15-05-2025
Who should Australia copy? The choice between the EU and the US is stark
The Australian government is full of copycats, and that can be a wonderful thing.
Australia's typical approach when it comes to fixing problems is to sit back, see what the rest of the world does, and then pick the winning approach.
It's a great strategy, but leaves one question to be answered: who should we copy? Australia can (and should) pick and choose from whoever has good ideas. But, at a system-wide level, there's really only two options - the EU and the US - and the choice between them is stark.
Over the past 30 years or so, the US has adopted a more laissez-faire approach: preferring less regulation, less intervention and letting businesses and markets do their thing.
The EU has been heavier on regulation. It has preferred government decisions over market outcomes. It has preferred higher taxes with generous social services, whereas the US has preferred the opposite.
Which approach has been better?
The logical place to start is GDP per capita: a basic measure of income per person. After all, it's hard to argue your approach is better when your citizens are poorer.
By this measure, the US wins hands down. GDP per capita, measured at purchasing power parity, is almost twice as high in the US compared to the EU.
The US is the clear winner on this measure. But there are reasonable counterarguments to this.
The first is that the US had a head start. Wasn't the US already bigger when the EU was created in 1993?
This is true. US GDP per capita was already 65 per cent higher than that of the EU in 1993. But even if we start the clock at 1993, the US still outperforms the EU by about 20 per cent. The US had a head start, but it has grown it considerably.
The second counterargument is about distribution: that the US has higher inequality. A billionaire might prefer the US, but someone on a low or average income might prefer the EU, right?
Not necessarily. It's true that US has higher inequality than the EU. Measured by the "gini coefficient", inequality is about a third higher in the US. But, for most people, this difference is unlikely to be big enough to justify incomes being twice as high in the US.
The third counterargument is that people in the EU get more free social services from the government. Putting aside that these services aren't "free" since they are paid for through much higher taxes, these social services are unlikely to be enough to offset the GDP-per-capita story.
The US spends 19 per cent of its GDP on social expenditure. The EU spends more, but not that much more, at about 25 per cent of GDP.
People commonly believe that the EU redistributes more of its national income than the United States: a fancy way of saying that the EU takes more money off rich people and gives it to poor people than in the US.
MORE FROM ADAM TRIGGS:
Surprisingly (at least to me), this is not true. A recent study published in the journal Applied Economics found that the US actually redistributes a greater share of its national income than the EU.
In sum, the US approach has achieved better outcomes than the EU for its citizens. It's true that the US has higher inequality and provides fewer government services to its citizens, but these do not offset per capita GDP being twice as high in the US, let alone that the gap between the US and the EU is growing.
What's causing this? And what should Australia do?
A great many commentators in the Europe, most notably Mario Draghi - one of Europe's top economists, former head of the European Central Bank and, more recently, former prime minister of Italy - point to one cause: Europe is simply far too regulated; stifling innovation, stifling productivity.
"For the most part, we have done all we can to limit innovation in the EU," Draghi said in a scathing critique.
Countless leaders, ministers, central bank governors, economists and lawyers agree with him.
Europe has had some stinkers. Its General Data Protection Regulation was meant to boost data privacy. While there's no evidence it worked, there is ample evidence that it caused the new entry of apps fall by a half and saw data storage in Europe fall by more than 25 per cent.
We don't know who will win the AI race, but we know the EU will come dead last.
Early signs are that its Digital Markets Act - a suite of new regulations on digital platforms that outlaw conduct without having to prove any harm - is having the same effect. Google's DMA compliance has seen a 30 per cent fall in traffic and a 36 per cent fall in direct hotel bookings, for example, and this is only early days.
To be clear, none of this is to say the EU is bad or that regulations are bad. Quite the opposite. The EU is a wonderful idea. Having a free trade block with harmonised standards and regulations is the dream of economists. The UK was bonkers for leaving it.
The challenge is ensuring those regulations are the right ones and that they properly balance the regulatory goal (e.g. privacy) against the need to raise living standards.
Well, the jury is in, and the EU has failed to get the balance right.
So, the next time you hear a politician try to justify a new law or regulation in Australia based on it having been adopted in the EU, be suspicious.
The Australian government is full of copycats, and that can be a wonderful thing.
Australia's typical approach when it comes to fixing problems is to sit back, see what the rest of the world does, and then pick the winning approach.
It's a great strategy, but leaves one question to be answered: who should we copy? Australia can (and should) pick and choose from whoever has good ideas. But, at a system-wide level, there's really only two options - the EU and the US - and the choice between them is stark.
Over the past 30 years or so, the US has adopted a more laissez-faire approach: preferring less regulation, less intervention and letting businesses and markets do their thing.
The EU has been heavier on regulation. It has preferred government decisions over market outcomes. It has preferred higher taxes with generous social services, whereas the US has preferred the opposite.
Which approach has been better?
The logical place to start is GDP per capita: a basic measure of income per person. After all, it's hard to argue your approach is better when your citizens are poorer.
By this measure, the US wins hands down. GDP per capita, measured at purchasing power parity, is almost twice as high in the US compared to the EU.
The US is the clear winner on this measure. But there are reasonable counterarguments to this.
The first is that the US had a head start. Wasn't the US already bigger when the EU was created in 1993?
This is true. US GDP per capita was already 65 per cent higher than that of the EU in 1993. But even if we start the clock at 1993, the US still outperforms the EU by about 20 per cent. The US had a head start, but it has grown it considerably.
The second counterargument is about distribution: that the US has higher inequality. A billionaire might prefer the US, but someone on a low or average income might prefer the EU, right?
Not necessarily. It's true that US has higher inequality than the EU. Measured by the "gini coefficient", inequality is about a third higher in the US. But, for most people, this difference is unlikely to be big enough to justify incomes being twice as high in the US.
The third counterargument is that people in the EU get more free social services from the government. Putting aside that these services aren't "free" since they are paid for through much higher taxes, these social services are unlikely to be enough to offset the GDP-per-capita story.
The US spends 19 per cent of its GDP on social expenditure. The EU spends more, but not that much more, at about 25 per cent of GDP.
People commonly believe that the EU redistributes more of its national income than the United States: a fancy way of saying that the EU takes more money off rich people and gives it to poor people than in the US.
MORE FROM ADAM TRIGGS:
Surprisingly (at least to me), this is not true. A recent study published in the journal Applied Economics found that the US actually redistributes a greater share of its national income than the EU.
In sum, the US approach has achieved better outcomes than the EU for its citizens. It's true that the US has higher inequality and provides fewer government services to its citizens, but these do not offset per capita GDP being twice as high in the US, let alone that the gap between the US and the EU is growing.
What's causing this? And what should Australia do?
A great many commentators in the Europe, most notably Mario Draghi - one of Europe's top economists, former head of the European Central Bank and, more recently, former prime minister of Italy - point to one cause: Europe is simply far too regulated; stifling innovation, stifling productivity.
"For the most part, we have done all we can to limit innovation in the EU," Draghi said in a scathing critique.
Countless leaders, ministers, central bank governors, economists and lawyers agree with him.
Europe has had some stinkers. Its General Data Protection Regulation was meant to boost data privacy. While there's no evidence it worked, there is ample evidence that it caused the new entry of apps fall by a half and saw data storage in Europe fall by more than 25 per cent.
We don't know who will win the AI race, but we know the EU will come dead last.
Early signs are that its Digital Markets Act - a suite of new regulations on digital platforms that outlaw conduct without having to prove any harm - is having the same effect. Google's DMA compliance has seen a 30 per cent fall in traffic and a 36 per cent fall in direct hotel bookings, for example, and this is only early days.
To be clear, none of this is to say the EU is bad or that regulations are bad. Quite the opposite. The EU is a wonderful idea. Having a free trade block with harmonised standards and regulations is the dream of economists. The UK was bonkers for leaving it.
The challenge is ensuring those regulations are the right ones and that they properly balance the regulatory goal (e.g. privacy) against the need to raise living standards.
Well, the jury is in, and the EU has failed to get the balance right.
So, the next time you hear a politician try to justify a new law or regulation in Australia based on it having been adopted in the EU, be suspicious.
The Australian government is full of copycats, and that can be a wonderful thing.
Australia's typical approach when it comes to fixing problems is to sit back, see what the rest of the world does, and then pick the winning approach.
It's a great strategy, but leaves one question to be answered: who should we copy? Australia can (and should) pick and choose from whoever has good ideas. But, at a system-wide level, there's really only two options - the EU and the US - and the choice between them is stark.
Over the past 30 years or so, the US has adopted a more laissez-faire approach: preferring less regulation, less intervention and letting businesses and markets do their thing.
The EU has been heavier on regulation. It has preferred government decisions over market outcomes. It has preferred higher taxes with generous social services, whereas the US has preferred the opposite.
Which approach has been better?
The logical place to start is GDP per capita: a basic measure of income per person. After all, it's hard to argue your approach is better when your citizens are poorer.
By this measure, the US wins hands down. GDP per capita, measured at purchasing power parity, is almost twice as high in the US compared to the EU.
The US is the clear winner on this measure. But there are reasonable counterarguments to this.
The first is that the US had a head start. Wasn't the US already bigger when the EU was created in 1993?
This is true. US GDP per capita was already 65 per cent higher than that of the EU in 1993. But even if we start the clock at 1993, the US still outperforms the EU by about 20 per cent. The US had a head start, but it has grown it considerably.
The second counterargument is about distribution: that the US has higher inequality. A billionaire might prefer the US, but someone on a low or average income might prefer the EU, right?
Not necessarily. It's true that US has higher inequality than the EU. Measured by the "gini coefficient", inequality is about a third higher in the US. But, for most people, this difference is unlikely to be big enough to justify incomes being twice as high in the US.
The third counterargument is that people in the EU get more free social services from the government. Putting aside that these services aren't "free" since they are paid for through much higher taxes, these social services are unlikely to be enough to offset the GDP-per-capita story.
The US spends 19 per cent of its GDP on social expenditure. The EU spends more, but not that much more, at about 25 per cent of GDP.
People commonly believe that the EU redistributes more of its national income than the United States: a fancy way of saying that the EU takes more money off rich people and gives it to poor people than in the US.
MORE FROM ADAM TRIGGS:
Surprisingly (at least to me), this is not true. A recent study published in the journal Applied Economics found that the US actually redistributes a greater share of its national income than the EU.
In sum, the US approach has achieved better outcomes than the EU for its citizens. It's true that the US has higher inequality and provides fewer government services to its citizens, but these do not offset per capita GDP being twice as high in the US, let alone that the gap between the US and the EU is growing.
What's causing this? And what should Australia do?
A great many commentators in the Europe, most notably Mario Draghi - one of Europe's top economists, former head of the European Central Bank and, more recently, former prime minister of Italy - point to one cause: Europe is simply far too regulated; stifling innovation, stifling productivity.
"For the most part, we have done all we can to limit innovation in the EU," Draghi said in a scathing critique.
Countless leaders, ministers, central bank governors, economists and lawyers agree with him.
Europe has had some stinkers. Its General Data Protection Regulation was meant to boost data privacy. While there's no evidence it worked, there is ample evidence that it caused the new entry of apps fall by a half and saw data storage in Europe fall by more than 25 per cent.
We don't know who will win the AI race, but we know the EU will come dead last.
Early signs are that its Digital Markets Act - a suite of new regulations on digital platforms that outlaw conduct without having to prove any harm - is having the same effect. Google's DMA compliance has seen a 30 per cent fall in traffic and a 36 per cent fall in direct hotel bookings, for example, and this is only early days.
To be clear, none of this is to say the EU is bad or that regulations are bad. Quite the opposite. The EU is a wonderful idea. Having a free trade block with harmonised standards and regulations is the dream of economists. The UK was bonkers for leaving it.
The challenge is ensuring those regulations are the right ones and that they properly balance the regulatory goal (e.g. privacy) against the need to raise living standards.
Well, the jury is in, and the EU has failed to get the balance right.
So, the next time you hear a politician try to justify a new law or regulation in Australia based on it having been adopted in the EU, be suspicious.
The Australian government is full of copycats, and that can be a wonderful thing.
Australia's typical approach when it comes to fixing problems is to sit back, see what the rest of the world does, and then pick the winning approach.
It's a great strategy, but leaves one question to be answered: who should we copy? Australia can (and should) pick and choose from whoever has good ideas. But, at a system-wide level, there's really only two options - the EU and the US - and the choice between them is stark.
Over the past 30 years or so, the US has adopted a more laissez-faire approach: preferring less regulation, less intervention and letting businesses and markets do their thing.
The EU has been heavier on regulation. It has preferred government decisions over market outcomes. It has preferred higher taxes with generous social services, whereas the US has preferred the opposite.
Which approach has been better?
The logical place to start is GDP per capita: a basic measure of income per person. After all, it's hard to argue your approach is better when your citizens are poorer.
By this measure, the US wins hands down. GDP per capita, measured at purchasing power parity, is almost twice as high in the US compared to the EU.
The US is the clear winner on this measure. But there are reasonable counterarguments to this.
The first is that the US had a head start. Wasn't the US already bigger when the EU was created in 1993?
This is true. US GDP per capita was already 65 per cent higher than that of the EU in 1993. But even if we start the clock at 1993, the US still outperforms the EU by about 20 per cent. The US had a head start, but it has grown it considerably.
The second counterargument is about distribution: that the US has higher inequality. A billionaire might prefer the US, but someone on a low or average income might prefer the EU, right?
Not necessarily. It's true that US has higher inequality than the EU. Measured by the "gini coefficient", inequality is about a third higher in the US. But, for most people, this difference is unlikely to be big enough to justify incomes being twice as high in the US.
The third counterargument is that people in the EU get more free social services from the government. Putting aside that these services aren't "free" since they are paid for through much higher taxes, these social services are unlikely to be enough to offset the GDP-per-capita story.
The US spends 19 per cent of its GDP on social expenditure. The EU spends more, but not that much more, at about 25 per cent of GDP.
People commonly believe that the EU redistributes more of its national income than the United States: a fancy way of saying that the EU takes more money off rich people and gives it to poor people than in the US.
MORE FROM ADAM TRIGGS:
Surprisingly (at least to me), this is not true. A recent study published in the journal Applied Economics found that the US actually redistributes a greater share of its national income than the EU.
In sum, the US approach has achieved better outcomes than the EU for its citizens. It's true that the US has higher inequality and provides fewer government services to its citizens, but these do not offset per capita GDP being twice as high in the US, let alone that the gap between the US and the EU is growing.
What's causing this? And what should Australia do?
A great many commentators in the Europe, most notably Mario Draghi - one of Europe's top economists, former head of the European Central Bank and, more recently, former prime minister of Italy - point to one cause: Europe is simply far too regulated; stifling innovation, stifling productivity.
"For the most part, we have done all we can to limit innovation in the EU," Draghi said in a scathing critique.
Countless leaders, ministers, central bank governors, economists and lawyers agree with him.
Europe has had some stinkers. Its General Data Protection Regulation was meant to boost data privacy. While there's no evidence it worked, there is ample evidence that it caused the new entry of apps fall by a half and saw data storage in Europe fall by more than 25 per cent.
We don't know who will win the AI race, but we know the EU will come dead last.
Early signs are that its Digital Markets Act - a suite of new regulations on digital platforms that outlaw conduct without having to prove any harm - is having the same effect. Google's DMA compliance has seen a 30 per cent fall in traffic and a 36 per cent fall in direct hotel bookings, for example, and this is only early days.
To be clear, none of this is to say the EU is bad or that regulations are bad. Quite the opposite. The EU is a wonderful idea. Having a free trade block with harmonised standards and regulations is the dream of economists. The UK was bonkers for leaving it.
The challenge is ensuring those regulations are the right ones and that they properly balance the regulatory goal (e.g. privacy) against the need to raise living standards.
Well, the jury is in, and the EU has failed to get the balance right.
So, the next time you hear a politician try to justify a new law or regulation in Australia based on it having been adopted in the EU, be suspicious.
