What is going on with Europe's GDP in general?
Comparing the IMF figures from 2008 to 2017 it seems France, Germany, and the United Kingdom have all had economic contraction while the U.S. grew 33%.
During the great recession, Europe decided to do austerity instead of Keynesian stimulus. Just like the textbooks say, this has led to weak growth and deflation.
It might be argued that EU countries can tolerate austerity-imposed economic slowdown because of the stronger safety net. The big question is, is lower GDP growth better for the biggest issue, global warming? On one hand it makes people more focused on short term self-interest, but on the other hand slowdown makes it easier to hit CO2 emission targets.
Home prices are reasonable in the US. The ratio of home price to household income is a little high, but much lower than 2007: https://2.bp.blogspot.com/-CxAYOEkHwSs/WbgZo0mKLBI/AAAAAAAAs...
(these numbers are inflated by growth in a few high-cost regions, where HN readers might perceive a bubble)
The US debt to GDP ratio has increased, but several European countries have experienced the same. Turns out a monetary policy which is tuned to be tight but tolerable for the German economy is a disaster in other parts of the continent. If you are going to increase your debt to GDP ratio, you might as well accomplish something and reduce human suffering. That is, increasing the denominator with stimulus, instead of decreasing it with austerity.
I don't think US policy is perfect - we could have used even more monetary stimulus, and the fiscal stimulus could have been delivered in a more organized and consistent fashion. The incoming corporate tax cuts when the economy is already hot make no sense. We are in a good position to reduce the debt load if policy makers just hold steady.
Many European countries also have shiny new property bubbles, unfortunately. I do wonder how far the US can push its debt; the new tax plan might be the last straw, if it happens.
To be fair, comparing property markets on both sides of the Atlantic, the property bubble seems to be something that Europe and the USA have in common. Perhaps excluding Greece.
Austerity in the UK is extreme and it doesn't seem to have helped much. It seems to be a convenient way for the Tories to auction off more of the public services because 'they are too expensive'...
Austerity is what the Greeks have had to put up with, we have had a mild belt tightening. We have unemployment lows whilst southern European countries have 40% youth unemployment.
Somehow they privatize things saying the market can offer
a better deal than a government funded institute, when this happens the government-employed people are fired and then only some of them get hired by the private company. Savings at a cost of worse service, because fuck the taxpayers.
Putting aside the fact that extreme austerity is a gross misrepresentation of the facts, what's the alternative? The UK is already living beyond its means, increasing the public debt every day. Do you suggest we increase the deficit still further? At some point investors would pull the plug.
> Europe decided to do austerity instead of Keynesian stimulus.
You are somehow assuming there was a choice to begin with.
There wasn't. If you don't have the cash, you don't get to spend it.
Do note that all EU nations that were subjected to a bailout agreement were forced to do so because they lost access to international money markets and were essentially cut off from receiving any loan. We're talking about half a dozen states that were borrowing themselves at levels close or beyond 100% GDP, and the international money markets raising available interest rates beyond 7% for 5y loans in response.
How do you get a loan when you're over 100% in debtand you're running a keynesian double-digit deficit?
You don't. You pick up your phone to call the IMF for help, and start to cut spending to avoid bankruptcy.
> If you don't have the cash, you don't get to spend it.
That's true for people, but it's not true for governments, especially the U.S. government. During the economic crises, the Fed created money out of thin air and gave it to large banks with the idea that they could lend it out and assist businesses. This was called quantative easing, which is the modern form of "printing money", but it's very much the same idea.
The risk of that is that doing so devalues the currency everyone else is holding and risks increasing inflation. However, that didn't happen during the economic crises.
> That's true for people, but it's not true for governments, especially the U.S. government.
Actually, it's specially true for governments, and some people insist on being completely oblivious to that fact. Contrary to what you might believe, money markets do cut off access to credit to a nation that's over indebted and showing off unbalanced books. If that wasn't the case then no eurozone member would have required emergency loans from the IMF and even the EU and EACH just to cover their immediate expenses.
In addition governmentment who control the nation's currency may resort to ramping up inflation to print out extra cash but that doesn't mean they are getting free cashier or aren't empoverishing the whole nation. These magic money-making policies inflict the exact same damage than austerity has with the exception that it restricts access to imports.
The US is a very particular case as money markets somehow treat US debt as a very special case, one whose massive overspending has no impact on lender's perception.
I'm not sure if it's particularly special, just particularly large. It's the largest economy in the world, and even in times of relatively high debt-to-GDP, it's still far better off than many of the Euro-zone countries that were brought to the brink. China, for example, has a far higher debt-to-GDP than the US.
That said, one particular reason why the US may more resilient to inflation is the fact that the dollar is the worldwide reserve currency of choice. This helps with inflation, but can hurt by artificially increasing the value of the dollar hurting exports. So overall, it might not be a great policy, but in a debt crunch, it gives the government more leeway to print money without risking inflation.
"Restricts access to imports" is a really interesting way to put it - weakening a currency of course lowers imports and raises exports. Which can go a long way to fix a depressed economy.
Of course bond investors knew the EU did not intend to pursue monetary policy that would allow distressed economies to adjust. US debt is not a magic special case. Take a look at Japan.
