
Another way of thinking about the European economic collapse - jseliger
http://marginalrevolution.com/marginalrevolution/2013/04/another-way-of-thinking-about-the-european-economic-collapse.html
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onemorepassword
There is no "European economic collapse". Out of all the ways of generalizing
about Europe, this is one of the silliest.

It's not exactly boom time, but most Western European economies are far from
collapsing, and should the worst case happen and the euro fall apart, it is
still far from certain that it will drag the stronger economies down with it.

In the mean time most people in Western Europe suffer far less from the
economic crisis than most Americans and there's actual growth in Eastern
Europe. Greece is an outlier, there may be more artificially propped up
economies to follow and it may have wider repercussions because of the euro,
but until then the great "European economic collapse" is a fiction.

For most of Western Europe, life is still good, money a little tighter and
they may have to skip that yearly 2 week vacation in the Turkish sun. And this
is ordinary working class we're talking about, not the elite. Collapse my ass.

~~~
joshuahedlund
Defining how far or close economies are from "collapsing" will boil down to
subjective semantics, but there is at least one metric by which things still
seem to be trending worse in the EU; US unemployment is off record highs and
job growth is continuing, albeit slowly, while the eurozone is still
continuing to reach record unemployment rates[1]

[1][http://www.nytimes.com/2013/04/03/business/global/unemployme...](http://www.nytimes.com/2013/04/03/business/global/unemployment-
in-euro-zone-reaches-a-record-high-of-12-percent.html?pagewanted=all&_r=0)

~~~
mtrimpe
Keep in mind though that since Europe has virtually no hiring-at-will the
unemployment rate is actually a lagging indicator.

~~~
podperson
Employment tends to be a lagging indicator even in the US.

------
lkrubner
The article falls apart with all of the unspoken assumptions in this sentence:

"If the relatively flexible U.S. lost 8% of median income, perhaps Italy and
Spain and Greece have to lose 15%"

Why did the USA lose 8%? Did God say that the USA must lose 8%? Could
different policies have lead to a different outcome? Perhaps with different
policies, the USA would have lost 20%, or only 2%.

There are some interesting thought experiments you can do with economics where
you start with the premise "All other things being equal, let us compare these
2 variables..." but that kind of thought experiment does not work in this
situation, because if the first condition is highly variable and subject to
circumstance, then there is no basis on which to make a comparison. It's like
saying "Given a lamp, compare an octopus". There is no relevant point from
which you can make a comparison.

There is the old joke that 2 economists, left alone starving on a desert
island, but with many canned goods, could survive fairly well. The one
economist simply says to the other "Assume a can opener."

What if, in real life, different fiscal or monetary policy would have
cushioned the lost of income in the USA? Then we can assume the same might
have been true in other nations.

The point is, there is no reason to assume that inflexibility is the main
variable, unless you artificially constrain the scenario by first saying
"Assume all losses were pre-destined." But in real life, they were not pre-
destined.

Real life is not so easy on assumptions.

~~~
msluyter
I believe that 8% is not merely an assumption, but comes from the paper he
references here:

[http://marginalrevolution.com/marginalrevolution/2013/04/tra...](http://marginalrevolution.com/marginalrevolution/2013/04/trade-
vs-technology-in-terms-of-their-labor-market-effects.html)

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ajb
So, his argument is that the downturn is caused by sectoral imbalance, rather
than AD. That's a falsifiable claim - but he doesn't give any numbers.

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mmariani
Here's an in depth analysis by a more resourceful writer.

<https://news.ycombinator.com/item?id=5525422>

This was posted yesterday, but didn't get enough votes.

~~~
podperson
Soros is not only providing more insight, he has a concrete solution.

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kaonashi
This article ignores a key difference between England and the rest of europe:
the euro. The euro countries are revenue constrained in the same way as U.S.
states. They owe Euros, but cannot issue Euros, so they must go begging to the
market for Euros else default.

England (BOE) as monopoly issuer of the Pound, can dictate interest rates on
Pound denominated bonds, therefore they do not have the same constraints on
government spending.

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potkor
What Krugman said here applies to the EU too (infact he's basing it on IMF
research using global data):

<http://krugman.blogs.nytimes.com/2010/08/12/the-price-> stability-trap/

"in the modern world, rapid deflation doesn’t happen, and in fact slight
positive inflation often persists in the face of an obviously depressed
economy"

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gee_totes
[meta] I'm always pleasantly surprised and enjoy reading the discussion when
Marginal Revolution articles gain traction on HN.

[not-meta] Can someone explain (to a 5 year old) the AD-AS model that's
mentioned in the article?

<http://en.wikipedia.org/wiki/AD-AS_model>

