The growth of European inequality

Giuseppe Bertola writes:

Just as the Eurozone countries began to enjoy full and irreversible
economic integration, inequality increased very sharply in the EU15 and
more sharply in the 12 Eurozone countries, bringing its previous
decline to an end and reverting to the 1996 level by 2004…one finds that EMU does appear to improve economic performance (both in
terms of per capita income and in terms of unemployment) and the
intensity of international transactions (especially as regards foreign
direct investment flows).  But it also appears to be associated with
higher inequality, and with lower social spending.  Interestingly, the
inequality variation associated with EMU is fully accounted for by
changes in social policy expenditure (excluding pensions) as a share of
GDP, and in GDP and unemployment (both of which are of course likely to
be influenced by integration policies, as well as by global cyclical
and technological development).

We will of course see how far this trend goes, but it is consistent with my view that Europe will, in economic terms, become like the United States more rapidly than vice versa. 

Comments

And, as in the U.S., I suspect that this greater inequality is due largely to a disproportionately increased prosperity of a few that is not at the expense of the less increased prosperity of the majority. The alternative is the economic equality "enjoyed" in Egypt, where professionals make less money than cab drivers and hustlers of tourists, with the predictable result that professionals neglect their jobs to moonlight in economically un-beneficial (but remunerative) jobs.

Every time a European friend smirks at me about something they find wrong with America -- no matter what it is -- I just tell them the US is a leading indicator for the rest of the world. Don't count your chickens.

Finnsense:

It may be the case that the poor want to deprive the rich of their possessions, but stopping them from doing so is a core function of the government (more precisely, anyone depriving anyone of their possessions). If you are making the case that this is a cause of governments failing, I'd probably agree with you, but if you are making the case that re-distributive policies are good for the longterm efficient functioning of states, I would take heed. Redistribution of goods based on political or physical strength is the very definition of tyranny.

finnsense: "but an economic system that ignores people's basic intuitions and urges will not last forever."

Jealousy cannot be legislated away. It will always exist.

The U.S. has had both wealthy and poor people for all of its 230 years existence. So have just about every other nation on earth. What makes the U.S. so different from almost everywhere else is the ease at which poor people can become rich people.

A 1996 study by Thomas Stanley and William Danko revealed that 80% of all millionaires in the U.S. were not first-generation rich. that is, 80% became wealthy through their own efforts. That's what is so great about the U.S.

John Dewey,

"What makes the U.S. so different from almost everywhere else is the ease at which poor people can become rich people."

I think you'll find a look at the statistics reveal that the US has less social mobility than many European countries - including my own, Finland.

Sebastian,

I think a lot of people who are working hard and scraping by think it unfair that some people live in palaces. That's just an intuition though - I haven't seen any studies on it.

John Dewey,

Social mobility is people moving through income quintiles. It determines precisely what you mentioned which was "the ease with which poor people can become rich" and visa-versa.

Take a look at "a paper by Markus Jäntti, Bernt Bratsberg, Knut Roed, Oddbjørn Raaum, Robin Naylor, Eva Österbacka, Anders Björklund, Tor Eriksson: "American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom and the United States (IZA version)". The authors find that social mobility is lowest in the United States, and highest in the Nordic countries (Denmark, Finland, Norway and Sweden), with the United Kingdom located imbetween. These are important findings, exposing the myth of the 'American dream', and using more robust methodology than previous studies."

If you take a look at the PISA studies of educational attainment at age 15, you will find that not only does the US perform very poorly but that educational attainment is also tied far more to background there than in most other developed countries.

finnsense,

I cannot download the paper you suggested, but I did read the abstract.

Please consider reading the very short post by Brink Lindsey entitled "Is the American Dream Dying?", which can be found about halfway down the page at this link:

The Age of Abundance

Mr. Lindsey makes these important points:

"Measured intergenerational mobility in the U.S. is relatively lower because the payoff for talent and hard work (surely conscientousness and diligence are forms of human capital) is higher here."

"If continental Europe truly were more open and less stratified than we are, then why are Europeans worried about a “brain drain† to the supposedly class-stratified U.S. and U.K.? Why in particular did Nicholas Sarkozy make a campaign stop in London and urge the estimated 300,000 French expat’s living in the U.K. to come home and “make France a great nation†?

Dewey,

"You seem to assume that if intergenerational mobility is lower in the U.S., it must mean that the opportunity does not exist."

No, I assume it means there is less opportunity in the US. Are you really arguing now that in spite of having greater opportunity in the US, Americans simply choose not to take those opportunities?

The tone of your post suggests you have considerable emotion invested in your position (why on Earth would anyone abhor Nordic socialism? - trust me, life here is very similar to life in the US. Perhaps you've been watching too many movies.).

I think it's best to end this discussion now. I doesn't seem like it's going anywhere.

Are we comfortable with the assumption that inequality is contingent upon decreased social spending? I
And if inequality is simply limited to the range of income and the number of people in low and high income margins respectively, then could it not be true that in the eurozone countries of which we speak consumption habits and the price of "luxuries" as citizen as the united states would have it differ from that of our own experience? The Difference being that it might cost less to have a higher quality of life in these countries, despite a relaxation of social spending.

Giuseppe, I am respectfully tempted to think that "But it also appears to be associated with higher inequality, and with lower social spending. Interestingly, the inequality variation associated with EMU is fully accounted for by changes in social policy expenditure..." is an slightly unqualified collection of statements. Correct me if I am absolutely wrong.

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