Commentary

Bowling with the Truth

By Olaf Gersemann
October 11, 2004

Michael Moore suffers from a tendency to mix fact and fiction that was apparent before he directed Fahrenheit 9/11. In his 2002 documentary, Bowling for Columbine, the filmmaker suggested that the 1996 welfare reform led to an increase in youth violence—the alleged reason being that welfare-to-work programs forced lots of single moms to work lots of jobs and, in the process, leave lots of kids at home to get into trouble.

The claim that a large part of the American population can make ends meet only with the help of moonlighting falls on fertile ground among pundits and politicians who promote the view that something is profoundly wrong with U.S.-style capitalism. As John Kerry put it at the Democratic convention in Boston: “People are working weekends; they’re working two jobs, three jobs, and they’re still not getting ahead.”

In Europe, such claims are believed eagerly. Sure enough, over the last 25 years the average annual real growth rate in America was 55 percent higher than in Germany, 48 percent higher than in France and 39 percent higher than in the European Union as a whole. Still, Americans seem to suffer in the eyes of Europeans. Germany’s chancellor Gerhard Schröder suggests, for instance, that in the U.S. it is not possible “for people to live in decency and dignity without having to do three jobs a day.”

Indeed, most Europeans nowadays believe in a litany of negative stereotypes about the U.S. economy. Some of them are simply ridiculous. First, read what Werner Müller, now a top executive and then Germany’s minister of economic policy, said in 2002: “Our unemployment would be 1.5 percentage points lower if we had as many people imprisoned here as there are in the United States.”

That claim is a gross exaggeration at best. Empirical findings by labor market economists Lawrence Katz and Alan Krueger suggest that the growth in the number of inmates in the U.S. contributed only 0.1 to 0.2 percentage points to the reduction of the unemployment rate between 1985 und 1998. What is more, in the long run, locking away more delinquents will tend to increase unemployment, not diminish it. That’s because almost anyone in prison will be released sooner or later, and will find it difficult, or at least more difficult than before, to get a decent job.

A second popular stereotype that distorts American reality concerns moonlighting. Since welfare reform was implemented, the share of multiple jobholders in the United States actually declined. In 2003, it stood at 5.3 percent. In Germany, by contrast, the share was, according to official statistics, 2.4 percent. However, the shadow economy is estimated, relative to GDP, to be almost twice as large in Germany as in the U.S. Take that into account and the moonlighting gap likely disappears.

Further, the lower number for Germany in part reflects regulated shopping hours and extremely high marginal tax rates: Germans simply have both fewer incentives and fewer opportunities to moonlight at Wal-Mart.

Also ignored is that only one-in-four multiple jobholders in America says he actually needed more than one job to meet expenses or pay off debt. This point is reinforced by the fact that the higher your formal education, the more likely you are to take a second job. Among Americans with a Master’s degree or a Ph.D., multiple jobholding is almost three times as common as it is among high school dropouts.

Thirdly, there is a whole array of stereotypes about America that refer to living standards in the U.S. If Germans were to liberalize their economy by deregulation and cutting back big government, they would face “amerikanische Verhältnisse” (American conditions), says Michael Sommer, the country’s most powerful trade union leader. American conditions, in Sommer’s view, mean that “our cities will become slums, our society will be fragmented and employees will need three or four jobs to feed themselves.”

To be sure, Sommer does not say that American conditions would also mean more prosperity. Never since the late 1960s has the gap between per capita incomes in the U.S. on the one hand and France and Germany on the other been as big as it was in recent years. Adjusted for price level difference, the per-capita income in America in 2003 was 36 percent higher than in France and 42 percent higher than in Germany.

But those numbers, according to critics like Sommer, are simple averages and, therefore, hide the fact that the U.S. is becoming a bipolar society with a few well-to-do and lots of low-income families—and no middle class in between. Now, one can certainly argue about how to define a middle class. But let’s say the middle class encompasses all households with annual money incomes between $35,000 and $100,000. Measured in 2002 dollars, the share of U.S. households who were in that bracket was 44.9 percent in 1982; by 2002 it had shrunk by 0.4 percent. In other words, yes, America’s middle class has gotten smaller—but only marginally so.

On the other side, there are some popular European stereotypes that have some truth to them. You might, for instance, agree with Der Spiegel, Germany’s most influential news magazine, in that “the prosperity in the U.S. … is for the most part debt-financed.” You might also view persistent poverty in the U.S. and the lack of health insurance for millions of Americans as grave economic problems. However, while those problems certainly exist, it is doubtful whether it is U.S.-style capitalism that is to be blamed for them. Or, to put it differently, those problems arguably aren’t predominantly caused by the fact that America’s “Cowboy Capitalism” leaves market forces less restrained than Euro-style “Comfy Capitalism.”

Take the debt problem. Yes, Americans can be considered highly indebted. But so are others. According to a study published by the Paris-based Organisation of Economic Cooperation and Development (OECD), the value of households’ financial wealth and residential property as a percentage of GDP is larger in the United States than in Germany. At the same time financial liabilities of households in America are smaller than in Germany, meaning that families’ net worth relative to economic output is larger in the U.S.

Still, in Europe’s public debate there’s not a single social or economic problem in America that is not squarely attributed to the country’s freewheeling capitalism. Indeed, in Germany, “amerikanische Verhältnisse” has become a political code word. Even Kajo Neukirchen, widely portrayed by the media as Germany’s toughest top executive, does “not want American conditions, with hiring and firing being the order of the day. Three jobs at the same time just to make a living—you don’t want that and neither do I.”

So you’d be wrong to think that a quarter-century of sluggish economic growth and catastrophically high underemployment made Germans (or French or Italians, for that matter) willing to view America’s brand of capitalism as a beacon. They instead view U.S.-style capitalism as a boogeyman, as do their political and business elites.

Not yet convinced? Well, note what Guido Westerwelle, chairman of Germany’s Free Democrats, says. Westerwelle, whose party is among the country’s most ardent defenders of economic liberty, assures his countrymen, “I am far from suggesting importing the so-called American conditions to Germany—precisely because I know them very well.” What Mr Westerwelle also knows is something you might not have known yourself: that to Americans, “freedom is the freedom to sleep under bridges.”

Olaf Gersemann is the Washington correspondent for the German business weekly, Wirtschaftswoche, and author of the Cato book Cowboy Capitalism: European Myths, American Reality (2004).