American Exceptionalism and Worker-Bashing, Adam Davidson Style

Adam Davidson has an article in the Sunday New York Times Magazine, 'The Other Reason Europe is Going Broke,' that manages the impressive feat of making you stupider than before you read it. It misrepresents most of the few facts it contains in appealing to American prejudices about our cultural, or in this case, economics superiority, to sell worker bashing.

Davidson uses the spectacle of Europe going into an economic nosedive to claim that one of the big things wrong with Europe is its spoiled workers. The piece is anchored in a glaring, fundamental misrepresentation. It argues that Americans are much better off than Europeans because we have a higher GDP per capita (more on that in due course) and asserts that that is because Europeans are not able to compete in world markets:

After decades of trying, Europe as a whole still can’t quite figure out how to be flexible enough to compete in the global economy.

The basis for Europe’s supposed failure compared to the supposedly more flexible and innovative US? That its trade with the rest of the world is more or less in balance. By that standard, the US is a abject failure from a competitive standpoint, since we’ve run sustained trade deficits since the early 1980s (with a brief period of a surplus in the early 1990s). So by Davidson’s standard of competitiveness, the US is an abject failure, particularly since the euro has risen against the dollar since 2001 (and even with its recent fall is still well above that level).

And even though Davidson presents himself as a messenger, he clearly sides with this anti-worker paradigm:

It’s a core view of U.S. business that success requires a degree of destruction. If workers can’t be fired, companies can’t drop unproductive businesses and invest in more promising new ones. If workers know they’ll get generous government benefits no matter what, so the theory goes, they’ll get lazy.

Funny, German managers actually prefer a system that allows them to maintain staff levels at reduced pay when the economy is weak. And anyone who has managed an operation, as opposed to a soi-disant economist, will tell you that hiring new staff is a painful exercise: the interviews, the initial period when they are less productive (this is not just a matter of job skill; every business has certain idiosyncrasies that a new employee must learn). And firing people is no party either, and it distracts and demoralizes their peers. And the conventional view that European productivity gains lagged those of the US starting in 1995 is increasingly questioned. From Paul Krugman in 2009:

I went back to something that was a hot topic not long ago, and will be again if and when the crisis ends: the apparent lag of European productivity since 1995…I noticed something that gave me pause.

In their paper, van Ark etc. identify the service sector as the main source of America’s pullaway — which is the standard argument. Within services, roughly half they attribute to distribution — roughly speaking, the Wal-Mart effect. OK.

But the other half is a surge in US productivity in financial and business services, not matched in Europe. And all I can say is, whoa!

First of all, how do we even measure output of financial services? If I read this BEA paper correctly, we more or less use “checks cashed” — or, more broadly, the number of transactions undertaken. This may be the best we can do, but it’s a pretty weak measure of actual work done by the financial system.

And given recent events, are we even sure that the expansion of the financial system was doing anything productive at all?

In short, how much of the apparent US productivity miracle, a miracle not shared by Europe, was a statistical illusion created by our bloated finance industry?

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