The Future of Social Democracy

An interesting post, by Tyler Cowen at Crooked Timber:  "Is Social Democracy a viable model for the European future?"  Here is a bit:

For all its virtues, social democracy stands in danger unless Europe can boost its rates of economic growth. Even if some of the more radical social democrats may feel that “people already have enough,” it is hard to imagine Europe persisting and flourishing if it ends up as the “poor man out” and in a state of relative impoverishment. If nothing else, the most talented Europeans would migrate elsewhere. There are already 400,000 EU researchers working in the United States, and it is not clear when they plan on returning.

Most of Western Europe experienced a long postwar boom, lasting at least through the late 1970s (the timing is later for Spain). This was sustained by rebuilding, an enormous growth in world trade, and by lower levels of government intervention than we see today. But welfare payments rose, taxes rose, labor markets became less flexible, interventions favored insiders to a greater degree, regulations were cartelized, and the entrepreneurial spirit ebbed.

Western European per capita income is now about 30 percent below that of the United States and I see the gap widening rather than closing. It is common for the United States rate of productivity growth to be twice as high as that of the core European nations[.] . . .

. . .  Most European birthrates are under the 1.5 mark and it is quite possible that many national populations will be cut in half by 2050. Along the way there will be too many retirees per worker and current European tax rates – already among the highest in the world – will have to rise. Since older populations also tend to be less productive, it is hard to see how Western Europe might reassume world economic leadership or even hold its current relative ground. Nor has the EU, for all its benefits, proven itself a good mechanism for making economic policy; farm subsidies are over 45 percent of the EU budget.

Part of the demographic problem, of course, is that the real standard of living in Western Europe is remarkably high. Western European women have learned how much fun they can have, living in Europe and traveling abroad, when they are not tied down with four children. The extreme secularism of Western Europe – a philosophy which I share and indeed cherish – also promotes small families. Religious exhortations to have more children, combined with a child-friendly church culture, do in fact raise birth rates. In both economic and cultural terms, Western Europe is not investing enough in its future.