Lest you think my concerns about Jean Claude Tricet’s too-tight monetary policy are just more left-wing lack of thrift, check out Megan McArdle agreeing with me. Meanwhile, as Felix Salmon observes the Europeans aren’t just being laggard on the monetary policy front. Laggards on monetary policy are naturally going to be laggards on fiscal policy, [...]
Lest you think my concerns about Jean Claude Tricet’s too-tight monetary policy are just more left-wing lack of thrift, check out Megan McArdle agreeing with me. Meanwhile, as Felix Salmon observes the Europeans aren’t just being laggard on the monetary policy front. Laggards on monetary policy are naturally going to be laggards on fiscal policy, too. The issue, as best one can tell, is primarily Germany where they’re paranoid about inflation. German sluggishness about this is triply damaging. First, Germany is one of the world’s largest economies. Second, Germany has a huge current account surplus, so they’re much better-positioned to do stimulus than is (say) the United States. And third, Germany’s central position in Europe makes it difficult for Europe’s small countries (who collectively add up to a pretty major economy) to engage in any meaningful stimulus absent Germany leadership.
Kevin Drum remarks:
I don’t have any brilliant suggestions for getting Europe to become a little more proactive on the let’s-avoid-another-great-depression front. Just one more job for the Obama economic team to work on, I suppose. Maybe someday Treasury will actually hire someone besides Tim Geithner and we can start pushing on this a little harder than we are now.
I think it’s important to move beyond dry wit and really ring the alarm bells on this. The economy is very global, and it’s extremely difficult to see it pulling short of a depression if the European Union and Japan are twiddling their thumbs. Beyond that, if there isn’t meaningful global coordination of stimulus efforts then protectionist pressures are going to become harder-and-harder to resist in China and the United States to prevent free riding. That, in turn, would buy some short-term assistance at the cost of really hobbling the prospects for recovery down the road. Under the circumstances, it really would be nice if we had an Undersecretary of Treasury for International Affairs. In the past, the job has been held by such figures as Lawrence Summers and Timothy Geithner, so they must know some people who work in this field. And it would also be nice to see the President and the White House team more focused on this. They seem primarily interested in doing domestic political battle with the GOP over their budget proposal, which is understandable but they need to recognize that their political prospects are closely tied to the fate of the global economy and for better or for worse Trichet, Angela Merkel, Taro Aso, Nicholas Sarkozy, and Hu Jintao are more relevant to this than is Rush Limbaugh.
On a related note, a hobbyhorse of mine over the past couple of years has been the relative neglect of Europe in foreign policy conversations. There’s not that much thrilling bloodshed in Europe, but the immense wealth and productive capacity of the E.U. nations means that, in practice, the everyday lives of Americans are more impacted by political events in Europe than by events in Baghdad or Teheran.
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