Prosperity, Depression and Modern Capitalism

Prominent figures in our profession have quite recently offered clear cut views on the present distribution of prosperity and depression among the advanced industrial countries, see for example, Lucas (2003), Prescott (2002): prosperity is identified with the United States, depression with Western Europe, and they relate this to the lower burden of taxation in the United States. The gap in the chosen level of performance (output per capita) is very large, about 30%, and the remedy is clear: cut taxes in Europe. But Europe is different from America: for deep historical, cultural reasons, but partly because the pressures to consume are different. There can be no easy inference about relative prosperity: the market investment of modern capitalism can drive people towards longer hours of work and away from their underlying (meta) preferences.