Posted by Dan Mitchell
https://danieljmitchell.wordpress.com/2026/05/02/the-united-states-vs-europe-part-v/
http://danieljmitchell.wordpress.com/?p=97222
The world’s big economic policy battle is not capitalism vs. socialism.
Other than a few primitive backwater nations like Cuba and North Korea, genuine socialism has largely been vanquished.
Instead, the battle in most countries largely revolves around the size of the welfare state. At the risk of over-simplifying, here are the three choices.
- Should there be a small-sized welfare state, such as the ones in Hong Kong and Singapore?
- Should there be a medium-sized welfare state, akin to what is found in the United States?
- Should there be a large-sized welfare state, like the ones that are common in Western Europe?
Needless to say, option #1 is the best.
Sadly, the debate in Washington mostly involves proposals that would shift the United States from option #2 to option #3.
So let’s consider whether that’s a good idea by adding another column to our “United States vs. Europe” series (previous editions here, here, here, and here).
We’ll start with the observation that average Americans have much higher living standards than average Europeans.
Here’s a chart based on OECD data showing “actual individual consumption.” The average is 100 and the United States is at 149.
Compare the U.S. level to nations such as Italy (93), Sweden (100), and France 104).
Call me crazy, but I don’t think the United States should be copying the economic policy of nations that have much lower living standards.
In a column for the Wall Street Journal, Joseph Sternberg writes about the big gap on different sides of the Atlantic Ocean. Here are some excerpts.
Do Europeans understand how poor they are? …The widening gap between American and European prosperity is among the most important facts of the global economy. The clearest manifestation is the chasm in per capita gross domestic product: $94,400 in the U.S., according to the International Monetary Fund, compared with $65,300 in Germany, $61,000 in the U.K. and $52,000 in France.
…Since 2007, …European per capita incomes have more or less stagnated while the U.S. has enjoyed another growth spurt. …Europe lacks America’s per capita output not because it lacks American tech companies and billionaires but because it lacks American-style productivity growth capable of creating tech companies and billionaires in Europe. …European welfare states, by creating relatively comfortable lives for voters, conceal the full extent of Europe’s prosperity gap. …The bliss will run out when the funding for welfare does. Voters then will have to confront their failure to generate enough growth to pay for social benefits.
For what it’s worth, I think the most important part of the column is the observation that the U.S. is not only richer, but also that America is growing faster. 
In other words, the U.S. is diverging from Europe when conventional economic theory says there should be convergence.
It’s not good to be on the losing side in the Anti-Convergence Club, but that’s an unavoidable consequence of having a bunch of uncompetitive high-tax welfare states.
At the risk of understatement, the United States should not copy Europe’s failed policies.
P.S. The exception is the role model of Switzerland. We should copy many Swiss policies, most notably the spending cap and the federalism.
https://danieljmitchell.wordpress.com/2026/05/02/the-united-states-vs-europe-part-v/
http://danieljmitchell.wordpress.com/?p=97222
![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
![[syndicated profile]](https://www.dreamwidth.org/img/silk/identity/feed.png){kind=small}
