Europe’s Secret Success

[one...two...tree 2,762]

by Paul Krugman, NYT

SINTRA, Portugal — I’ll be spending the next couple of days at a forum sponsored by the European Central Bank whose de facto topic — whatever it may say on the program — will be the destructive monetary muddle caused by the Continent’s premature adoption of a single currency. What makes the story even sadder is that Europe’s financial and macroeconomic woes have overshadowed its remarkable, unheralded longer-term success in an area in which it used to lag: job creation.

What? You haven’t heard about that? Well, that’s not too surprising. European economies, France in particular, get very bad press in America. Our political discourse is dominated by reverse Robin-Hoodism — the belief that economic success depends on being nice to the rich, who won’t create jobs if they are heavily taxed, and nasty to ordinary workers, who won’t accept jobs unless they have no alternative. And according to this ideology, Europe — with its high taxes and generous welfare states — does everything wrong. So Europe’s economic system must be collapsing, and a lot of reporting simply states the postulated collapse as a fact.

The reality, however, is very different. Yes, Southern Europe is experiencing an economic crisis thanks to that money muddle. But Northern European nations, France included, have done far better than most Americans realize. In particular, here’s a startling, little-known fact: French adults in their prime working years (25 to 54) are substantially more likely to have jobs than their U.S. counterparts.

It wasn’t always that way. Back in the 1990s Europe really did have big problems with job creation; the phenomenon even received a catchy name, “Eurosclerosis.” And it seemed obvious what the problem was: Europe’s social safety net had, as Representative Paul Ryan likes to warn, become a “hammock” that undermined initiative and encouraged dependency.

But then a funny thing happened: Europe started doing much better, while America started doing much worse. France’s prime-age employment rate overtook America’s early in the Bush administration; at this point the gap in employment rates is bigger than it was in the late 1990s, this time in France’s favor. Other European nations with big welfare states, like Sweden and the Netherlands, do even better.

Now, young French citizens are still a lot less likely to have jobs than their American counterparts — but a large part of that difference reflects the fact that France provides much more aid to students, so that they don’t have to work their way through school. Is that a bad thing? Also, the French take more vacations and retire earlier than we do, and you can argue that the incentives for early retirement in particular are too generous. But on the core issue of providing jobs for people who really should be working, at this point old Europe is beating us hands down despite social benefits and regulations that, according to free-market ideologues, should be hugely job-destroying.

Oh, and for those who believe that out-of-work Americans, coddled by government benefits, just aren’t trying to find jobs, we’ve just performed a cruel experiment using the worst victims of our job crisis as subjects. At the end of last year Congress refused to renew extended jobless benefits, cutting off millions of unemployed Americans. Did the long-term unemployed who were thereby placed in dire straits start finding jobs more rapidly than before? No — not at all. Somehow, it seems, the only thing we achieved by making the unemployed more desperate was deepening their desperation.

I’m sure that many people will simply refuse to believe what I’m saying about European strengths. After all, ever since the euro crisis broke out there has been a relentless campaign by American conservatives (and quite a few Europeans too) to portray it as a story of collapsing welfare states, brought low by misguided concerns about social justice. And they keep saying that even though some of the strongest economies in Europe, like Germany, have welfare states whose generosity exceeds the wildest dreams of U.S. liberals.

But macroeconomics, as I keep trying to tell people, isn’t a morality play, where virtue is always rewarded and vice always punished. On the contrary, severe financial crises and depressions can happen to economies that are fundamentally very strong, like the United States in 1929. The policy mistakes that created the euro crisis — mainly creating a unified currency without the kind of banking and fiscal union that a single currency demands — basically had nothing to do with the welfare state, one way or another.

The truth is that European-style welfare states have proved more resilient, more successful at job creation, than is allowed for in America’s prevailing economic philosophy.

http://www.nytimes.com/2014/05/26/opinion/krugman-europes-secret-success.html?_r=0

[IB6UB9 42]

Does this mean Europe will finally start paying into NATO? The US, Canada and the UK pay 3 times the amount of money into NATO than all of Europe combined.

[luckytxn 2,264]

Europe is way more expensive than the U.S. U.S. is way more expensive than China. Anyone seeing a pattern here?

[Sousuke 1,214]

Europe is way more expensive than the U.S. U.S. is way more expensive than China. Anyone seeing a pattern here?

The cheaper the country the shittier it is?

[OnMyWayID 1,489]

Looking between 2008 (where the world economy collapsed) and 2012 .. France, Germany, the UK, and every single EU country has averaged negative GDP growth even with unsustainable spending. While most of that is from the collapse in 2008 I look at Frances numbers and I'm not overly excited by the direction.. They have always had debt but the total load (in my opinion) is starting to finally hit a point that the good more borrowing does is outweighed by the drag the total debt is causing.. What well do they go to now to create jobs?

Edited May 27, 2014 by OnMyWayID

[Mr. Big Dog 10,747]

Looking between 2008 (where the world economy collapsed) and 2012 .. France, Germany, the UK, and every single EU country has averaged negative GDP growth even with unsustainable spending. While most of that is from the collapse in 2008 I look at Frances numbers and I'm not overly excited by the direction.. They have always had debt but the total load (in my opinion) is starting to finally hit a point that the good more borrowing does is outweighed by the drag the total debt is causing.. What well do they go to now to create jobs?

Not true. Germany most certainly did NOT have negative GDP growth between 2008 and 2012.

Germany has also not engaged in unsustainable spending during that time period. Believe the worst years were 2009 and 2010 where the deficit was at or near 4% of GDP. Germany has run sustainable deficits for the remainder of the time frame.

Compared to the UK (grey), the US (amber) and Japan (yellow), deficits measured on GDP were nowhere as low as they were in the EUR zone (blue), by the way.

[OnMyWayID 1,489]

Germany GDP 2008: 3.6 trillion

Germany GDP 2012: 3.4 trillion

They have less debt, they will recover just fine..

Edit: Sorry I have been bad about posting sources today: http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

Though to be honest I took the figures from here which in turn took them from the IMF: http://en.wikipedia.org/wiki/List_of_sovereign_states_in_Europe_by_GDP_(nominal)

Edited May 27, 2014 by OnMyWayID

[Mr. Big Dog 10,747]

Germany GDP 2008: 3.6 trillion

Germany GDP 2012: 3.4 trillion

They have less debt, they will recover just fine..

Where do you get those numbers from? Per the OECD, Germany's GDP in 2008 was $3.05 trillion and in 2012 it was $3.43 trillion (in current prices). In constant 2005 dollars, it was 2.78 trillion in 2008 and grew to 2.85 trillion in 2012. Any way you look at it, that's not negative growth.

[Mr. Big Dog 10,747]

Germany GDP 2008: 3.6 trillion

Germany GDP 2012: 3.4 trillion

They have less debt, they will recover just fine..

Edit: Sorry I have been bad about posting sources today: http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

Though to be honest I took the figures from here which in turn took them from the IMF: http://en.wikipedia.org/wiki/List_of_sovereign_states_in_Europe_by_GDP_(nominal)

I see. There's something rather odd with the USD valuation of the IMF data. Looking at the same data base in the national currency (EUR), the trend is quite different.

Germany GDP 2008: 2.474 trillion

Germany GDP 2012: 2.644 trillion

The USD current price data that you presented suggests a severe crash in the Germany economy from 2007 to 2008 (the GDP supposedly decreased from 3.6 trillion to 3.4 trillion year over year - a 5% decrease - to then jump from 3.4 trillion back to 3.6 trillion in 2013 - a 5% jump). Problem is, that there was neither a 5% contraction in 2012 nor was there 5% growth in 2013. The USD based data is really not saying much about the actual state of the German economy which contrary to the picture you painted has been expanding rather nicely over the past several years once it came out of the global recession. It certainly did NOT have negative growth from 2008 to 2012. That's just plain incorrect.

[lostinblue 1,989]

[Mr. Big Dog 10,747]

Walmart is installing automated cashiers despite paying ####### wages. I've seen automated cashiers in parking lots in Europe about a decade or so before they became more widespread on these shores. And it wasn't wage increases that triggered that development. The "automated cashiers" became cheaper over time. And that trend will continue. Europe is ahead - it has been for some time. If you want to know what will happen here in a decade or so, take a trip to Europe. That automation is inevitable. If you think for even one second that keeping the minimum wage at low levels - so low that full time employees qualify for government subsidies - will keep that kind of automation out of US McDonald's stores in the long run, I've got some awesome bridges to sell.

ETA: I've been to Chili's lately and had an automated server right on my table. How can that be if the argument is that high wages cause this kind of thing? The servers there make no more money now than they have years ago. In fact, they make less in real terms. And here comes the automated server still. Odd, ain't it?

Edited May 28, 2014 by Mr. Big Dog

[OnMyWayID 1,489]

I see. There's something rather odd with the USD valuation of the IMF data. Looking at the same data base in the national currency (EUR), the trend is quite different.

Germany GDP 2008: 2.474 trillion

Germany GDP 2012: 2.644 trillion

The USD current price data that you presented suggests a severe crash in the Germany economy from 2007 to 2008 (the GDP supposedly decreased from 3.6 trillion to 3.4 trillion year over year - a 5% decrease - to then jump from 3.4 trillion back to 3.6 trillion in 2013 - a 5% jump). Problem is, that there was neither a 5% contraction in 2012 nor was there 5% growth in 2013. The USD based data is really not saying much about the actual state of the German economy which contrary to the picture you painted has been expanding rather nicely over the past several years once it came out of the global recession. It certainly did NOT have negative growth from 2008 to 2012. That's just plain incorrect.

I have not had time to go look through the numbers (why I have not responded).. I would expect the crash after 2008 (our stock market went from over 14000 to 7500) as well as a steep rise (we are up to 16000 now) not to that extent obviously the markets exaggerate everything.