Cowboy Capitalism: European Myths, American Reality
by Olaf Gersemann
We have all heard the claim that, although the U.S. economy creates economic growth and jobs, Americans pay a huge price for their economic system in income inequality and other social problems. We hear, too, that average families can maintain their standard of living only because both parents work, that prosperity in the United States is largely debt-financed, and that the unemployment rate is so low only because so many people are behind bars.
Such views are not all at uncommon in Europe. And, thanks in part to commentators such as Paul Krugman and Michael Moore, they also seem credible to a growing number of Americans, who accept uncritically that poverty is on the rise and that the middle class is disappearing.
In Cowboy Capitalism: European Myths, American Reality, published this month by the Cato Institute, German reporter Olaf Gersemann revisits those common misperceptions of the American economy and demonstrates how misleading they are. Some, such as the examples noted above, are simply myths. The reality is quite different:
As of May 2001, only 1.5 percent of all working Americans held multiple jobs to stay afloat. (page 126)
Growth of wealth has outpaced debt, as the average American family increased its net worth by 50 percent between 1989 and 2001. (page 92)
In 1998 unemployment was only 0.1 to 0.2 percent lower than it would have been if the prison population had remained the same since 1985. (page 131)
Contrary to what one might expect, Gersemann concludes, the continental economies of Europe provide no meaningful advantage over that of the United States. The greater market freedoms in America create a more flexible, adaptable, and prosperous system than the declining welfare states of Europe.
Cowboy Capitalism is a devastating expose of the nonsensical myths that too many Europeans believe about Americans and the American economy. And it is the best current discussion of the American economy -- a solid rebuttal to the Cassandras and Krugmans who would have us believe that our economy is in dire straits.
In clear and accessible terms, Cowboy Capitalism separates the economic myths from the reality.
About the Author
Olaf Gersemann is the Washington correspondent for Wirtschaftswoche, Germany's largest economic and business weekly. Before joining Wirtschaftswoche in 1996, he studied economics at Cologne University and Trinity College, Dublin, and worked for the German financial daily Handelsblatt. In 2001 Gersemann was awarded the Ludwig Erhard Prize, the most prestigious German economic reporting prize for journalists under the age of 35.
Cowboy Capitalism: European Myths, American Reality
by Olaf Gersemann
Retail price: $22.95 cloth, 260 pages
Publication date: September 20, 2004
Since 1992 the Cato Institute's books have been distributed to the trade by the National Book Network ([url]www.nbnbooks.com[/url]).
Advance Praise for Cowboy Capitalism
"This is a comprehensive, indeed truly encyclopedic, comparison of economic conditions and policies in the United States with those in Germany, France, and Italy. Gersemann, a German journalist based in the United States, provides detailed evidence to support his devastating rejection of common European fallacies about the American economy. A real treasure trove of thoughtful analysis."
-- Milton Friedman, Nobel Laureate in Economics
"Citizens in all Western democracies want to provide more publicly financed welfare than they are willing, privately, to finance by taxes. The result is sluggish economies. In Old Europe the crisis is more acute than in the United States. This book documents the dramatic differences and stresses the proclivity of Europeans to denigrate the American experience rather than to acknowledge their own plight."
-- James M. Buchanan, Nobel Laureate in Economics
"Gersemann pulls no punches in debunking prevalent European myths about the American economy. But Cowboy Capitalism is not about trumpeting American superiority; it's about helping Western European countries achieve the robust growth and job creation their citizens deserve."
-- Henry M. Paulson, Jr., Chairman and CEO, Goldman Sachs Group
"This book offers an excellent comparison of U.S. capitalism with the `social' model of Germany, France, and Italy. It is also a penetrating study of anti-market propaganda. Olaf Gersemann shows that the features of the American model that are attacked most by European critics from both left and right are those which continental Europe actually needs in order to overcome the social problems of high unemployment and to make the European economy more dynamic and competitive. The book displays a rare combination of clarity, passion, and moderation. I highly recommend that this book be widely read on both sides of the Atlantic."
-- Leszek Balcerowicz, Former Finance Minister of Poland
"Gersemann combines the accuracy and incisiveness of a scholar with the verve and wit of the best kind of journalist. His readers will be fascinated from the beginning and enlightened by the end."
-- Steven Landsburg, author of The Armchair Economist
Myths vs. the Reality
Myth: Many people in the United States need two or three jobs to make ends meet.
Reality: As of May 2001, only 1.5 percent of all working Americans held multiple jobs to stay afloat. (page 126)
Myth: The American middle class is shrinking.
Reality: The share of households with annual incomes of more than $75,000, calculated in 2002 dollars, grew from 12.7 percent to 25.1 percent between 1972 and 2002. (page 118)
Myth: The poor in America are growing more numerous.
Reality: Between 1972 and 2002, the share of households with annual incomes of less than $35,000 declined from 44.9 percent to 40.6 percent. (page 118)
Myth: American wealth is debt financed.
Reality: Growth of wealth has outpaced debt, as the average American family increased its net worth by 50 percent between 1989 and 2001. (page 92)
Myth: Unemployment is low in the United States because so many people are behind bars.
Reality: The prison population makes only a minor contribution to the reduction in unemployment. In 1998, unemployment was only 0.1 to 0.2 percent lower than it would have been if the prison population had remained the same since 1985. (page 131)
Myth: In the United States the rich don't pay their fair share.
Reality: In 2001 almost 65 percent of U.S. federal income tax came from the 10 percent of households with the highest gross income. In Germany the top 10 percent contributed less than half the total intake. (page 151)
Myth: In the United States the poor are burdened by an unfair tax system.
Reality: In Germany 50 percent of households with lower-than-average incomes contribute almost 9 percent of German income tax revenues, whereas they contribute only 4 percent in the United States. (page 151)
Myth: European welfare provides better for the most needy than does the United States.
Reality: In the mid-1990s the poorest 30 percent received over 40 percent of welfare benefits in the United States. In Italy that figure was just 20 percent, and in France and Germany the numbers were just over 30 percent. (page 152)
Myth: The U.S. economy does not create enough jobs.
Reality: Between 1970 and 2003 the number of people employed in the United States rose by 58.9 million - a 75 percent increase. In France, Germany, and Italy combined, the figures were 17.6 million and 26 percent. Almost half the increase in Europe was due to the population bounce caused by German reunification. (page 21)
Myth: Government debt in the United States has rocketed ahead of European levels.
Reality:: True, in the United States government debt as a percentage of GDP (63.4 percent) is slightly higher than it was in the late 1980s, but it has increased by more than half in France and Germany (65.3 and 69.5 percent, respectively). (page 71)
Myth: The cost of day-to-day living has gone up.
Reality: An American who earned the average hourly wage of a production worker needed to work 8.7 minutes to be able to afford one pound of whole frozen turkey in 1980. In 2004 just 4.2 minutes sufficed. The prices of many other products that virtually every household buys to meet its basic needs (such as bread, sugar, coffee, electricity, and gasoline) have also lagged behind overall inflation. (page 88)
Myth: Living standards are higher in Europe than in the United States.
Reality: The United States has the highest living standard of any major industrialized nation. Adjusted for price-level differences, per capita income in the United States exceeded the French level by 36 percent in 2003. At 42 and 44 percent, respectively, Germany and Italy lagged even further behind. (pages 78 and 87)
Myth: Long-term unemployment is a chronic problem in the United States; European job creation schemes work better.
Reality: In the United States 65 percent of unemployed people found new work in less than three months in 2002. In France, Germany, and Italy, that figure is only 26 percent, 17 percent, and 12 percent, respectively. (page 178)
Myth: Europe is moving faster than the United States toward a knowledge-based economy.
Reality: In knowledge-intensive services (e.g., business services, health services), real output in the United States grew by no less than 195 percent between 1980 and 2003. In Germany and France the figures were only 118 and 103 percent, respectively. (page 54)