IT IS a car crash of a data release. One simply can't look away. Hard to know precisely which part of the euro area's latest unemployment report is
the most grimly compelling. The overall rate, at 12.1%? In the spring
of 2010 unemployment rates in America and the euro zone were effectively
the same at about 10%. There is now a gap of 4.5 percentage points.
Total unemployment? In the first three years of the downturn America did
far worse than the euro area, adding some 7.5m workers to the
unemployment rolls to Europe's 4.7m. Since then total unemployment in
the euro area has risen by another 3.2m while America reduced the ranks
of the jobless by 3.5m. The euro area now has some 19.2m unemployed
Individual country numbers inspire their own brand of
horror. Greek joblessness topped
It is the
youth figures that are most remarkable, however: 59.1% of those under 25
are unemployed in Greece, 55.9% in Spain, 38.4% in Italy, 38.3% in
Portugal, 26.5% in France—3.6m youths in all.
There is blame to go around for this, but one has to reserve special criticism for the European Central Bank...
The ECB has presided over a wrenching disinflation
that has brought inflation well below target, and which is both a
consequence of recession and itself an implement of macroeconomic pain.
Europe's governments have behaved badly, but American fiscal policy has
hardly been better. The ECB faces a more complicated set of political
constraints, but it has already proven how adroitly, aggressively, and
inventively it can act when necessary.
The ECB meets this week. On
Thursday it may announce an interest-rate cut; if it doesn't it is
probable that a cut will be made in June. But a rate cut will not be
enough, not remotely. As things stand ECB policy is scarcely being
transmitted to the periphery, where rates to firms and households are
far higher than in Germany. The euro area needs a jolt to expectations,
targeted credit easing designed to improve peripheral liquidity, and
broad quantitative easing. Mario Draghi has surprised markets before.
Hopefully he will do so again. Because at the moment, the ECB is
behaving as though the main economic failure in the 1930s was the
world's pathetic inability to grit its teeth and endure the costs of
Wednesday, May 1, 2013
You’ve heard about all the problems with Reinhart and Rogoff. But how about the problems with Baker, Bloom and Davis?
On Sunday, Bill McNabb, Chairman and CEO of Vanguard, published an op-ed in the Wall Street Journal arguing that “since 2011 the rise in overall policy uncertainty has created a $261 billion cumulative drag on the economy (the equivalent of more than $800 per person in the country).” This is proof, McNabb says, that “developing a credible, long-term solution to the country’s staggering debt is the biggest collective challenge right now.”
Specifically, the policy uncertainty McNabb is looking at comes from “the debt-ceiling debacle in August 2011, the congressional supercommittee failure in November 2011, and the fiscal-cliff crisis at the end of 2012.” There’s no doubt that these episodes hurt the economy.
But the Vanguard study. McNabb says, is based on the “invaluable work” of Stanford University’s Nicholas Bloom and Scott Baker and the University of Chicago’s Steven Davis. The Bloom, Baker and Davis measure of policy uncertainty gets a lot of attention — but it’s shot through with holes.
Professor Krugman sees some light @ NYTs:
Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.
My sense, however, is that many people still don’t understand what this is all about. So this seems like a good time to offer a sort of refresher on the nature of our economic woes, and why this remains a very bad time for spending cuts.
Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.
Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.
And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.