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The EU's Economy
A Car Wreck in Slow Motion
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  • FriendlyGoat

    The article linked at “on Thursday” seems to suggest that Germany needs to invest in infrastructure and France needs to somehow create jobs by making it easier for companies to dump workers.

    • S.C. Schwarz

      In the EU generally, and in France in particular, it is nearly impossible to fire a worker once hired. It seems like such protections would be good for workers which, of course, is why the leftist governments in the EU enacted them. But beware the law of unintended consequences: Since workers can’t be fired companies just don’t hire in the first place.

      • FriendlyGoat

        This is not much different from the debate in America about high-end tax cuts. Business says give us tax cuts and MAYBE we’ll hire somebody. French people may want to think twice before they give away too much. Business is going to hire exactly the number they need, and not more—-no matter what people are tricked into believing.

        • Josephbleau

          European companies, particularly German and French will spend the greatest part of their capital budget on fantastic automation projects for labor reduction, Visit a warehouse with electric auto carts that drive around in the dark picking boxes to load on trucks. This is done to eliminate the need to hire regular people and is only profitable due to the high costs net of wages that the government adds on. The plant operator of the present and future in Europe will contract out maintenance to firms from other low wage EU nations that fly workers in each week. The plants are run by a few engineering grads in lab coats instead of the proletarian masses. People are responding to the incentives the Government established hence the Lost generation of average Jaques and Hanses.

          • FriendlyGoat

            And McDonald’s will automate if Americans raise the minimum wage anywhere. (McDonald’s will automate anyway.)

          • dawnsblood

            McDonalds follows generally accepted economic truths. They will automate only when it is cheaper to do so than to hire people to do those jobs. Are we there yet? I have no idea. . .

          • f1b0nacc1

            The last set of quotes I saw suggested that the tipping point for McDonald’s was about $12/hr. Since the lemmings on the left are pushing for $15/hr, that would put them comfortably past the tipping point.
            Much of my work (and my hobbies, embarrassingly enough) is in AI and robotics, so this will be fine for me. For those that (currently) work at McDonald’s on the other hand, not so much….

          • FriendlyGoat

            So let’s get ’em to $11.50 an hour and skip your AI.

          • f1b0nacc1

            And by next year, when the tipping point is $11.25? will you agree to tie the minimum wage to the tipping point?
            The problem here is that businesses will simply not hire workers if they have cheaper alternatives. Minimum wages, by putting a floor on labor prices, incentivize businesses to seek out alternatives to labor. This might not be a pleasant fact of life to acknowledge, but it is what it is and no amount of outrage or snark can alter it.
            When you have a large pool of unskilled labor, forcing businesses to pay MORE for it is not going to help the problem. Perhaps improving skills (including basic ones like showing up on time, work ethic, etc.) might help the situation along by making the labor more productive, and thus more attractive.

  • wigwag

    As Richard Nixon once said, “We are all Keynesians now;” apparently even Chancellor Merkel. The Europeans adopted the fiscal policies advocated by the vast majority of GOP leaders; those policies led to disaster. Obama advocated for as aggressive a Keynesian stimulus program as he could get away with politically. Obama’s policies were enacted by Congress despite virtually 100 percent of Republican House and Senate members in opposition. The U.S. economy is percolating along nicely.

    Yep, we are all Keynesians now; except of course for Neanderthals, troglodytes and their fellow travelers.

    • FriendlyGoat

      Yes, and there was that handy-dandy 4 trillion or so printed by the Fed to re-inflate the stock market for the upper crust WHILE the upper crust had a 6-year hissy fit about how much they hate “big government”.

    • Lorenzo from Oz

      Actually, fiscal policy has almost nothing to do with the malaise. It is a mixture of tight monetary policy and supply-side failures–particularly labour market regulations which shut lots of young Europeans out of labour markets.

      Fiscal policy has been much tighter in the US and the US economy has done much better. Because the monetary policy is different and labour markets not as dysfunctional.

  • Jacksonian_Libertarian

    This entire article represents a huge misunderstanding of how economies work. First, inflation which is just irritating as people need to continually adjust their understanding of wages and prices is a thousand times better than deflation which is destructive causing businesses and people to go bankrupt, unemployment to skyrocket, and homes to be foreclosed. Next, interest rates are at historical lows, but no one is borrowing this means the money supply isn’t expanding even though central banks are printing Trillions. The world is 6 years into Great Depression 2.0 and the fact that none of the Bankers are saying so is indicative of a deep denial of the truth. The problem isn’t that stronger currencies are needed, the problem is that currencies are too strong making the excessive debt that pushed the world into a deflationary depression impossible to payoff. A competent central bank would avoid the destructive deflation at all costs, and would recognize that you fight deflation with inflation. A competent central bank would also recognize that consumer inflation does NOT represent the actual inflation in the economy as a whole. A competent central bank would recognize that if they were printing Trillions and the M3 money supply still wasn’t expanding, and interest rates still weren’t growing, then they weren’t printing near enough to dig the economy out of Deflation.

    To review, inflation is irritating, deflation is destructive, and central banks must avoid deflation at all costs.

    The solution: The US Fed should pay off all foreign holders of US Treasuries about $6 Trillion, this would raise the price of US imports and lower the price of US exports boosting the American economy and making paying off the excessive debt easier. This would balance world trade, and end the foreign governments currency manipulations to give their exports to the US a price advantage. This would also increase foreign investment into the US as the costs of production in the US dropped while at the same time US energy costs are becoming the best in the world due to fracking.

  • Anthony

    So, are we inferring Paul Krugman may have been on to something: benefits of fiscal stimulus and horrors of austerity (as it relates to EU).

    • Angel Martin

      Krugman has pointed to the self-destructive structure of the euro, just as Prof Mead has in this article.

      The euro countries with the biggest competitiveness problems are the ones most heavily in debt. as long as they stay in the euro, In order to get competitive they have to devalue internally (i.e. wage and price deflation). More deficit spending increases their debt ratio, and likely delays their wage and price adjustment.

      but, wage and price deflation reduces nominal gdp and increases their debt ratio…

      if these countries exit the euro, they will have a massive devaluation and inflation, similar to Argentina when it left the currency peg at the end of 2001. even if they redenominate their debt, they are going to find it very difficult to roll over their debt as it comes due. if they use their central bank to finance their debt, their current will plunge even more

      the heavy debt / uncompetitive countries can’t win with the euro, or by leaving it.

      • Anthony

        Paul Krugman has pointed to a lot: liquidity trap, aggregated spending, secular stagnation, etc. And yes the Maastricht Treaty, quite aspirational in its origins, has been politically (to say at minimum problematic) elusive for euro countries.

  • CaliforniaStark

    The significant growth in the U.S. economy, as opposed to the current economy stagnation in Europe, was not the result of the adoption of Keynesian policies or government intervention. It was the result of the American energy boom. Between 2005-2012 employers in the United States shed 378,000 jobs. However, the energy sectors of the economy added 293,000 jobs, this has had a positive ripple effect (perhaps tsunami effect would be a more appropriate term) throughout the entire U.S. economy. Without the energy boom, the U.S. economy would likely be facing the same problems as Europe.

    • Corlyss

      Wow! Another area Obama knows nutting’ about.

  • Corlyss

    Mr. Abe, Mr. Draghi is on line 2 . . .

  • Lorenzo from Oz

    The ECB’s monetary austerity is the fundamental problem: it runs a monetary policy that suits Germany and suits other countries less the less like Germany they are. So, the plan seems to be to forced them all to be more like Germany. Which means lower money-wages to reflect lower productivity until their unit labour costs match Germany’s. Driving down income ramps up debt burdens. It really is a “Little Depression”, with central bankers driving down aggregate spending to preserve the “value” of money.

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