In The Blogs

Free Riding

| Tue Mar. 3, 2009 11:49 AM PST

Felix Salmon thinks the rest of the world is shirking:

Justin Fox has an interesting breakdown of global stimulus packages by country: the US, China, and Spain have big ones, while the rest of the world just doesn't seem to be trying so hard....He's right, and no amount of "buy American" provisions in the bill will prevent money from leaking overseas in a globalized economy. Liquidity, you might say, always finds its level. At the margin, it does seem that countries such as the UK are freeloading on the US bailout — both in terms of the stimulus package and in terms of the bank bailout.

I don't know about Spain, but the U.S. was able to pass a big stimulus bill because we had a shiny new left-wing president with lots of political capital to spend, and China was able to do it because they're an autocracy. Conversely, most European governments range from the not-very-shiny (Germany, say) to the downright superannuated (Britain). They don't have a yearlong campaign of hope and change to draw from. What's more, as Matt Yglesias and Megan McArdle point out, there are also institutional and cultural issues holding Europe back. The Germans are still scared of a resurgence of the Weimar Republic, and the European Central Bank humors them by keeping monetary policy absurdly tight. The EU's stability and growth pact probably doesn't help things either. The upshot is that Europe isn't doing much to fight the meltdown, and that's especially true of Germany, which ought to be leading the charge since it runs a big current account surplus and could afford to spend much, much more. Instead, it's one of the chief obstacles to recovery.

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.

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Kevin Drum is a political blogger for Mother Jones. For more of his stories, click here.

Comments

Foriegn policy domain

Submitted by MobiusKlein (not verified) on Tue Mar. 3, 2009 12:10 PM PST.

Don't we have a shiny, well respected new State Department that can help convince our allies?

And as Josh Marshall

Submitted by john sherman (not verified) on Tue Mar. 3, 2009 12:22 PM PST.

And as Josh Marshall commented on Joe Nocera's article, a lot of the money going to AIG is actually propping up European firms, so why aren't European governments pitching in?

free money

Submitted by junebug on Tue Mar. 3, 2009 12:35 PM PST.

Their inertia on this is inexcusable when you consider how rampant overleveraging has been among European banks. They're sitting on a massive stash of credit default swaps from AIG. They're as guilty as anyone at feeding at the trough.

The rest of the world

Submitted by MBunge (not verified) on Tue Mar. 3, 2009 12:35 PM PST.

The rest of the world started riding the U.S.'s coat tails in the Cold War and they didn't stop when the Berlin Wall went down. Not that we haven't benefited greatly from assuming the top spot in economic and foreign affairs. Mike

Did Kevin really say we have

Submitted by thersites on Tue Mar. 3, 2009 12:53 PM PST.

Did Kevin really say we have a left-wing President? Somebody call the sys admin at Mother Jones. Michael Savage has hacked the site!

Trading with a miser is a

Submitted by Anonymous (not verified) on Tue Mar. 3, 2009 1:52 PM PST.

Trading with a miser is a prescription for financial meltdown. Unless the miser's huge pile of cash is invested in endeavors that aren't just paper gains, then his savings merely create worthless asset bubbles. And another thing. They're trying to tell us that AIG and the banks didn't know they were creating this housing bubble. I say B.S. Housing bubbles are common, and this one was flagged by plenty of big thinkers. This is looking more and more like the scam of all scams. Follow the money.

Accounts Balance

Submitted by wovenstrap on Tue Mar. 3, 2009 1:57 PM PST.

Someone on bloggingheads (Drezner?) made the interesting point that the problem with the economy up to now is that the US is this huge debtor nation and certain other countries are huge creditor nations. So what do we do? We explode our deficit while Germany et al. tighten up. The problem is there's very little way to get macro-economic solutions of this type into national legislatures, the incentives just aren't there, and the countries revert to form.

Up is down when the country

Submitted by Anonymous (not verified) on Tue Mar. 3, 2009 1:58 PM PST.

Up is down when the country borrowing masses of money from the rest of the world to spend willy-nilly, as if there is no tomorrow, accuses the rest of the world as "freeloading".

The upshot is that Europe

Submitted by Jasper on Tue Mar. 3, 2009 2:29 PM PST.

The upshot is that Europe isn't doing much to fight the meltdown, and that's especially true of Germany, which ought to be leading the charge since it runs a big current account surplus and could afford to spend much, much more. Maybe. But Germany's public debt is nearly as high as America's, last time I checked, and their demographic picture is simply awful. So, raising the debt/GDP ratio is actually more problematic for them (as it is for all of the Europeans) than it is for us. Moreover, one can at least imagine an America in, say, 2023, that is spending a smaller share of GDP on healthcare than it is now, given the unsustainability of our current course, and the need for reform. It's hard to figure out where the Europeans are going to find similar savings. Also, in many cases citizens of the EU pay higher taxes than do Americans, and this naturally generates a certain amount of pushback against largeish (even if they're temporary) expansions in public sector budgets. And Europeans also enjoy a much more robust safety net than do Americans. It simply doesn't suck as much to be a downsized, unemployed or underemployed person in Amsterdam as it does in Atlanta. Finally, with one or two notable exceptions (UK, Ireland), my sense is that European households are less indebted than American ones -- even if their businesses and financial sectors are in no better shape, and this fact -- while a big part of the reason they could afford to do more if they wanted to -- is also a big part of the reason that drastic, Anglo-American levels of stimulus may not seem as desirable on the continent. At the end of the day I suspect there's a certain amount of schadenfreude to be observed at the reluctance of the Europeans to emulate their cross-pond cousins, and I also suspect said schadenfreude is at least partly justified. Nobody was holding a gun to our heads forcing us to build an ersatz economy on a foundation of cheap credit. stagnant wages, a starved public sector, and a hole-ridden safety net. Nope, we chose that path ourselves. I mean, if you were a European, would you be looking for economic advice from Americans?

Paying for a party you weren't invited to

Submitted by SRW1 (not verified) on Tue Mar. 3, 2009 3:48 PM PST.

"The Germans are still scared of a resurgence of the Weimar Republic, ..." That may be part of it, but it's not the whole story. Another important aspect is that the then Chancellor, Helmut Kohl, committed a huge error in going for a 1:1 conversion of the GDR currency into Deutsch Marks when the reunification occurred in 1990. As a consequence, the entire industrial base of the former GDR became uncompetitive and collapsed, and the East had to be propped ever since up with a humongous west-to-east transfer of money. The consequence of that was that the German dept-to-GDP ratio grew all the time and is now close to the limit described as acceptable by the Maastricht treaty. In addition, Germany was in violation of another Maastricht stability criterion for several years running, namely the one permitting to run a budget deficit equal to maximally 3% of GDP. Lastly, the German economy was struggling for years to generate jobs and bring down the high rate of unemployment because labour costs were considered to be too high. In other words, the country was in a malaise for more than 15 years from which it emerged only something like two years ago. And all of this while countries like the US, the UK, Spain, Ireland, etc were indulging themselves in wild parties fed by real estate bubbles. In light of that, it may be a little bit much to expect German politicians to go out and convince their electorate to pile on massive amounts of new dept on top of what for years has been described as an unsustainable amount anyway. Especially as there will be federal elections in the fall of this year and the European press has repeatedly published claims that Germany will have to bail out Ireland, or the Baltic countries, etc.

So let me see if I

Submitted by MaynardHandley on Tue Mar. 3, 2009 5:16 PM PST.

So let me see if I understand this. The AMERICANS choose to fsck up their economy through tax cuts for the rich, the whole insane Iraq war, and destroying regulation of the financial markets and now the EUROPEANS are supposed to share in the pain of recovery? There may be plenty of pragmatic reasons for the Europeans to behave differently, but painting this as a morality play, as though the Europeans *owe* America something is really not an enlightening way to look at the situation. What's next? Americans complaining how it's not fair that Europeans find it easier to meet CO2 emissions targets because their cars are smaller?

Shiny new left wing President

Submitted by Sidewinder (not verified) on Tue Mar. 3, 2009 8:43 PM PST.

Honestly, Kevin, the things that come out of your mouth. I know OC is a bastion of conservatism matched only by 1945 Germany, Italy & maybe Utah, but "left wing"?? Everything is relative, I guess & this country has been hard-right so long it looks like left to you.

Maynard Handley is probably right

Submitted by Anonymous (not verified) on Wed Mar. 4, 2009 8:35 AM PST.

As someone who's just returned to the U.S. after a decade in Italy and Great Britain, I can testify that Europeans do look at this crisis as something born, bred and exacerbated in the USA. This conveniently overlooks a lot of their own bad behaviour, but there it is. We broke it, and they want us to fix it, and if they can get a free ride out of it, they won't complain. This is an exaggeration. France and the UK were first out of the gate with support programs that were respectable in size at the time. But they're steaming mad at us.

European Vacations

Submitted by LeftcoastLeftie (not verified) on Wed Mar. 4, 2009 11:17 AM PST.

MBunge may be right about benefits to the US, except for the European vacation. The benefits of 4 to 6 weeks off every year seems to have eluded those of living the so-called American "success story."

Comparison of stimulus packages

Submitted by Detlef (not verified) on Wed Mar. 4, 2009 11:43 AM PST.

Seems that Felix Salmon and Justin Fox compared apples with oranges. Just look at that $787 billion US stimulus package. $70 billion for the AMT tax relief. Is that really stimulus? I´ve read that this adjustment is yearly practice in Congress? But leaving that aside... Around $110 billion for expanding health care (Medicaid, Cobra). $40 billion for a temporary extension of unemployment benefits. $19.9 billion for food stamps. We already have universal health care. Likewise - at least in Germany - we already have unemployment insurance, money grants to supplement your income in times of short-time work and social welfare money once your unemployment benefits end. These government programs automatically transfer money to short-term or unemployed workers in a recession. According to the definitions used for the Obama stimulus package we should count them as stimulus too. We just didn´t need a new bill for them. $44.5 billion in aid to local school districts to prevent layoffs and cutbacks. Schools in Germany are financed out of the state eduction budget not local property taxes. Teachers etc. are public (state) employees or civil servants. Difficult to fire. $15.6 billion to increase Pell Grants. $14 billion for expanded college tax credits. Well, tuition fees are a lot lower in Germany than in the USA because schools and most universities are publicly funded. Taxes, you know. So at least some $200-250 billion of the US stimulus plan (not counting AMT) are for things which are already (regularly) funded by taxes/insurance fees in Germany. Money that is counted as stimulus in the USA but which is part of the regular German law structure. And it could be even more than $200-250 billion because I just looked at the double-digit (billion) positions. And commented on only those where I knew the German situation.

Nationalists at Mother Jones?

Submitted by piglet (not verified) on Wed Mar. 4, 2009 12:24 PM PST.

Reading these comments is rather depressing. If Mother Jones draws nationalist rednecks who complain about other countries are not being nice to the US, imagine what must be going on in conservative heads. MaynardHandley has it right and detlef also makes good points. The U.S. is draining trillions of dollars down several deep holel. You might stop to think why the holes are so deep in the first place before being jealous of Europeans who don,t have to deal with deep holes like that. Let me remind you all that the United States is the one country in the developed world that is brutally cutting mass transit and closing swimming pools and libraries because there is no money for vital services. The $700B stimulus doesn't even address the depth of that problem and many cities and states will have to live with drastic service cuts despite the "stimulus". You guys simply don't know what you are talking about.

German Parliament Approves 50-Billion-Euro Stimulus Plan

Submitted by German (not verified) on Wed Mar. 4, 2009 12:26 PM PST.

germany isn´t doing much ? German Parliament Approves 50-Billion-Euro Stimulus Plan: http://www.dw-world.de/dw/article/0,,4044019,00.html That´s $63 billion if the dollar hasn´t dropped any more since I last checked.