As we contemplate the euro mess, there's a strong tendency to think of it as having a lot to do with the fundamental inequalities in overall productivity and economic development between euro members -- backward, semideveloped countries like Greece or Portugal (not my view, but what you often hear) awkwardly tied to powerhouses like Germany.
So it comes as something of a shock to look at Eurostat data on real gross domestic product per capita (or productivity, which look similar). Sure, Greece and Portugal are relatively poor, with G.D.P. per capita of 82 and 77 percent, respectively, of the European Union average; this means roughly 76 and 71 percent of the euro zone average, since the euro countries are a bit richer than the E.U. as a whole. Meanwhile, Germany is at 120 percent of the E.U. average, or 112 percent of the euro zone average.
But it's no different, really, than the situation in the United States. According to data from the Bureau of Economic Analysis, Alabama is at 74 percent of the average, Mississippi at 67 percent, with New England and the Middle Atlantic States at 118 and 116 percent.
In other words, as far as underlying economic inequalities are concerned, the euro zone is no worse than the United States.
The difference, mainly, is that we in the United States think of ourselves as a nation, and blithely accept fiscal measures that routinely transfer large sums to the poorer states without even thinking of it as a regional issue -- in fact, the states that are effectively on the dole tend to vote Republican and imagine themselves deeply self-reliant.
The thing is, we didn't always think of ourselves as a nation, either. Before the Civil War, people talked about "these United States"; it was only after the war that "these" became "the."
So the key to the success of the dollar zone may be summed up in three words: William Tecumseh Sherman.
Meanwhile, in the Role Model
Early in the euro crisis, Jean-Claude Trichet, then president of the European Central Bank, knew what the Greeks had to do: "Greece has a role model and the role model is Ireland," he told the European Parliament in March 2010.
So how's it going? The International Monetary Fund recently released its sixth review under the Irish "extended arrangement" -- I.M.F.-speak for bailout -- and the fact that this is report number six tells you a lot right there. The funny/sad thing is that the Irish have been proclaimed a success story not once but twice -- last fall, a year and a half after Mr. Trichet's triumphalism, German Chancellor Angela Merkel declared Ireland an "outstanding example" and French President Nicolas Sarkozy declared the country "almost out of the crisis."
But once again the announcements were premature.
The most interesting and depressing thing about the latest I.M.F. report is the cold water it throws on claims about the success of "internal devaluation" -- the attempt to regain competitiveness with a fixed exchange rate. Last fall there was much trumpeting of a big fall in Irish unit labor costs due to rising productivity; this report more or less concedes that this was a statistical illusion, reflecting the fact that very capital-intensive industries, especially pharmaceuticals, had weathered the crisis better than labor-intensive sectors. Meanwhile, the real thing -- a slight wage decline in Ireland while wages rise in Germany -- has been proceeding at a relatively glacial pace. And the promised payoff in increased market share is still invisible.
Again, this is in a country that has done everything it was supposed to do.
Guess Who's Emerging From the Crisis?
"Iceland, of course. Kitchen-sinked and cleaned-up, the Icelandic central bank has just decided to push up rates by 25 basis points to combat signs of inflation amidst 'robust' domestic demand," according to a recent post in The Financial Times' Alphaville blog.
Look at the chart on this page, data from Statistics Iceland. Gross domestic product is still below previous peak, but I think one could argue -- much more so than in, say, the United States -- that a significant part of that peak involved a Ponzi financial sector that isn't coming back.
I think I was one of the first outsiders to notice that Iceland's heterodoxy was yielding a surprisingly not-so-terrible post-crisis outcome. And yes, the recovery is better than Estonia's, and much better than Latvia's.
STIMULUS, REPACKAGED
George Osborne, Britain's chancellor of the Exchequer, announced a new plan this month to help spur private investment following two years of weak growth and a recent slide back into recession.
Since taking power in 2010, Britain's Conservative-led coalition government has pursued austerity measures in an effort to reduce the country's budget deficit while firmly rejecting calls for fiscal stimulus. Now, in response to the country's first double-dip recession since 1975, Mr. Osborne has introduced a "Funding for Lending" program, which would subsidize loans to nonfinancial sectors of the economy in an attempt to boost private investment, especially in infrastructure and the construction of homes.
Despite official denials, the move has been widely seen as a policy reversal for Mr. Osborne and the Bank of England -- some economists have described the plan as a private sector-based stimulus. In place of government-funded deficit spending, the plan substitutes debt taken on by the private sector, incentivized by loans with below-market interest rates. However, with a lack of domestic demand in Britain and growing uncertainty plaguing the euro zone, many economists think stable businesses and households will be hesitant to take on new debt, even at extremely low interest rates.
Robert Peston, business editor at the BBC, spoke with several bankers who expressed doubts regarding the plan. "First, they say creditworthy businesses and households are reluctant to increase their debts in these uncertain times," Mr. Peston wrote in an online article for the BBC on June 15, a day after the plan was announced. "Second, many of the companies and individuals desperate to borrow are those in some financial difficulties, so the banks don't actually want to lend to them."
A New Policy in Britain, But Beware Crony Keynesianism
George Osborne, the chancellor of the Exchequer and the architect of Britain's austerity policies, has just done an about-face (without, of course, admitting it).
Jonathan Portes has the goods: In a recent blog post, the director of Britain's National Institute of Economic and Social Research pointed out that the assumptions under which the government's new policy of subsidizing private investment -- including infrastructure investment! -- through loan guarantees makes sense are exactly the same assumptions under which debt-financed government spending on, say, infrastructure makes sense.
"The government has now conceded the intellectual and economic argument," Mr. Portes wrote in his blog on June 15. "Let us hope that they proceed to deliver the meaningful policy change that we have been calling for, however it is labeled."
So why funnel the money to private corporations via loan guarantees rather than simply doing the obvious and restoring the huge cuts that have recently taken place in public investment?
One answer, of course, would be that doing that would be an implicit admission that David Cameron's government has just wasted two years doing exactly the wrong thing. It has, of course, and apparently realizes its mistake; but presumably the government hopes that privatizing the process will confuse enough people that it can escape blame.
But let's also note that funneling funds through the private sector offers an opportunity to lavish favors on friends. Now, to be fair, so does government contracting; but that's a familiar enterprise, with well-established rules and safeguards in place. This will be something new, which may make it possible to slip in some big giveaways that nobody notices.
It sounds to me as if Mr. Osborne has come up with a new wrinkle in policy that I hereby dub Crony Keynesianism -- putting in place policies whose logic calls for government spending, but take the form instead of incentives to favored private-sector interests.
From a macroeconomics point of view, even Crony Keynesianism is better than continued destructive austerity. But we should be aware how basically strange it is, and how subject to abuse.
A Mythical Anniversary
We're coming up on the second anniversary of my column, "Myths of Austerity," in which I tried to knock down the simply insane conventional wisdom then gelling among Very Serious People. Intellectually it was, I think I can say without false modesty, a huge win: I (and those of like mind) have been right about everything. But I had no success in deflecting the terrible wrong turn in policy. Moreover, as far as I can tell, none of the people responsible for that wrong turn has paid any price, not even in reputation; they're still regarded as Very Serious, treated with great deference. And the political tendency behind that terrible economic analysis has at least a 50 percent chance of triumphing in America. Oh, well.
Meanwhile, Ed Balls -- who I gather was nearly forced out of a leadership position by the Very Serious members of the Labour Party -- has been right all along, and now has a great term for the failed policy prescription: since it was advocated by Mr. Cameron, German Chancellor Angela Merkel and former French President Nicolas Sarkozy, he calls it "Camerkozy" economics.
Well done.
