Europe's Economy Rocks, Defies U.S. Slowdown
Surprising even the most optimistic forecasters, the German economy grew 1.535% in the first quarter of this year (about 6% on an annual basis), delivering its best performance in over a decade (see chart above, click to enlarge, data from OECD) despite the global financial crisis and recessionary fears enveloping the United States. The euro zone, where Germany accounts for a third of economic output among 15 members, grew 0.7% during the period (2.8% annually), the statistics agency Eurostat reported Thursday. The region's numbers, which represent quarter-on-quarter growth, also got a surprising lift from France, where the economy grew 0.6% (2.4% annually) in the first quarter.
The figures, which were about double what most economists expected, suggested that the European economy was demonstrating a resilience that seemed unlikely as recently as last autumn.
Read news reports here, here and here.
Note: First-quarter GDP estimates show that the U.S. economy grew 0.2% (compared to the .60% growth on an annual basis reported in the U.S.) when the official figure is translated into a measure comparable with the estimates published in Europe. In the U.S., quarterly growth rates for GDP are annualized, while in Europe they are reported as quarterly rates without adjusting on an annual basis (see adjustments above in parentheses).
7 Comments:
Got any more CREDIBLE sources for that alledged economic growth in Euro-Union land?
I mean when you have three leftist, socialist rags singing the same basic tune, I smell a rat...
I'm sure there is growth, decent growth in Euro-Union land but what it is seems open to question...
I note that the Euopean Union unemployment rates have been higher than the US but none of the three cited publications mention it...
Doesn't unemployment affect overall growth also?
I also note that the articles cited don't mention how most of the Euro-Union corporate tax rates are lower than US corporate tax rates...
Doesn't this difference in tax rates impact the economy?
Also doesn't US Federal and State Government Regulatory Compliance Costs impact domestic economic growth?
Does anyone know if its higher or lower in Euro-Union land?
Got any more CREDIBLE sources for that alledged economic growth in Euro-Union land?
Yes. I guess the Eurostatisticians would be pleased that you consider them to smell like rats. :-)
I note that the Euopean Union unemployment rates have been higher than the US
It is probably just measurement differences. For instance, substantially higher incarceration rates in the US would tend to skew the unemployment rate down in the US compared to the EU. By some estimates the incarceration effect reduces the US unemployment rate by 1.5%.
In any event, the recent trend is US unemployment rising, EU unemployment declining.
Thus far, the EU has decoupled from the US.
1. This is good news, Mark! --- especially for those of us who think that globalizing tends, on balance, are a good thing. Once known as interdependence, the globalizing economy is now a big aid to the US economy . . l thanks to the declining value of the US$, not least against the euro.
The more Germany and the rest of the EU --- which is not, save in Scandinavia, growing as fast as Germany itself --- up their GDP growth rate, the more the US economy will be able to export to that wealthy region . . . at any rate in the EU-15 in the western sectors.
2) Unemployment: No, higher German and EU unemployment isn't a statistical aberration, much as West Europeans might hope it would. The much higher unemployment levels are reflected in another economic trend: the creation of private-sector jobs since the mid-1970s. The rate has been 3-4 times higher here than in West Europe.
It is also brought out in the percentage of the adult work force --- 18 (sometimes 16) to 65. It has traditionally been much higher in the US than in the EU, at one time as much as by 10% in the early 1900s, though the gap has been roughly halved since then.
Why? In Germany and in France, perhaps elsewhere, governments --- running out of tax money --- have done two things; 1) force the jobless to take a minimal wage level job within a year or lose all unemployment and welfare benefits: most of the time, the jobs are in the public sector. 2) raise the age of full retirement, and much closer to the US level.
And in Denmark, the government has eased the traditional restrictions on hire-and-fire . . . backed by various kinds of retraining programs that lead to placement in a new job, even if at a much lower income.
3) What the two previous posters do show is a clash of ideological belief-systems. True-believers, in juandos case a libertarian, in anonymous a true-believer in big-government a la EU, never like to have their core beliefs challenged by facts, and so --- in ways social psychologists have understood for decades (tendencies toward cognitive consistency) --- they reject evidence that doesn't fit with their ideological core. They reject it as dubious (statistical anomaly) or as inadequately placed in the "right context" (other things must be at work).
Yes, libertarians are as guilty of this as big-government worshippers in the the EU sense.
4) What the US economy does show is that in late 2007 and into 2008 --- as earlier in 2001-2002 --- it is remarkably efficient and flexible . . .able to absorb multiple blows, endogenous and exogenous, and still continue to chug along.
Are we a perfect economy? Ha, who believes that? But the dynamism, resilience, flexibly, and creativity of the American labor force is something wondrous to behold.
5) Will American pessimism decline noticeably once more, as it did after Reagan came to office in 1981 and Clinton in 1993 and the recovery in the early Bush period (2003-2005)?
Most likely, but only because the most inept and remote administrations since the Jimmy Carter --- led by a president who speaks in public like a nervous junior executive speaking to the corporate board for the first time --- has been removed. Hard to believe that any of the three candidates now running --- my preference is for McCain --- can't and won't do a better job, irrespective of the specific policies they pursue.
6) Oh, almost forgot. Surveys of crime victims --- violent and non-violent --- carried out by the UN every four years after 1989 show that, of 22 industrial countries (last survey, published: 2001) of crime victims using public opinion specialists, the US ranks toward the very bottom 25% in violent crime: homicide, attempted homicide, armed robbery, assault, rape, and suicide.
The worst countries are Australia first, then Britain, then EU continental countries, with Germany and France and Italy in the middle of the pack, with the US around 16th or 17th . . . with Catalonia (why not the whole of Spain?) and Japan toward the very bottom.
Americans also were found to have the most confidence in going out in public spaces and the most confidence in our police force. You are 5 times more likely to be mugged in the streets of London than in New York, and Rotterdam and certain Swedish cities are worse. Most big French, Italian, and German cities are frightening too.
The upshot? If they want to reduce the violent crime rate and make their streets and public places safer, the EU countries can continue to pursue politically correct social-service spending and whatever else fits that model. Good studies in the US for two decades show there is only one sure way in the short- and mid-term to reduce violent crime: put violent offenders behind prison walls. And yes, contrary to what has even been claimed in this blog, two surveys carried out independently found that on an average, inmates in prisons in Michigan and New York owned up to committing 11 crimes for which they hadn't been convicted.
The long-term solution?
You tell me. There is some good research that indicates, though, that criminals --- white-collar and violent --- share a particular kind of personality structure: they are high risk-taking and are unable or reluctant to consider the long-term consequences of their short-term actions. They tend to smoke more than the rest of the population, abuse alcohol and drugs more, drive faster, get angrier easier, and have big impulse controls.
Together with easy targets for their criminal tendencies --- defined as the use of force or fraud --- they are difficult to restrain, though deterrence (contrary to what used to be thought) does seem to make some difference.
The rest is all ideological cant.
Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
Well, whip my buggy, professor. The clash of ideological titans is a figment of your unfertile imagination.
For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the USA and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the U.S. and 86.7% in France.
I think that should get off your 19th century ideological buggy, purchase a hybrid autombile and join the 21st century.
Thank you anon @ 5:04 PM for those links...
There is something ironically funny about a supposed success story that has a Euro area unemployment stable at 7.1% - EU27 stable at 6.7%...
"It is probably just measurement differences. For instance, substantially higher incarceration rates in the US would tend to skew the unemployment rate down in the US compared to the EU"...
I'm thinking that this shows just how incapable Euro-Union land is when it comes to enforcing the law...
The Euros should have filled their prisons and more back in 2005...
Remember this? Denmark Moslem youth riots ignored while Paris is burning
What did this sort of behavior do when it comes to economic output I wonder?
Dear buggy professor you claim the following: "What the two previous posters do show is a clash of ideological belief-systems. True-believers, in juandos case a libertarian, in anonymous a true-believer in big-government a la EU, never like to have their core beliefs challenged by facts, and so --- in ways social psychologists have understood for decades (tendencies toward cognitive consistency) --- they reject evidence that doesn't fit with their ideological core. They reject it as dubious (statistical anomaly) or as inadequately placed in the "right context" (other things must be at work).'...
First point, Is Psychology a Science?
Second point, you say: "True-believers, in juandos case a libertarian"...
Hmmm, I've always considered myself a Constitutional conservative and don't believe that the libertarian stance as I see it expressed in the US today quite covers it...
Do you believe in the Constitution buggy professor or do you have that "living Constitution" thingie working in the background of your philosophy?
BTW you aren't this buggy professor, are you?
I did find this comment by you buggy professor rather amusing: "They tend to smoke more than the rest of the population"...
Dang! I just might be on the edge of criminality...:-)
None the less I find your comments always stimulating buggy professor and I thank both you and anon for your collective enlightenment...
Anonymous and juandos:
Thank you for your replies.
1) Anonymous:
The figures you gave for the labor participation ratios were so absurdly hard to believe that I quickly went to Eurostat statistics --- the bureau that works for the EU Commission. They found an entirely different picture:
2) First the source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=em011
The table defines the labor participation ratio across EU and other countries as the percentage of the total population that is employed between the ages 16 and 64 employed. What they find is this:
3) Year 2006:
EU-15 (West Europe)....64.8%
Euro-area 12...........64.8%
USA....................71.9%
Germany................67.5%
France.................63.8%
3) Your figures were for prime working age participants --- 25-54 --- as a percentage of the total population in that age group. Hence they ignore major youth unemployment --- a big problem everywhere in the EU (and it has traditionally been for two decades or more increasingly long-term in nature --- and, at the other end of the age spectrum, over-permissive retirements between 54 and 65.
The latter early retirement --- has come under attack both by the EU Commission and individual state-member governments for years now, and some good progress is being made --- though in France (the country you cite) any reforms are immediately contested by left-wing parties, trade unions, professional federations, and large repetitive state-demonstrations.
4) Even so, the EU countries in the industrialized western region have done a better job on the Continent of improving the flexibly and hence labor participation ratios of their populations by a variety of market-oriented reforms . . . all to their benefit, with laudable consequences.
One of the best recent studies of this is by Robert Gordon (an outstanding macro-economist at Northwestern) and Ian Dew-Becker (probably a British economist):
"Europe’s employment growth revived after 1995 while productivity growth slowed: Is it a coincidence?" April 15, 2008
Click here: http://www.voxeu.org/index.php?q=node/1058
Their findings, though, might not make you happy. They note that the improved labor-force participation ratio (and reduced EU unemployment) has come at the expense of productivity growth. It's as though, the note, the EU countries have not experienced yet the "Internet Revolution" that drove up the US rate of productivity markedly starting in the early- and mid-1990s and that has continued ever since:
".... The third and most novel – and also most controversial – finding is that there may have been a substantial trade-off between labour productivity and employment growth over the past two decades. Before 1995, European policy made labour more expensive through higher taxes, tighter regulations, and strong unions. This reduced labour demand, lowering employment but raising the real wage and the average product of labour. Slow employment growth and relatively high productivity growth were negatively correlated. After 1995, this process was reversed, with lower taxes and looser regulations reducing the cost of labour, which helps explain the simultaneous increase of growth in employment per capita and slower growth in labour productivity."
"We find that the revival of European employment growth can help explain why European productivity slowed. But we do not explain why European productivity growth did not accelerate as occurred in the US. US productivity took off after 1995, growing at 0.7 percent faster per year, but in Europe a literal reading of the productivity growth data leads to doubt that the internet revolution ever occurred in Europe. Some of Europe’s poor recent performance can be explained by reforms that will enhance growth in the long run, but not all of it. Our findings should lead EU policymakers to think about the two-edged effects of policy reforms on employment and productivity, but they should also worry about how to encourage innovation and the adoption of new technologies.1"
...............
Anonymous:
Thank you for your nice words.
1) Yes, psychology is even more strict about validated data-based or laboratory-based and replicated findings than economics.
2) To put it bluntly, social psychology --- which has given us "frame theory" (two specialists won the Nobel Prize for Economics in 2006 for this theory that challenges rational-behavioral assumptions that microeconomists take for granted, and a third and earlier Nobel prize for economics back in the 1970s --- is more reliable than economics precisely because it uses laboratory experiments to test its theories.
3) Statistical tests, however elaborate, cannot control for al variables relevant to its data-based models. There may be omitted variables (very important); dummy variables are crude (and increasingly suspect in the discipline of statistics); qualitative variables (especially if they are dependent or outcome variables and result in logistic regression) lead to lots of bad or just plain junk statistical work; logistic regression involves far more interaction among variables than even standard quantitative-outcome regressions; and the data-base is frequently far less reliable than the statistical tests themselves at the 5.0% or better level of validity. E.g., what is the inflation-rate really in the USA? The Boskin commission in the mid-90s found it was overestimated between roughly 0.9 - 2.0% annually, and the Bureau of Economic Analysis in the US opted (I believe) for a variety of changes --- linked years, hedonistic adjustments (qualitative improvements etc), substitution effects, and the like --- that reduced the inflation rate by around 1.2% or so (I add: I am invoking memory here and could be a little off).
4) Social psychologists, by contrast, using small groups of individuals whose variables can be better controlled --- better, never perfectly --- have been able to pin down a variety of psychological effects like frame-theory and tendencies toward cognitive-consistency and groupthink that challenge most economic assumptions about the underlying behavior.
Behavioral economics is an effort at least to adopt various social-science techniques --- including the use of opinion surveys and plumbing data-bases with different assumptions and observer-participation methods --- that seek to close the gap between economic assumptions about rational behavior and what social psychologists have found for decades now.
5) Note that I said social psychological uses of laboratory experiments are better able to control a small number of variables and manipulate them than statistical tests can. The operative term here is "better", not perfect.
That's because no matter how many times these laboratory experiments can be validated by changing the experimenters and the volunteers for the experiments, you can never be sure that prior experiences might not be distorting the outcomes.
2)The references to "smoking" etc in my original post aren't about libertarians, rather about the personality structures of criminals compared to the rest of the population: they are much more risk-taking, they have trouble calculating the long-term consequences of their actions, they are prone to abuse alcohol, drugs, and cigarette smoking, they are also almost always repetitive offenders.
That is true of both violent and non-violent criminals (fraud of various kinds). For violent crime, the findings are further validated in these ways:
1) young people as opposed to older --- in fact, keep a violent offender in prison long enough and generally, by the age 40 or so, they are far less violent.
2) men far more so than women
3) residents who are of African ancestry (US) or African and Arab (EU) and Hispanics (US).
3) Why did I refer to criminals and these characteristics in general?
The claim by anonymous that somehow the US is being aggressively zealous in imprisoning people --- a claim, by the way, that Mark seemed to endorse a week or so ago about drug-offenders --- and not just zealous but benefitting from the incarceration rate in unseemly ways. Namely, capitalism of the US sort doesn't actually have better labor markets --- more flexible, lower unemployment (shor-term and long-term) and better job creation --- but can't do better without presumably keeping a couple of million criminals off the streets.
4) Actually we do benefit, but not for the reasons anonymous says: we benefit because our city streets are far safer on an average than in the EU. That is why UN crime-victim studies find that Americans are the least worried of industrialized peoples in going out into public places and simultaneously show the most confidence in our police forces.
The EU approach to criminality --- both violent and non-violent --- is so suffused by politically correct thinking and nostrums that it will no doubt take another decade or two before they arrive at the same conclusions we have: if you want to reduce crime noticeably and keep the streets safe, you have to put bad and threatening people behind bars.
Otherwise, the only other possible solution --- which is very hard to introduce in a country like the US (though a paternalist state like Denmark does this now) --- is to judge that single-parent mother-headed families, where the mother is poorly educated and young, are likely to produce boys who grow up hating female authority, are resentful of women generally, are more violent in their behavior, and are likely to be serious offenders as they reach adolescence and young adult status.
---
Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
Again the buggy professor lays down some words to seriously chew over in one's mind...
Thanks for the info in your last comment buggy professor...
Good stuff!
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