When HP makes these claims, I just assume he's right that EU growth lags US growth. I mean, people don't just make this stuff up, do they? But then I recall that he'd told me that South Korea developed economically via neoliberalism. That looks to be about the opposite of the truth. I'm sure he believed it. Maybe he was told this by an expert. But it turned out to be wrong.
So you know what I'm going to do? I'm just going to see what economic growth in Western Europe has been over the last few decades. Sure, they have a much more extensive welfare state. Maybe that's not a bad thing. It seems plausible that if people fear the loss of their job they'll work hard. But here's what else seems plausible. If people don't fear losing their job then that produces dynamism as well. Suppose I work in a dying industry. If there's a strong welfare state, where my food and health care are covered and where I can be retrained if I work in an industry that dies, I may not fight tooth and nail to retain a dying job that sticks with old technology. Innovation doesn't scare me. I might embrace it.
Well, that's just a theory. The data is what I'd like to see. So I went over to Gapminder where they have all the GDP data. I recorded GDP/capita for the US and also various EU countries at the years indicated. The data is GDP/capita as adjusted for inflation and by Purchasing Power Parity (PPP). That's a value that adjusts for the cost of living. For instance you might get paid more in Norway but if everything also costs more you aren't living any better. PPP adjusts for those factors so you are really measuring output in terms of what you can purchase where you live. Here are the values.
I know that's kind of tough to read with numbers running together. I'll present it in a simpler manner below. But let's note a couple of things from the above. The US is crushing EU in 1950. But by 2009 the gap has closed. In fact in a couple of cases (Norway, Luxembourg by a long way) the US has been passed.
Here's another way to look at this data. What I've done below is divide the US GDP/Capita by that of the various EU countries. This shows the US income as a multiple of the income of the other country. So in 1950 the US had an income 2.77 times that of Austria. Watch how it progresses through the years.
Across the board every EU country has closed the gap in GDP/person with the United States since 1950. This means in every country their economic growth has exceeded that of the US over this time period. And all this with a massive welfare state that gives people peace of mind. And the growth is more egalitarian.
Look at Greece. In 1950 the American is making more than 5 times what they are making. Today? A mere 1.5 times. They are killing us. Look at Austria, Spain, Portugal. They've made enormous gains. How can someone looking at this conclude that a large welfare state is detrimental to economic growth?
HP is loathe to question consensus and expert opinion. He has limited time and wants to learn in an efficient manner. The problem is this leads to erroneous views. Further studies which build on that prior erroneous knowledge will be time wasted. I say in the case of economists checking the claims of experts is an efficient use of time.
Here's the same data but in chart format. Even easier to read. It's interesting to note the rapid improvement in Europe from 1950 to 1980. It flattens a bit from 1980 but EU seems to still be gaining. Just more slightly. Click to enlarge.