America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground.
But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s.
Why has Europe done so badly? In the past few weeks, I’ve seen a number of speeches and articles suggesting that the problem lies in the inadequacy of our economic models — that we need to rethink macroeconomic theory, which has failed to offer useful policy guidance in the crisis. But is this really the story? I’ve been revisiting economic policy debates since 2008, and what stands out from around 2010 onward is the huge divergence in thinking that emerged between the United States and Europe. In America, the White House and the Federal Reserve mainly stayed faithful to standard Keynesian economics. The Obama administration wasted a lot of time and effort pursuing a so-called Grand Bargain on the budget, but it continued to believe in the textbook proposition that deficit spending is actually a good thing in a depressed economy. Meanwhile, the Fed ignored ominous warnings that it was “debasing the dollar,” sticking with the view that its low-interest-rate policies wouldn’t cause inflation as long as unemployment remained high.No, it isn’t. It’s true that few economists predicted the crisis. The clean little secret of economics since then, however, is that basic textbook models, reflecting an approach to recessions and recoveries that would have seemed familiar to students half a century ago, have performed very well. The trouble is that policy makers in Europe decided to reject those basic models in favor of alternative approaches that were innovative, exciting and completely wrong.
In Europe, by contrast, policy makers were ready and eager to throw textbook economics out the window in favor of new approaches. The European Commission, headquartered here in Brussels, eagerly seized upon supposed evidence for “expansionary austerity,” rejecting the conventional case for deficit spending in favor of the claim that slashing spending in a depressed economy actually creates jobs, because it boosts confidence. Meanwhile, the European Central Bank took inflation warnings to heart and raised interest rates in 2011 even though unemployment was still very high.
But while European policy makers may have imagined that they were showing a praiseworthy openness to new economic ideas, the economists they chose to listen to were those telling them what they wanted to hear. They sought justifications for the harsh policies they were determined, for political and ideological reasons, to impose on debtor nations; they lionized economists, like Harvard’s Alberto Alesina, Carmen Reinhart, and Kenneth Rogoff, who seemed to offer that justification. As it turned out, however, all that exciting new research was deeply flawed, one way or another.
And while new ideas were crashing and burning, that old-time economics was going from strength to strength. Some readers may recall that there was much scoffing at predictions from Keynesian economists, myself included, that interest rates would stay low despite huge budget deficits; that inflation would remain subdued despite huge bond purchases by the Fed; that sharp cuts in government spending, far from unleashing a confidence-driven boom in private spending, would cause private spending to fall further. But all these predictions came true.
The point is that it’s wrong to claim, as many do, that policy failed because economic theory didn’t provide the guidance policy makers needed. In reality, theory provided excellent guidance, if only policy makers had been willing to listen. Unfortunately, they weren’t.
And they still aren’t. If you want to feel really depressed about Europe’s future, read the Op-Ed article by Wolfgang Schäuble, the German finance minister, that was published Wednesday by The Times. It’s a flat-out rejection of everything we know about macroeconomics, of all the insights that European experience these past five years confirms. In Mr. Schäuble’s world, austerity leads to confidence, confidence creates growth, and, if it’s not working for your country, it’s because you’re not doing it right.
But back to the question of new ideas and their role in policy. It’s hard to argue against new ideas in general. In recent years, however, innovative economic ideas, far from helping to provide a solution, have been part of the problem. We would have been far better off if we had stuck to that old-time macroeconomics, which is looking better than ever.(Paul Krugman NYT)
19 comments:
Running a country is not an easy thing. There are thousands of important factors to deal with and creating a successful economy is one of them. Europe hasn't fully recovered from it's economic crisis the way USA did from the 2008 recession. USA hasn't fully recovered but they've still made up for most of the lost ground. Meanwhile in Europe, they are struggling to meet their expectations.
Economists blame the governments perspective of macroeconomics. They're vision is wrong and since they're struggling economically as a country, they're just not doing it right. Perhaps Europe should look at what USA did after the 2008 recession since they bounced back quite well.
The government desperately needs to have a good plan in order for them to do well.
This article discusses the differences in the economic policies between the US and Europe. Although America hasn’t achieved full economic recovery since the effects of the Great Recession in 2008 they have recovered more than what can be said for Europe. Europe’s real GDP is said to be 10 percent below where it should be by now due to their poor use of economic policies.
Additionally, this article discusses how the US continued to use the “textbook model”, or standard Keynesian model, of economic policy leading to their ongoing successful recovery. Such “textbook economics” included deficit spending, and predictions of continuous low interest rates and low inflation. Since the 2008 recession the US has prospered economically while Europe’s economy has plummeted consequently. Europe went for the more innovative economic policies that included cutting spending in a depressed economy in order to create jobs, or so they thought. Due to such poor economic recovery the euro is now almost at the same exchange rate as the US dollar as well.
In conclusion, I do not understand how after years of seeing the US recover through textbook economics Europe has not followed in their footsteps.
I think it is so important to stick to the basics. When economists created the basic theory of economics, they had principles in mind that we still study today. Any deviations from the original economic ideas are not going to bring a country out of any financial crisis. Although economic depressions are inevitable, economies will always prevail if they remember simple diagrams like supply and demand, and the things we take for granted in school. It is just as easy to overthink something as it is to just understand the simplicity of it all.
It always seems as if people like Wolfgang Schauble - and others - absolutely don't know what they are doing, but unfortunately they know perfectly well what they are doing, and why.Their goal is not (yet) to make the economy (as a whole) grow, but rather to break the backbone of our social security and to drastically lower the working conditions. Germany had already done that before the start of the crisis, and they have been very "successful" at that already, pushing 4 million people into poverty in a few years’ time, while also creating 50.000 new millionaires during the same period of time... This is class warfare on a giant scale, by using "shock doctrine" tactics.
The article discusses the economic policies of Europe and the U.S. Europe has not recovered as well as the united States have since the 2008 Crisis. Since then America has almost fully recovered but not 100%. Meanwhile Europe is still struggling with there economy.
The article talks about how the ideas and models that were used were wrong. While the “basic textbook models” showed how to get out of a recession and those models have preformed very well. So if they just stuck with basics maybe the recessions would have been so bad and maybe even gotten us out of a recession a lot quicker.
The article talks about the difference between our economic policies and Europe's economic policies. America has made up for a lot of the damage done by the recession, but of course not all. On the contrary, Europe has not recovered nearly as well. The basic policies that we learn out of the textbook have proved to be effective and true. Thankfully, America has clung to these policies which undoubtedly helped lift America out of the recession and recover quicker than they have in Europe. Europe has basically rejected these basic policies. Europe Central bank decided to raise interest rates despite the still-increasing-unemployment. Europe's ultimate downfall was the disregard of old economics and the eagerness to create new strong ideas.
This article states that Europe has not been able to recover as well as the US has from the recession. One reason may be the fact that they won't follow the basic economic policies. For example they raised interest rates when unemployment was still very high. By following the basic textbook model, America has been able to recover a lot from the 2008 recession. If Europe did the same they would be able to recover. Maybe Europe will learn from the U.S.
This article discusses the different economic recovery strategies by the US and Europe after the great recession. The European economy is struggling to recover post-recession, while the US economy has been recovering well. Europe is very behind in its recovery process; Europe's real GDP is 10% below where it should be.
The reason why the US recovered well from the recession and Europe did not is because, the US decided to use a "textbook model" economic policy. Europe tried to go against the current and use new and innovative economic policies which have not been effective. The US policy was focused on deficit spending, while Europe has cut spending. Europe should take notes on the US economic policy and bounce back from the recession.
This article examines the economic policies between the United States and Europe. Although the US has not fully recovered from the Great Recession, it has progressed along better than Europe. Europe is still, according to this article, “10 percent or more below where it was suppose to be by now”. The US, to try and get out of the Recession, followed standard Keynesian economics. This turned out to be a relatively good thing. However the policy makers in Europe decided to go a different route. Instead of deficit spending, they did not spend in hopes of creating confidence in the economy and jobs. It shows that their economy is not doing well, that they are around 10 percent below where they would be had they stuck to the standards.
This article shows how both the american and european economies have tried to recovery from recession in there economies. Both European and american economies have not been able to recover fully from the recession but he U.S. has don't much better of a job getting back to normal.
Each goverment took different approaches to fix the economy. The U.S. used more of a old fashion method to help the economy, when the european governments decided to go with a new age economic strategy which hasn't seem to be working nearly as well.
In theory the economy should be able to fix its self but with everything being so intertwind the government has no choice but to step in and fix the situation because in reality millions of peoples of jobs may be at risk if the problem is not fixed . The decision on how to fix the problem is up to the government dealing with it. But if i was a government offical i would go with what has been proven to work by economist in the par
The article stated that America has yet to fully recover from the 2008 financial crisis, yet although we have not made up all that we have lost, we have made up some of it. Although America has made up for some of their loses, Europe is not in the same condition. In Europe, the real GDP per capita is lower than it was in 2007 and 10 % lower than where it should have been now. This shows that the economy will not bounce back as quickly as people would like/hope for it to and it will take time to recover.
The article also stated that the policy makers in Europe decided to reject the ‘basic textbook models’ and instead used a different approach. These ‘basic textbook models’ that they rejected looked at the approaches to recessions and recoveries. While the policy makers rejected this model, their new ideas were crashing and burning.
"The point is that it’s wrong to claim, as many do, that policy failed because economic theory didn’t provide the guidance policy makers needed.” If the policy makers listened and followed this guide, they may have been in a better situation than they are now. They should have listened to the excellent guidance that these ‘basic textbook models’ really are.
I really appreciate the wittiness of this author. They essentially called out Europe for not following by simple stuff that was supposed to be taught to them in University, that they should know. When they clearly did not follow the book, things went poorly and leaders are scratching their heads why. The fact of the matter is that economies are complex, but there is somewhat of a formula in dealing with it and trying to improve it. When countries want to try new things, they should do small things or only one or two big things, not entire economic restructures like it seems like the European countries have been doing. It has been proven that Keynesian economics tends to work fairly well, so trying to stray away from this by making new things completely is dangerous and foolish of Europe.
The article examines some of the differences in economic policies between the U.S. and Europe. The article says that Europe has not recovered as well as the United States has since the 2008 Economic crisis. The article claims that Europe’s real GDP is 10 percent below what it should be due to poor economic policies. This article also shares that the U.S. used the Keynesian model of economic policy, which lead to recovering from the crisis. If Europe used the Keynesian model similar to the U.S. it is highly possible that they could have had a better recovery from the 2008 crisis.
This article is about the U.S and the E.U. economic recovery process. America stuck with a old fashion, textbook models that have been around since the 50's. Europe tried a newer approach that is not as successful as projected. The E.U.'s real GDP is 10% below where the Europeans want it to be. I believed the economists that made the newer policies have not used sound reasoning to justify these policies. The new economic model of Austerity seems to favor the top 1% of wealth.The German finance minister "flat out rejection of everything we know about economics". The only way to find out if this model is good one is to give it more time and monitor the outcome from it.
In this article, they discuss a very important topic. Bouncing back from a economic crisis is extremely hard and a good economic policy needs to be put into place in order for the country to do well. America has been trying recover from the 2008 recession and we are almost there because we have made up for lost ground. However, Europe, still has not been able to recover.
The article discusses the models and ideas that were used wrong. Also, they discuss the basic textbook models that are proven to get the economy back into shape. Europe should try and stick with the basics if they want to stop struggling with the economy. Once again, without a good economic plan the government will not be able to bounce back from their struggling.
This article covers the economic recovery of both the US and Europe. According to the article, the United States, although not fully recovered, is definitely on the path to and is doing very well. However, the same can’t be said about Europe. The U.S. has followed traditional, Keynesian, economics while Europe has decided to pursue new, exciting, and horribly wrong economic policy. Europe optimistically thought that cutting down on spending would create jobs, but unfortunately that was probably worse than not changing the amount of spending at all. Surprisingly, Europe has not re-adopted the older, standard base, of economics as the U.S. has consistently been following, and it shows. Today, the US Dollar to Euro exchange rate is floating around the $0.90-$0.94 range, it has not been here in over 10 years. What happens to the European economy will be known soon, whether it recovers or plummets, all depends on what they do next.
After the economic recession, it was suggested that U.S economy was done for. However U.S stuck to basic economic roots and adhered to Keynesian economics.The result is a slowly improving economy despite feeling the aftershocks of great recession. The same however cannot be said by E.U. E.U strongest economies are Germany and U.K both of which face big questions in the upcoming year. Unlike previous elections that are based on conservatism versus libertarian ethics, UK elections are all about economics this time. Serious issues such as appropriation of foreign aid, cutting down of military and providing raises to teachers and removal of zero hour contract. Some UK leaders go as far as suggesting that UK should withdraw from E.U as the state of Greece and Spain's increasing debts have negative affect on their overall economy. Germany on the other hand is receiving criticism for growing to fast as it incurred an overall 2% expansion. Euro's policy makers fear that this rate is destabalsing the overall euro zone stability.What europe need is restructuring of their debts and then provide unwavering support E.U to pursue firm economic policies.
This article discusses the economic recovery strategies by both the United States and Europe. Even though the US has not fully recovered, they are definitely on the right path to recover. However, for Europe they aren’t prospering as well as the US; the GDP is 10% below where it should originally be. The reason behind the U.S success in recovery is because they decided to use a “textbook model” type of economic policy while the Europeans tried to go against this model and tried a new and innovative economic policy, which hasn’t been effective at all. In this day and age the US dollar to Euro exchange rate is around $0.90-$0.94 range which hasn’t been in that range in over 10 years. The model that the United States have been using has been known to work efficiently, so Europe which is drifting away from this model by using a new one are endangering themselves and until they switch models they will not see any progression.
this article shows the recession recovery strategy by the united states and Europe. it seems as if Europe has tried to go against what normally would be done which is why they have not seen as much success that the united states has. i believe that Europe should stop what they are doing and look to adopt a systems more like the united states or they wont see much improvement.
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