"March 7, 2012, 9:36 am
Europe’s Two Depressions
Barry Eichengreen and Kevin O’Rourke have a followup on their hugely influential article on quantitative comparisons of the Great Depression and the Great Recession. This time they point out that the slump wasn’t nearly as bad this time, and recovery began much sooner — but that the pace of recovery has clearly slowed.
I was curious, however, about Europe. One of their key points in the original article was that we understate the similarity of the two slumps when we focus on America, which had a very deep decline in post-1929 but a smaller decline this time. Elsewhere, the contrast was less marked. And in their update, a good part of the recovery reflects growth in emerging markets, not advanced nations.
So how does Europe look? I’ve been corresponding with Barry and Kevin, and while we haven’t done the full comparison, they pointed me to some suggestive numbers. Feinstein, Temin, and Toniolo have data on interwar industrial production:
Meanwhile, Eurostat has this time around:
So we had a 28 percent decline in industrial production peak to trough in 1929+, versus around 18 this time. By year 5 of the original Depression, output had recovered to 86 percent of its previous peak; right now, production is 91 percent of previous peak, and falling as Europe slides back into recession.
So Europe is doing better this time, but not that much better — it’s sort of two-thirds of a Great Depression.
Clearly, the answer is more austerity."
I was curious, however, about Europe. One of their key points in the original article was that we understate the similarity of the two slumps when we focus on America, which had a very deep decline in post-1929 but a smaller decline this time. Elsewhere, the contrast was less marked. And in their update, a good part of the recovery reflects growth in emerging markets, not advanced nations.
So how does Europe look? I’ve been corresponding with Barry and Kevin, and while we haven’t done the full comparison, they pointed me to some suggestive numbers. Feinstein, Temin, and Toniolo have data on interwar industrial production:
So Europe is doing better this time, but not that much better — it’s sort of two-thirds of a Great Depression.
Clearly, the answer is more austerity."
http://krugman.blogs.nytimes.com/2012/03/07/finally-spain/
"March 7, 2012, 9:49 am
Finally, Spain
I’ve always viewed Spain, not Greece, as the quintessential euro crisis country. With Rajoy’s government balking — rightly — at further austerity, the focus is now where it arguably should have been all along.
And with Spain now front and center, the essential wrongness of the whole European policy focus becomes totally apparent. Spain did not get into this crisis by being fiscally irresponsible; here’s a little comparison:
And while we say now that the surplus before the crisis was swollen by the bubble, Martin Wolf points out that in real time the IMF judged that surplus structural.
The question is what to do now. Clearly, Spain needs to become more competitive; maybe the labor market reforms it’s trying will do the trick, though I tend to be skeptical; otherwise it’s about gradual relative deflation — or euro exit and devaluation.
What’s clear is that even more austerity does nothing to help; all it does it reinforce the downward spiral, and bring the possibility of real catastrophe nearer."
And with Spain now front and center, the essential wrongness of the whole European policy focus becomes totally apparent. Spain did not get into this crisis by being fiscally irresponsible; here’s a little comparison:
The question is what to do now. Clearly, Spain needs to become more competitive; maybe the labor market reforms it’s trying will do the trick, though I tend to be skeptical; otherwise it’s about gradual relative deflation — or euro exit and devaluation.
What’s clear is that even more austerity does nothing to help; all it does it reinforce the downward spiral, and bring the possibility of real catastrophe nearer."
The culture of poverty?
http://krugman.blogs.nytimes.com/2012/03/07/wws594e-economics-of-the-welfare-state-class-5/
"March 7, 2012, 11:05 am
WWS594E, Economics of the Welfare State: Class 5
http://hat4uk.wordpress.com/2012/03/07/exclusive-why-greece-cannot-be-allowed-to-survive-why-merkel-is-in-such-a-hurry-to-get-to-fiskalpakt/
"The Slog" thinks there is almost no hope.
The ECB has about 48 hours to solve the puzzle they have found themselves.
Game Over.
http://tpmdc.talkingpointsmemo.com/2012/03/dem-leadership-warns-house-gop-not-to-renege-on-budget-deal.php?ref=fpa
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