic patterns that pertain to an economy containing one major city do not translate into the multiple rural/urban patterns that exist in a modern (empire-scale) union of states. In short, scale matters, especially in how we make use of mathematical averages.  Comparing GDP per capita is a case in point; states should be compared with states.

Although recent studies had suggested that upward mobility was higher in the E.U. than in the U.S., the GDP per capita in the latter was significantly more in the latter than the former. To be sure, the gap is less “when adjusted for purchasing power parity (PPP)—which accounts for cost-of-living differences.”[1] Also, comparing the E.U. and the U.S. misses out on the significant differences between states in each of the empire-scale unions; such differences in turn can be used to compare individual states in one union with individual states in the other.

It is difficult to believe that in “the third quarter of 2024, Mississippi’s GDP per capita was €49,780, just €1,524 less than Germany’s at €51,304.”[2] That the industrial base in the latter state greatly exceeded Mississippi’s industry makes the respective numbers all the more perplexing. Because the E.U. average GDP per capita was €40,060 as compared to the U.S. average of €80,023, a person might begin to wonder whether a false economic-equivalence has pervaded both the American and European general perspectives. Certainly geographically, Americans may be surprised how much smaller Europe is than North America (and, accordingly, the E.U. in relation to the U.S.).  The GDP per capita comparisons may thus be like superimposing geographic maps at the expense of previously-held perspectives and assumptions of equivalence.

This is not to say that every E.U. state was poorer than every U.S. state; Luxembourg’s €125,043 is more than New York’s €107,485.[3] Nevertheless, it is significant that the figures for Germany, France, Italy, and Spain are less than those of West Virginia, Arkansas, Alabama, and South Carolina—each of these being below the U.S. average. It would not be at all surprising to read that these figures are incorrect, but, then again, the generally-held false geographical equivalence that Americans and Europeans naturally hold concerning the E.U. relative to the U.S. may, as a phenomenon of a false assumption of equivalence, exist economically too.

Were I to attempt an explanation—not being an economist—I would want to look at whether the relatively higher tax rates in the E.U. discourage economic activity. I would also want to investigate the extent to which the shorter work-week in Europe may also be a factor in the relatively lower GDP per capita. Furthermore, the relatively generous social policies in many E.U. states may also discourage the long-term unemployed from filling job openings, thus reducing factory efficiency and output and lowering per capita averages. Lastly, I would want to know just how much the different PPPs decrease the gaps of GDP per capita. I suspect, however, that all of these possible factors operate only on the margins, rather than explaining the entirety of the differences, given the magnitudes of the differences. It may simply be that hoch Kultur and the higher population (urban) density in the E.U. carries with it the false assumption that the E.U. must be as economically productive per person as in the U.S.

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1. Servet Yanatma, “How Do America’s Poorest States Compare to Europe’s Largest Economies,” Euronews.com, January 6, 2025.
2. Ibid.
3. Ibid.

A Teachable Moment for Americans: Solidarity as a Shared Value in European Identity

Speaking at the Schloss Bellevue palace in Berlin, President Joachim Gauck used a televised speech in February 2013 to make the case for more European integration. At the time, calling for “more Europe” in terms of shifting still more governmental sovereignty from the state governments to that of the Union was not a very popular task. Further limiting the power of his message is the fact that the German presidency is largely ceremonial , unlike the office of governor in an American state. Nevertheless, Gauck was determined to put the contemporary condition of the “European project” in favorable perspective. The most striking—and even effective—aspect of his speech is his repeated references to “European citizens.” Had he used “Germans” instead, he would have subtly undercut his own message. The prime minister of the E.U. state of Britain at the time would never have used the term, "European citizens." Nor would he have agreed with the E.U. value of solidarity and especially the ensuing social policy. The American media tended to follow suit, rather than covering the otherness of the other—the European Union as having a societal political value that has been very recessive in the United States. In this regard, I contend, the American media companies let down the American people, who would have stood to benefit from the wider perspective that would have enriched American political debates from the tyranny of the hegemonic value ensconced in American culture: that of the self-sustaining individual ideally in the state of nature, economically speaking. Reporting on the principle of solidarity would have given Americans the acccurate picture of the E.U. as being more than just a trading "bloc." This point in turn could have resulted in Americans coming to the realization that the E.U. is equivalent to the U.S.—both being empire-scale federal systems wherein governmental sovereignty is split.

Acknowledging the fiscal and structural imbalances that gave rise to the debt crisis in several E.U. states  and the problems entailed in “patching up” the problems by emergency measures, Gauck nonetheless pointed to non-economic elements of the European project that were also in crisis. “It is also a crisis of confidence in Europe as a political project. This is not just a struggle for our currency; we are struggling with an internal quandary too.”[1] This problem was predicated on the point that the strengthening of a European identity comes out of a recognition of shared values, rather than in differentiation from other cultures outside of Europe.

Too often, Europeans have artificially restricted their values to their particular state. Typically, Europeans would preface a self-referential remark with, “In my country,” only to describe a custom or value that is by no means limited to, distinctive in, one particular E.U. state. Even in saying “more Europe means a European Germany,” Gauck risked falling into this trap, at least in terms of keeping Europe as secondary. More in line with his thesis would have been the expression, more Europe means more European. More European in turn means more of a consciousness of values that European citizens (and residents) share, whether or not people in Africa, Asia, or America happen to esteem those values too. So the question facing European citizens is this: What values do you share?

From an American perspective, the salience of the value of solidarity held by Europeans would be so obvious, were it made transparent by the American media, because solidarity has been such a recessive value in the United States. Ironically, World War II was perhaps the last time solidarity in terms of “we’re all in it together” was explicitly pushed and acknowledged in America. Even then, the value was more in terms of sacrificing for a common purpose rather than seeing to it that the most vulnerable among us do not fall through the cracks in terms of sustenance. In Europe, solidarity has more of a social welfare quality.

Moreover, whereas Americans have tended to apply human rights only to the harm caused by tyrants abroad, Europeans have tended naturally to extend to the value to covering the basic sustenance rights of one’s own fellow citizens as well. The shift needed for a stronger European identity has included becoming aware of the duty to apply the value domestically to other Europeans rather than merely to people in one’s own state, or “country.” By implication, “European Germans” would feel solidarity with starving “European Greeks.” This element twas largely missing from the austerity response of E.U. finance ministers to the debt crisis from 2010 to 2012. So even in the E.U., the principle can succumb to greed and interstate clashes of economic interests. I submit, therefore, that “more Europe” involves not only a stronger value-fueled-identity, but also more fiscal redistribution at the federal, or E.U., level. Put another way, Europeans surely have more shared values than that of austerity. It is a pity that the American media failed to capture this point in reporting on Greek austerity, which more closely resonates with the values dominant in the U.S.

1. Ian Johnson, “German President Joachim Gauck Uses Major Speech to Call For “More Europe,” DW, February 22, 2013.

Questioning Universal Basic Income

The gist of basic income is that a government “distributes cash universally. As the logic runs, if everyone gets money—rich and poor, the employed and the jobless—it removes the stigma of traditional welfare schemes while ensuring sustenance for all.”[1] The “logic,” I submit, is flawed even if the basic idea is solid.

The notion of a basic income sprung from the desire to “reimagine capitalism to more justly distribute its gains.”[2] Justice here translates into the ideological belief that sustenance itself is a basic human right, and thus should be guaranteed to everyone. The obligation of government follows from this right. Interestingly, the laissez-faire economist, Milton Friedman, “embraced the idea of negative income taxes that put cash in the hands of the poorest people.”[3] But as the poorest may not fill out tax returns, cash payments by governments may more fully realize the objective of a basic income-floor (i.e., no one gets less than the floor-amount).

I submit that just as making sure that every adult has the basic, or floor, income, the notion of such a floor does not justify a government giving cash to everyone—rich or poor, employed or jobless. Adults whose income already exceeds the income-floor do not need additional income to get up to the floor, for such people are already above it. As for the stigma of welfare, which is very real in states like Arizona, the notion of a basic income can appeal to people whose income is above the floor, for they would be free of the anxiety of possibly falling through the cracks of a checkered social net should even a high income end amid continued high expenses. In the wake of the financial crisis of 2008, for instance, many people whose income exceeded a basic floor oriented to sustenance lost their homes when they went under water as real estate markets collapsed—especially in Florida and California.

Orienting the give-out of cash only to adults whose existing income is zero or otherwise below an established floor (i.e., a floor sufficient that sustenance can be achieved) would render such a program more fiscally stable. Whereas Stockton, California, began a test program in 2018 whereby 100 families would get only $500 a month—an amount clearly below sustenance—the requirement of a full-fledged program wherein only adults below the floor would get cash could more easily afford to set a floor that truly allows for substance.  Then nobody, rich or poor, would have to fear not being able to survive.

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1. Peter S. Goodman, “Inequality? California City Is First in U.S. to Try,” The New York Times, May 30, 2018.

2. Ibid.

3. Ibid.

TARP Paid Off: But What about the Foreclosures?

TARP, the "bailout" for banks rather than mortgage borrowers, was the first big issue facing the Obama administration before the roughly $800 billion stimulus plan and the health insurance overhaul that stoked the rise of the Tea Party movement. After supporting TARP, several Republicans lost in the elections of 2010 largely because of their votes. For many Americans, TARP is a symbol of big government at its worst, intervening in private markets with taxpayers’ billions to save Wall Street plutocrats while average Americans continued to struggle to make mortgage payments or lost their houses outright.  “This is the best federal program of any real size to be despised by the public like this,” said Douglas J. Elliott, a former investment banker now associated with the Brookings Institution. “It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has,” Mr. Elliott added. “But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.” TARP was good for the public not in that the funds enabled Wall Street bonuses; rather, the good was solely on the macro level, as the frozen credit markets eventually thawed such that the financial system meltdown was averted.  However, this does not mean that it was "the only effective method available."

Specifically, the TARP funds could have been used to subsidize mortgage borrowers demonstrating difficulty in making the payments. On a CBS news show May 15, 2011, Speaker Boehner was asked about the four foreclosure programs of the U.S. Government. "They have all failed," he told the journalist. However, the Speaker then refused to have the government get involved; the best we can do is wait for the market to solve the problem as more buyers enter. However, that would only spur foreclosures, as more buyers would make it easier for banks to sell their foreclosed houses. It is interesting that hundreds of billions of taxpayer dollars could go the big banks, enabling record executive bonuses, whereas all we can do is rely on the market to mitigate the foreclosures. This squalid double-standard can be explained by simply looking at the bankers' interest, which is at odds with that of the mortgage borrowers. Considering the problematic way in which the sub-prime mortgages had been produced (e.g., liars' loans and no-document mortgages), I contend that the interests of the banks' customers ought to be given primacy here. The problem is that the borrowers are dispersed, whereas the bankers have concentrated leverage via their capital and lobby over government officials who would like to be re-elected. In a republic, the leverage ought to go in the opposite direction: elected representatives coming down on the bankers for their shaddy lending and related double commissions at the expense of the borrowers.

Laying the power reality aside, an alternative to TARP can be envisioned. This exercise, although inexorably futile, can tell us something about the opportunity costs involved in enabling the powers that be rather than holding them accountable. Along with a federal law limited the rate resets on the ARM sub-prime mortgages (resisting the pressure of the banking industry that recklessly had originated or bought the mortgages), subsidies could not only have removed a major toxic element from banks' balance sheets and thus opened up lending, but also perhaps fortified the housing markets in the U.S. such that homeowners duped into houses over their heads could have had some time to sell and find more suitable housing. In other words, the "two birds with one stone" could have applied, instead of the top-directed infusion. TARP did not come with requirements that lending reach a minimum level so even though the banks did not fail, it took even the TARP banks a long time to raise lending again; the return to lending should have been immediate.

It could be argued that the TARP funds put into banks gave the U.S. Government the corresponding benefit of bank stock. To be sure, selling the stock has made up a large part of the TARP funds already by 2011, but it was at that time uncertain whether the government would make a profit. In the fourth quarter of 2010, the U.S. Treasury projected that taxpayers wouuld lose less than $50 billion at worst, but at best could break even or even make money. Its best-case assumptions, however, assume that A.I.G., which had received $182 billion in TARP funds, and the auto companies would remain profitable and that Treasury would get a good price as it sells its corporate shares in coming years.

In May 2011, AIG and the Treasury Department announced that they would sell $9 billion in stock altogether, but for less than half of the expected price. As of May 10th, the AIG stock pre-market price was thirty cents off from the government's breakeven point. AIG stock had slid from the mid 40s to the mid 20s. I submit that these considerations of U.S. profit-taking, although appealing from a capitalist standpoint, misses the bigger picture in terms of a government's mission. I contend that governments do not exist to make profits. Furthermore, a government's primary charge is to protect citizens, whether from foe or famine. Failing to mitigate or obviate foreclosures even as banks got funds to keep them afloat is thus a blight on the U.S. Government. To be sure, maintaining the viability of the financial system is legitimately part of the government's job, that function could have been accomplished by protecting citizens who otherwise lost their homes. This is not to say that the homeowners deserved to stay indefinitely in houses too big for them; rather, it is to say that homeowners could have been kept from being tossed onto the street. The U.S. Government could have helped two birds with one bag of birdfeed while meeting its own obligations as a government.

Sources:

Jackie Calmes, “TARP Bailout to Cost Less Than Once Anticipated,” The New York Times, September 30, 2010.

The Huffington Post, "AIG, U.S. Will Sell $9B in Stock -- But for Less than Half of Expected Price," May 11, 2011.

De-Funding Obamacare

It is odd that even after a bill becomes a law, it can be defunded, thereby effectively killing it even though it has not been voted down.  One would think that it would be required to pass the funding that is required by the law. The Republican Party has strategized on how to deconstruct Obama’s health-insurance law through various means.

Republicans could turn to the annual appropriations and budget process or push stand-alone bills to delay or stop funding for provisions of the law they dislike, including the individual mandate, the health insurance exchanges and the Medicaid expansion. They might also work to weaken provisions in the bill that deal with Medicare physician reporting requirements that some physicians find onerous and block the creation of a nonprofit research institute to examine the effectiveness of various medical treatments. Mandatory funding, which comprises much of the health measure that began in 2014, will continue unless Republicans can change current law. Discretionary funding must be approved each year but differences between House and Senate versions of appropriations measures must be ironed out and that generally produces a compromise package. Why all of the law’s funding would not be mandatory as part of the law defies logic and government functioning. Also, how the mandatory funding could comprise much of the law when the individual mandate, the exchanges, and the medicaid expansion can be defunded, is also beyond me.

A major problem with the defunding strategy is that since so much of the bill is inter-related, trying to dismantle it piecemeal could lead to unintended consequences. While the individual mandate is unpopular, “you can’t pull it out of the law without all sorts of other elements falling apart,” Reischauer says. And scrapping the mandate, which requires most people to have coverage or pay a penalty, would anger health insurers — a core GOP constituency. Insurers have agreed to abide by new consumer protections, such as not denying coverage based on a pre-existing medical condition, in exchange for 32 million new customers. Hospitals agreed to payment cuts on the premise that more people would have health care and hospitals would have less uncompensated care. In other words, because the health insurance industry got basically what it wanted—the mandate without a public option—it would be highly unlikely that certain parts of the law would be defunded unless it were in the interest of the health insurance companies.  Therefore, the mandate is not apt to be defunded unless the rest of the law is to go down too.

I contend that law should not be allowed to be defunded. That is, upon passage, the law should have its required funding established as a matter of law.  Secondly, I contend that private companies with a vested interest in a law should not be allowed to have such power that they can tailor the law to their liking. Extant industries have too much power in the US Government.  As a reflection of this condition, we over-rely on private companies and the market—ignoring their downsides. Where basic necessities such as access to basic health-care is concerned, our over-reliance can be fatal.

Source: http://www.msnbc.msn.com/id/39295110/ns/health-health_care/

A Bit of Federalism in ObamaCare

Senator Ron Wyden has written to government officials of Oregon to encourage them to “come up with innovative solutions that the Federal government has never had the flexibility or will to implement.” This is significant because he is a democrat. As long as a state covers the same number of uninsured and keeps coverage as comprehensive, the following can be waived:

1. the individual mandate to purchase insurance (i.e., what Virginia and Florida are suing over)

2. regulations about business taxes

3. federal standards for minimum benefits

4. allocation of subsidies in the insurance “exchanges.”

These are called section 1332 waivors. There is also some flexibility on medicaid--but how much flexibility do these waivors proffer? The states might be able to determine how the uninsured are to be insured. For instance, they could go single-payer. Or could they?The federal allocation of subsidies in the insurance “exchanges” can be waived, but can the “exchanges”?

There is a trade-off involved in federal standards and state waivors. If the federal standard is too high (e.g., the number of uninsured covered and the amount of minimum coverage), then not much freedom is involved in the waivors because the standards must be met regardless. Given the diversity within the Union and our system of federalism, the US Government should have been oriented to coming up with minimum standards for health-care rather than trying to make it a federal responsibility. By minimum, I mean that below which is unacceptable for a state in this union. For instance, it could be that universal health-care is a minimum if health care is to be considered an American right. The states, rather than the general government, would then be required to pass laws to implement the minimum standard in any way they preferred. They could determine the means, whether single-payer or exchanges. I’m not sure that the existing waivors, which do not begin until 2017, allow for such flexibility as would accommodate the various political ideologies of our states. Once power is grasped, it is very difficult indeed to let go of some of it.

Source: Wyden Defects on ObamaCare, WSJ, September 3, 2010, p. A16.

Happiness: A Matter of Prosperity or Economic Security?

A macro-economist would probably assume that the percentage of people rating their lives positively enough to be considered thriving is positively correlated with real GDP per capita. Yet evidence suggests that this is not the case. The key to happiness, I submit, is having the sense of foundational economic security—that come what may, even in the case of rich people, you won’t fall through the cracks. It is difficult to thrive over a continuous, subterranean (i.e., subtle) anxiety, whereas a sense of security, such as most children feel while still living in their childhood homes, is a sturdy foundation on which a sense of thriving can grow and survive. I think most people, particularly Americans, take this point for granted, and thus are all too willing to make staples like housing, food, and health care conditional on having money.

In Britain during the two years leading up to the referendum to secede from the E.U., Gallup found that the percentage of people who were happy in the sense of having the sense of thriving fell 15 percent.[1] Meanwhile, GDP per capita (PPP) in current international dollars increased from $38,873 to $41,499.[2] Egypt, likewise, went from 29 percent “happiness” in 2005 to 8 percent in 2012, while GDP per capita increased from $8,123 to $11,210. Clearly, something other than the level of prosperity is behind changes in happiness as a sense of thriving.

That Norway (7.537), Denmark (7.522) and Iceland (7.504) led the pack among countries in terms of happiness as thriving in 2017, with the Netherlands coming in sixth and Sweden tenth may suggest that having an economic safety-net may be important. The United States stood at only 6.993, and the safety nets in those states are partial. To be sure, the state of France in the E.U. came in even lower, at 6.442, and Italy at 5.964, so we cannot conclude that the stronger safety nets in the E.U. necessarily translate into more happiness. However, even within the E.U. Denmark and the Netherlands were known for their well-fortified socio-economic infrastructures, whereas in the U.S. only Massachusetts and California were known to have relatively encompassing social policies in comparison with the other American states. Unfortunately, Gallup lumped all of the American states together while distinguishing the European states, so we cannot tease out differences within the U.S. 

Even so, the high marks of Denmark, Norway, and the Netherlands suggest that having a solid social-welfare safety net for the most vulnerable in matters of food, housing, and medical care is at the very least consistent with a broad sense of happiness in the sense of not merely surviving, but thriving in life. With less of the existential, conditional angst, people rich or poor can feel more stability upon which they can step out onto striving, venturing, into the unknown, with paradoxically a higher chance of sustainable self-sufficiency.

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1. Jon Clifton, “The Happiest and Unhappiest Countries in the World,” The World Post, March 20, 2017.

2. Source: The IMF

Homeless “Campers” Starting Wildfires: Outside the Social Contract

Nederland, Colorado. A town in Boulder County that had embraced marijuana dispensaries for profit, found itself just outside a wildfire that burned 600 acres in July, 2016. Two homeless men were charged with fourth-degree arson for failing to put out their camp fire. The townsfolk reacted in anger, pointing to the increasing number of homeless people in the nearby national forest. Officials had been forced to deal with “more emergency calls, drug overdoses, illegal fires and trash piles deep in the woods.”[1] Some residents urged the U.S. Forest Service to crack down on the homeless by imposing tighter rules on camping, or banning it altogether in certain parts of the woods most popular with the homeless. An analysis drawing on the political philosophy of Thomas Hobbes, a seventeenth-century English philosopher can be employed to reveal a broader perspective on the problem.

In his masterpiece, Leviathan, Hobbes theorizes that people in the state of nature once made a social contract wherein they ceded their political freedom to a sovereign, who could forestall civil strife and war. Self-preservation is the dominate motive here. In agreeing to give up some freedom to a system of laws and police, agreeing to be bound by them, people believe themselves more likely to survive.

Social-contract theory more generally is not limited to the political dimension. In living in society, people agree to give up some of their economic self-sufficiency that comes from living off the land. Economic interdependence comes from specialization of labor, trade, and even the use of money. In an economy, people are interrelating parts rather than being wholly self-sufficient. As recessions and the loss of particular industries demonstrate, being a part in an economy is not necessarily best for a person’s self-preservation.

Therefore, it is hardly surprising that people for whom the socio-economy—a system of interdependence—does not make self-preservation more assured would head to a forest to live off the land. The homeless in the national forest near Nederland can hardly be blamed for doing what is necessary to survive. Hobbes maintained that people have the right (of self-preservation) to fight off execution even though the punishment is issued by a sovereign who rightly holds all political (and theological) power.

To be sure, a state of nature in a forest located next to a modern society may be inherently problematic. That one homeless man camping long-term in the national forest outside of Nederland asked a forest official when the trash would be picked up points to the problems entailed—problems that would not exist were we all in the state of nature. If modern society can no longer tolerate people living in the state of nature, then places must be found for the extricated humans within the socio-political economy consistent with their self-preservation.

In the E.U., the operative principle is solidarity. Social policy is the typical means by which governments implement the principle wherein self-preservation is taken to be a human right that a society is obligated to protect. In the U.S., the principle is scant—eclipsed perhaps by that of economic liberty within interdependence. Hence, the safety net within American society has gaps. It is only natural for people falling through them—for whatever reason—to seek self-preservation outside of society. It is also natural for people accustomed to the safety in society to fear the human landscape outside of society, where liberties given up in society are taken back up. These liberties are feared by the people in society as they have given them up in exchange for safety. Therefore, we can see, using Hobbes’ theory, that it is in the interest of the residents of Nederland to petition the government of Colorado to accommodate the forest people back in society rather than continue to fight their nearby presence by pushing them further away from society.

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1. Jack Healy, “As Homeless Find Refuge in Forests, ‘Anger is Palpable’ in Nearby Towns,” The New York Times, August 21, 2016.