Why is our macroeconomy doing so much better than Europe’s?

December 1st, 2014 at 12:29 pm

Over at PostEverything.

Bonus for OTE’ers: here’s an update of a figure I made awhile ago tracking Eurozone GDP, government spending (both in real terms), and unemployment. What I find revealing here is the fairly clear–for this sort of thing–initial increase in public spending to offset the downturn and the subsequent stabilization of GDP and unemployment. Then, spending prematurely flattens and both real GDP and unemployment reverse course.

Obviously, many more moving parts here, some of which I discuss in this chapter for a volume edited by Tom Palley where this figure first appeared (see chapter 7). Also, in the US case, at this point you’d see declining gov’t spending and pretty sharply declining unemployment, but that’s partly a result of diminished automatic stabilizers as the recovery takes hold.

Finally, as I stress in the WaPo, growth is necessary, not sufficient. I yield to no one in my emphasis of that point in the context of the US recovery, which for many people still doesn’t feel like much of a recovery at all.

aust_ezone2

Source: Eurostat.

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5 comments in reply to "Why is our macroeconomy doing so much better than Europe’s?"

  1. Tyler says:

    I will not yield in my advocacy of a huge tax cut for the middle class. The party of tax cuts is about to take over both houses of Congress, so President Obama should be able to get them to pass a huge tax cut for struggling workers.


    • Peter K. says:

      Workers would rather have good jobs and wage increases than tax cuts. Conservatives and the one percent want to conflate everyone’s desires.

      I agree about the importance of government spending, but there is no mention of monetary policy or currency policy. The U.S. did QE while Europe’s periphery suffered from really tight money because of their currency union. Greece could have left Europe and pulled an Argentina as Dean Baker and others suggest.


  2. Larry Signor says:

    Could the answer be the maturity of our American sense of common purpose? Americans don’t blame Florida, California, Nevada or any other individual state for uncontrolled fiscal profligacy. We are the United States of America and will rise and fall as ONE entity, economically and culturally (in spite of our present fixation with immigration). Regional jealousy and finger pointing has essentially been eliminated from our national consciousness. [Our most common complaint is an ineffectual federal government and rising inequality, the latter of which is a huge threat to our Union]. This does not seem to be the case in Europe. Given enough time, Europe may evolve into a true Union, but such is not the case at present. We should probably not be surprised by their present economic difficulties.


  3. urban legend says:

    About not feeling like much of a recovery:

    While the official unemployment rate has recovered about 75% of the ground lost between the “high” point in the last quarter of 2006 (the lowest pre-Great Recession rate, 4.4%) and the “low” point in the last quarter of 2009 (9.9% ), and almost 70% even if late 2000 (3.9%) is used as the benchmark, the most recent U-6 (11.5%) has recovered only 62% from its 17.1% low-point compared to 2006 (8.1%) and 55% using 2000 (6.9%).

    An even worse story than the slow U-6 recovery is in the barely budging employment-to-population ratio. Only 20% of the loss by June and July 2011 (57.2%) from the highest point in 2006 – 2007 (63.3%) has been recovered (58.2%), and only 15% using the 64.6% quarterly high point for 2000. We can try to convince ourselves that the 2000 employment rate was bound to come down because of the end of the baby boom era, the completion more-or-less of the process of women moving into the labor market, and higher rates of retirement, but arguably there should have been an offset pushing those rates higher as a better educated young adult work force, especially in the South and among minorities, started replacing older and less educated adults with more traditional cultural values tending to keep women at home. To see this effect in operation, look at Minnesota and the Dakotas, where well-educated and low-poverty populace saw employment rates in 2000 pushing past 70%. What was holding the national rates down was mostly the Southern states, and it was there that high school graduation rates were improving the fastest.


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