In National Review, Kevin Hassett, the former Chairman of the Council of Economic Advisers, asks Ed Conard to defend conservative free market capitalism and how it promotes entrepreneurial risk-taking that has grown middle-class incomes faster than Europe.
Five Questions for Ed Conard
National Review Online
August 21, 2020
1) Many liberals claim capitalism no longer works for the middle and working class. Is it true?
No. According to the Congressional Budget Office, prior to the pandemic, middle-class incomes had grown 60 percent more than inflation since 1980. The income of the poorest 20 percent had doubled. Those increases don’t include the full value of innovations such as cell phones, cleaner air, more-effective cancer treatments, fewer automobile accidents, and less crime.
In 1995, America’s middle-class incomes were 19 percent larger than Germany’s — the most prosperous economy in Europe. Today, America’s middle-class incomes are 28 percent larger than Germany’s. They are 65 to 70 percent larger than Southern Europe’s (wages less taxes plus government services).
These large differences significantly understate the true superiority of America’s economy. With three to four times as many low-skilled workers per high-skilled worker as in Northern Europe, America would be significantly richer if we enjoyed Northern Europe’s distribution of talent. And Europe would be poorer if it weren’t freeloading off America’s disproportionately large contributions of innovation, defense spending, and health-care profits.
Europe has contributed shockingly little innovation. Apple alone is worth more than the 30 largest companies in Germany. America is producing five times as many billion-dollar startups. U.S. productivity, as measured by GDP per hour worked, has grown 50 percent faster than Northern Europe’s since 2000, and three times faster than Southern Europe’s with demographics similar to America.
Growth increases wages when the supply of workers is constrained. Otherwise, it increases employment. Despite employment growth that has been twice as fast as Europe’s since the 1980s, Americans still enjoy higher and faster-growing incomes. Unlike Europe, America isn’t cannibalizing its competitive advantage in the long run to produce higher incomes in the short run.
We shouldn’t take America’s success for granted. Liberalism has greatly diminished the vibrancy of Europe’s economy and slowed the growth of its middle-class incomes relative to America. The cost of liberalism is hidden by ignoring the enormous difference between America and Europe.
Despite claims that inequality is rising… Read more at National Review Online