Increases in productivity are the real driver behind increasing wealth. The fact that we are wealthier today than we were a hundred years is ago is largely because workers today are more productive than they were a hundred years ago. Productivity is the measure of how much goods or services can be created per unit of labor. One way to increase productivity is by becoming a more skilled worker. Another way is through the invention of labor-saving machinery (see here for more detail).

Hourly Productivity

When you look at per-capita annual productivity between the United States and Europe, the US wins in a rout. However, is not a fair comparison because US workers work more hours each year. When you look at hourly productivity, the comparison is much closer. Some European countries are even superior to the United States (see here and here).

How To Lie With Productivity Statistics

Skilled workers with lots of experience are more productive than unskilled workers with minimal experience. So an easy way to make your productivity stats look good is by only hiring skilled workers. This is precisely what you see in Europe, for two reasons.

As a general rule, unskilled workers with minimal experience tend to be young, they tend to be immigrants, and they tend be minorities. The United States has more of all these groups than Europe, which has both lower birth rates and lower rates of immigration. To put it bluntly: Europe is an aging, white, native born, middle class country. The United States is a (relatively) young and diverse country with many immigrants. We have a lot more people beginning their careers, and this necessarily pulls down the productivity statistics. But this does not mean that “cowboy capitalism” is inferior to Europe’s more heavily regulated and taxed economy. In fact, quite the contrary - there is a reason why immigrants tend to choose the United States.

Another reason why Europe’s productivity statistics are inflated is because of their progressive labor laws like the minimum wage and lifetime job protection laws. Basic microeconomics tells us that these laws create unemployment concentrated upon the youngest and least experienced workers (see here for a description of this process). Since productivity only measures employed workers, this is an easy way to bring up the average (See the definition from the United States’ Bureau of Labor Services here and a comparable defintion from the Canadian government here.).

European countries have very high minimum wages - usually about $9 per hour - and this causes a significant increase in unemployment (see here for details on the minimum wage an unemployment). Add in the job protection laws (see here) and it is no wonder that youth unemployment is high in Europe. In fact, unemployment among young Muslims ran as high as 40% at the time of the Paris Riots in 2005.

There is one more method that skews productivity statistics. Many times you see people cherry pick their favorite European countries and just hold those up as being better than the United States. But people who defend the United States do not cherry pick individual states, such as those that are overwhelmingly white and middle class like Europe. It is fair to exclude former Eastern Bloc countries and new entrants to the European Union. It might also be reasonable to exclude Ireland, which as been growing like crazy ever since adopting American-style free markets. But otherwise defenders of Europe should stick to the EU as a whole rather than cherry pick single countries.

In conclusion, there are three factors that make Europe’s productivity look good: the overwhelmingly white workforce with relatively small numbers of immigrants, progressive labor laws that exclude immigrants and young workers, and by cherry picking favored countries.

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High rates of immigration dissproportionately harms blacks:

The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 3.6 percent, lowered the employment rate of black men by 2.4 percentage points, and increased the incarceration rate of blacks by almost a full percentage point.

Article Link

From my Favorite economics blog

Imagine that an international governing body got together with a cadre of special interests to deny millions of poor people access to a cheap substance capable of saving hundreds of thousands of lives annually. You’d think such an effort would be considered highly immoral, right? Probably even cause street demonstrations, boycotts, and other signs of public outrage.

Well, just such a campaign was launched three years ago by the United Nations Environmental Program, acting in conjunction with several major environmentalist organizations. There have been no demonstrations, no boycotts, and sadly, few signs of outrage.

That’s because the substance is the much-vilified pesticide DDT, which remains the cheapest and most efficient means of reducing malaria. Malaria sickens 300 to 500 million poor people annually, killing as many 2.7 million. In sub-Saharan Africa, one in 20 children dies of malaria. That toll could go higher if a new United Nations Treaty on Persistent Organic Pollutants (POPs) is concluded next week in Johannesburg, South Africa. The POPs Treaty, which is being negotiated by more than 120 governments and is backed by more than 260 environmentalist groups, aims to eliminate totally the production and use of 12 organic pesticides, industrial chemicals, and byproducts, including DDT. Many of these substances are alleged to have unacceptable environmental and health consequences.

Greens vs. the World’s Poor

From a newer story:

Really good news today–especially for the millions suffering from malaria. The World Health Organization finally broke with ideological environmentalist orthodoxy and acknowledged that the pesticide DDT is a vital third weapon in the war on malaria carrying mosquitoes.

Hooray for DDT

And here is a good article debunking a liberal attempt to minimize the importance of DDT for preventing malaria.

A Center-Right coalition defeats the Center-Left coalition in Sweden’s recent election. Of course, this being Sweden, the Center-Right ran on a Clintonesque plan to reform the welfare state, not to abolish it. But it is progress, and it reveals a frustration with the Swedish Model. Here is typical article about the abuse of sick leave:

One of the major issues contributing to the alliance win was Sweden’s very generous benefits system. Payments to unemployed workers are high by the standards of many European countries, and the alliance plans moderate cuts to long-term benefits: From 80 percent of previous salary to 65 percent.

More interestingly, they propose to revise long-term invalidity benefits. Persson’s Social Democrats put Swedish unemployment at around 6 percent, but observers suggest that when workers on long-term sick leave are counted, it is closer to 16 percent. Add the workers on government schemes and The Guardian reports “real” Swedish unemployment could be a staggering 20 percent. Worse, Eurostat puts youth unemployment at 25 percent.

Of course, not everyone on sick leave is a skiver, and moreover Sweden is not the only western nation to fiddle its unemployment figures by ruling out job schemes and invalids who might otherwise be working. But Sweden is one of the healthiest counties in the world - and it has the world’s highest level of sick leave.

I thought this quote was interesting:

Free market writer Johan Norberg said in an interview that Sweden’s welfare state “was built on specific preconditions: wealth, a strong work ethic, a sense of trust in a homogenous society, and an aversion to living on welfare.

I’ve always thought that a socially conservative society which rejected multiculteralism could make a Swedish-style welfare state work. But does a welfare state create the seeds of its own destruction? Swedish blogger Fjordman thinks so.

Back when Reagan inherited a 70% marginal tax from Carter, the proper action was a easy: cut taxes. Reagan cut them to 28% and got high deficits, but as Clinton showed in the 1990’s, a top tax rate of 40% will produces a surplus. Cutting taxes from 70% to 40% is an easy way to spur economic growth without adversely affecting the deficit. But once you start getting below 40% things get tougher, because you have to trade off the good effects of low taxes with the bad effects of deficits.

But there are other options that will allow you to increase economic growth with little or no effect on the deficit or the poor. Of course, while these programs largely avoid any economic pain, there may be substantia political pain in getting them passed!

• Abolish the corporate income tax. Probably the single most destructive and innefficient tax we have. It costs more in compliance than it raises in revenue, and most of the burden is passed onto consumers anyways, making it essentially a regressive sales tax. Abolishing the corporate income tax would also cause a stampede of businesses relocating their headquarters to the United States.
• Deregulation. When the government can set the terms by which businesses compete, then wealthy businesses will lobby the government to make sure the terms benefit themselves. The consumer and small businesses suffer.
• Tax reform. Flatten the income tax by removing the deductions and lowering the marginal rate in a revenue-neutral method. This would provide better incentive to entrepreneurs.
• School choice. The law of real estate is “location, location, location.” Breaking the link between education and house location will flatten the demand curve for houses in nice neighborhoods, resulting in lower prices. I also suspect it will cause anti-growth zoning boards to be less reluctant to zone for new housing if higher taxes to pay for the new schools did not have to come with it. This would lower housing prices by increasing supply.
• Culture Change. The former Clinton advisor William Galston has shown that you only have to do three things to avoid poverty: graduate from high school, wait until age twenty to marry, and wait until marriage to have children. A culture change towards nerdiness and traditional marriage (the revenge of the nice guys!) would fight poverty and raise tax revenues without costing taxpayers a dime.

Democrats who vow to enforce employer sanctions are drawing broad support in other races. In Woodstock, Conn., a registered Republican told Democrat Ned Lamont that he had just one question: How would the senatorial candidate address illegal immigration? Lamont’s response was that the government should crack down on people who hire illegal workers. The Republican said he liked that answer.

All the tough-at-the-border talk, perfected by the Bush administration, is fooling nobody. It has become code for “we’re not going to do anything to inconvenience companies that hire illegals.”

Article Link.
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Let me offer you, metaphorically, two magic wands that have sweeping powers to change society. With one wand you could wipe out all racism and discrimination from the hearts and minds of white America. The other wand you could wave across the ghettoes and barrios of America and infuse the inhabitants with Japanese or Jewish values, respect for learning, and ambition.

But, alas, you can’t wave both wands. Only one.

In 1965 the famous Democratic Senator Daniel Patrick Moynihan released the Moynihan Report, which found that the number one cause of poverty for blacks was the breakdown of the family. He was savagely attacked by his own party, which then went into what he called ‘denial mode‘ about the importance of family. Forty years later the Democrats are still in denial mode.

A Breakdown of Culture, a Breakdown of Family

Here is a disclaimer to forestall an important rebuttal: a single income family with a stay at home mom can be very affluent. There is no reason why a college educated middle class woman can’t provide a similar income. She does have to face the extra expense of day care, and the demands of being a single parent may force her to take a more flexible career path, but these will not lower her into poverty. The lesson is that single motherhood in itself does not cause poverty.

What does cause poverty is the missed opportunity, the increased likelihood of dropping out of school or foregoing college, and the limited ability of investing in career. Page 422 of the bipartisan policy book The New World of Welfare, documents that while most out of wedlock childbirths happen to women in their 20’s, half of all first out of wedlock childbirths happen to women in their teens (fortunately this has been on the decline), which means before college. This is where the lost opportunity from out of wedlock childbirths happens.

More generally, the problem is a breakdown of culture. Some people are raised expecting to go to college, work hard, marry, then have children. Others are not. The former culture breeds success, the second does not.

Money alone cannot fix this problem, the liberal sociologists Sara McLanahan and Gary Sandefur changed the consensus among sociologists when they published Growing Up With a Single Parent. Children who grow up in broken families are not just poorer. They are more likely to abuse drugs, drop out of school, get bad grades, have low self-esteem, and have out of wedlock children of their own. Furthermore, lack of income only explains about half of the gap. Fatherlessness explains the other half.

The raw Census data show that the rate of poverty for single mothers is about five times as high as the rate of poverty for married households. But this is a crude analysis; it could be the case that there is some underlying reason that makes people both poor and single mothers. William Galston, the former advisor to President Clinton, has found that in order to avoid being poor you have to do three things: (1) graduate from high school, (2) wait until getting married to have children, and (3) wait until age 20 to have children. Only 8% of people who do those three things are poor, compared to 79% for those who do not (see endnote 1).
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