Book Review: Alberto Alesina & Edward Glaeser’s Fighting Poverty in the US and Europe

In the U.S.: The Undeserving Poor

On my way to visit friends in the south of France several summers ago, I happened to find myself in the café car of a TGV speeding through the French countryside toward Lyon on my way to Marseilles on the Mediterranean. I ordered a coffee at the quichet and picked a stool along the counter under the window where I could watch the world go by.  We passed broad meadows that disappeared into the foothills of ancient mountains in the distance, tidy villages of terracotta roofs nestled around a church; a farm road followed the track branching off into a cornfield. I found myself wishing I could get off here, and disappear for a day, as I had done in summers long ago.

"Excuse me. Do you speak English?" Two American women standing near me were pouring over a guidebook and trying to read the signs as we sped through a station.  I admitted that I did. Did I know where we were?

"We’ll be in Lyon soon," I told them, "and then it’s another two hours to Marseille…."

"It’s all so beautiful," one of them sighed. "No aluminum siding; no rusted out tractors; no trailer parks. It doesn’t seem real. Where’s the poverty?"

Americans often react this way to the European countryside, farms and homesteads so beautifully tended. Handsome towns and tidy villages, with clear boundaries where the pastureland begins. Cities that are worth living in. And spoken or not, the question hangs in the air:

"Where’s the poverty?"

Answering this question was, in fact, one of the reasons I moved to Europe; looking out another European train window back in 1989, when I was still based in New York, I was thinking how wonderful it was to be back in this culture that I loved. As we rolled through prosperous towns and lush and carefully tended rural fields, I realized, just enjoying it wasn’t enough. I needed to know how it was done. How did you organize a society so that this is the result?

An important 2004 book by Harvard economists Alberto Alesina and Edward Glaeser sets out to find an answer. In Fighting Poverty in the US and Europe; A World of Difference, Alesina and Glaeser begin with the concept of "American exceptionalism" that has been a kind of short hand for the differences in approach that characterize the trans-Atlantic divide, and go in search of their sources. Is the divide grounded in economic realities, political institutions or national psyches? Is it fundamental or the result of changing political or economic forces?

It’s a question that puzzles a lot of people; after all the United States and Europe have so much in common: Both are home to democratic societies; they have common cultural and religious roots; both are wealthy. But in the United States, public policies that shift the wealth from rich to poor – that minimize the gap between the social extremes and make sure that ordinary people in the urban centers, on the carefully tended farms and in the tidy villages can live well – are much more limited than on the continent.

"Why did Europe develop such a different attitude toward redistribution than the United States?," the authors ask.  In seeking an answer, they tried not to take sides between the liberals and neo-conservatives, who had lined up on either side of the political bull pen when the book came out.

"We hope," they wrote, "the free marketers can read this book and understand how America avoided (what it perceive as) the creeping, intruding socialism of the European continent. We also hope that the social democrats can read this book and understand how Europe managed to avoid (what they perceive as) the shamefully unjust American system."

For a start, they deconstruct government programs, to see more clearly who is doing what. The differences are huge: In the US, government spending accounts for about 30% of GDP; in continental Europe, it’s about 45% and in Scandinavia it is over 50%, with 2/3 of the difference from spending on welfare.

The Europeans also tax at higher levels with tax schemes that are more progressive. A person born in modest circumstances is cared for far better in Europe than in America.

Often, the factors that should make a difference, do not. For example, the assumption that need or demand triggers adjustments, or in this case redistribution, does not turn out to be true. While the gap in the US continues to grow wider, there is actually less distribution, rather than more. Nor is it a question of taxes: Europe is more equal before taxes and redistribution, yet continues to redistribute more, achieving even greater equality while the US is becoming more unequal than ever.

Assumptions about social and economic mobility – "that the US is actually an egalitarian society because the poor will be rich tomorrow" – also turn out to be wrong. While 70% of Americans believe that the poor could escape poverty if they worked hard enough; only about 40% of Europeans believe that.  Yet in reality, mobility is no higher in the US than in Europe, and for the American poor, they are, if anything, significantly more trapped than the poor in Europe.

Which must mean that the European poor work harder; in America the poor must be trapped because they simply do not make the effort…. But again, the figures say otherwise: The American poor work just as hard or harder than those in Europe.

But what is true is that the vast majority of Americans – 60% – believe that the poor are poor because they are lazy, whereas an equal percentage of Europeans believe the poor are trapped for reasons beyond their control.  In Europe, 54% believe income is determined by luck; in the US the figure is 30%.

So there it is: answers as simple as they are profound. In countries where people believe poverty is the result of bad luck, are overwhelmingly (82%) in favor of redistributing the wealth. For those who believe poverty is curable with hard work, the figure drops by half – to 40%.

Back on the train those many years ago, I did not have these figures yet in my head or anywhere, and my answers were more instinct than science: a greater trust in government, a belief in the importance of social cohesion, of solidarity, perhaps because of the deep scars of war.

The contrast is particularly stark in light of the recent fiscal and sovereign-debt crises within the Eurozone, where Europe has taken painful corrective measures to prevent the financial collapse of its welfare state model. What has the US done to address its fundamental unbalances? The Health system reform, yes. But it is hard to imagine that this watered down program will be enough? Change apparently is much more difficult to effect in the young U.S. than in old Europe.

Even today, after the sub-prime melt down and financial crisis that followed, Americans on the whole still seem eager to defend their exceptionalism, their belief in radical individualism that leaves so many without support in hard times. It is still the Battle Cry of Freedom, a belief that says that when things go wrong, your best friends will politely leave you alone to rebuild your shattered life without a meddlesome government, or intrusive friend, getting in the way.

In Europe, it’s a world of difference.