Another way of thinking about the European economic collapse | Hacker News Reader

Another way of thinking about the European economic collapse

marginalrevolution.com

43 pointsjseliger29 comments

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.

>In the mean time most people in Western Europe suffer far less from the economic crisis than most Americans

I was with you until this. Europe is suffering because of their austerity choices. Unemployment reached, like, 25% in Spain, FAR worse than the US. But I agree, "collapse" is ridiculous. Europe will chug along, albeit at a lower rate of growth.

I learned from living through this crisis (my first as an adult) that people over react like crazy in these situations. So much doomspeak, still.

I'm from Spain but I acknowledge you shouldn't count us on "Europe". Our government is plain incapable of handling an economic crisis and it's getting worse over time.

We're Africa.

EDIT: to add some more to my comment in case someone's interested.

Spain's just an olygarchy whose population is (purposely) undereducated about politics. Not long ago you could hear people saying "I don't care about politics!" but still complaining about the effects that political decisions brought to their lives.

I'm not trying to solely blame politicians: after all they've been massively voted in the last elections (People's Party got absolute majority!) although to be honest it was out of despair of uneducated population.

The current right-wing goverment acts as if they were following Hayek's advice but spending is being cut only in middle/low-class services. Their own salaries and benefits are still higher than ever, and preferential treatment to "frienly" corporations is daily news. Money's still not flowing, and medium/low-class smothering is getting it worse because most people spend money in surviving rather than buying products and reactivating the economy.

The previous "left"-wing goverment acted as if they were following Keynes' advice, but the best they could come up with was a plan for pavement replacement where most money went through the toilet. Everyone agreed on their inability to rule a country (even their own voters) which led us to current situation.

This is economic hell and NOBODY can save us.

I expect a hot climate this spring. I'm not sure what's going to happen, but something's going to happen again on the streets.

Not long ago you could hear people saying "I don't care about politics..." but still complaining about the effects that political decisions brought to their lives.

This could definitely be worse in Spain, but it's not unique to Spain. I hear the same sorts of things all the time and even wrote a blog post about one example: http://jseliger.wordpress.com/2013/04/08/connecting-the-dots... .

This is economic hell and NOBODY can save us.

I'm not an economist, but based on my reading and (limited) understanding of the situation, the most likely outcome is the destruction of the Euro as a currency, or at least a vast shrinking of the currency zone. Devaluation would help many of the problems Spain, Greece, Cyprus, and others have. It has other well-known problems but the situation is one in which there are no good options.

Great blog post, although I meant less "economic illiteracy" and more "actively refusing politics" (though I guess they're related.)

> Devaluation would help many of the problems Spain, Greece, Cyprus, and others have.

That's true, but top-tier economies in the euro zone can't afford devaluation, that's why the European Commission imposes devaluation in wage and services.

What they fail to realize is that they're killing their own exports as they suffocate peripheral economies.

The economic malaise in Spain is really unbelievable. Take a look at this chart:

http://bit.ly/YNOc4q

(Also view "Unemployment" instead of "Unemployment rate" on the left menu to see the bigger picture)

Yeah, austerity may be the most proximate thing, but that misses the chronic condition of depressed economic growth. You cannot strengthen the weak by weakening the strong. You cannot bring about prosperity by discouraging thrift. You cannot help the wage-earner by pulling down the wage-payer.

But they try. Lots of European nations punish capitalists sufficiently that they just do their capitalism elsewhere, so any economic growth due to capital investments is happening elsewhere. Half of Europe's problems come from things like...

Okay, take this guy in Greece, who tried to set up an Internet-based olive-oil business (which you'd think would be a natural fit) and had to submit... stool samples... and faced other inane red tape... http://www.nytimes.com/2012/03/19/world/europe/in-greece-bus...

to say nothing of insanely rigid diversity and disability hiring quotas which serve more as hoops to jump through than anything equitable and which depress average Greek wages to the tune of... what was it, 25% or so? need to find that article...

and the labor unions... let me quote the tire guy... "How stupid do you think we are?" http://www.reuters.com/article/2013/02/20/us-france-workers-...

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...

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

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

The headline unemployment rate for the US is misleading, if you look at overall work force participation it's going down. [1] And if you used some metric of job insecurity that took into account whether people were on flexible schedules, or if they were employed as "independent" contractors on some piecework scheme. I think you would find that metric rising steadily for the last two decades.

1. http://www.usatoday.com/story/money/business/2013/04/07/marc...

US unemployment is off record highs because people who used to draw unemployment have realized disability is a much better option. U3 was always a dicey number, but now it's entered the land of make believe.

I think U6 is better than U3, but even so you kinda have to take .gov stats with a grain of salt.

http://www.bls.gov/news.release/empsit.t15.htm

If you see Austrian unemployment at under 5% and Greece at over a quarter of the population, you cannot possibly maintain the illusion that this is one single economy.

The euro is the potential time bomb, other than that there is no "eurozone", and certainly no eurozone unemployment rate.

And all fallout of amputating the failing economies of Greece e.a. from the euro is strictly theoretically. I'm not saying there isn't a problem, and it is certainly one of the most import factors in holding back recovery, but the apocalyptic view of the current economy in Europe doesn't match the economic and social reality in most European countries.

Come here to say this. Economic collapse means you're back to living in huts. Not there yet.

Footling with the definition of 'collapse' is on a par with 'how many angels dance on a pinhead?'. It's reported that "Greek unemployment reached a fresh record of 27.2pc in January. Youth unemployment reached 59.3pc".

Choose the words you prefer. Let's admit it's an appalling future for a whole generation along the Med countries.

Interesting view. Ireland, Iceland, Spain, Porto, Italy, Greece and Cyprus are severely suffering. France, UK, Germany, Belgium, Netherlands, Finland, Sweden, Norway and Polland are more or less fine (even though I am not sure what the inequality among their people is...) and there are countries that never prospered much and are not going to either.

I do not really see your definition of "most".

I am a Greek living in the UK right now and I would also like to add that for my family (and almost all of my family and our friends) 2 week vacations around the world never existed.

My 5c

The suffering countries, though numerous, are small - the core countries are doing well and have the majority of EU population.

1) Interesting way to group people but does not strike very humane to me. Do you (or anyone else) realize that people are suffering? Suffering as in they have can not afford food and they do not starve only because of charity? Or that the suicide ratio has increased because of people not wanting to be a burden to their families?

2) I did not want to down the route of #individuals suffering... Because Germany may be thriving but that does not mean that every German person is thriving.

Unemployment is still sky-high, though. Middle-class people on salaries might not feel too much of a pinch, but young people with university degrees entering the workforce do, in spades.

But I agree with you, there's no "collapse" here.

While I don't believe in the Europe's collapse, please please don't say it's just 'money a little tighter and skip holiday'. At least in Portugal people are indeed suffering. I never in my life before this seen people garbage searching for things (excluding homeless people).

I saw someone that went to highschool with me a couple weeks ago searching through garbage bins for things he could sell.

I hear stories from my mother (she works at a bank, deals with people having problem paying their credits, mortgages mostly) and some of there are tear jerkers.

We in tech maybe doing ok (I'm earning more than ever) but for a lot of the population, it isn't this rosy. Kids are indeed skipping meals because the parents CAN'T buy them food.

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.

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

http://marginalrevolution.com/marginalrevolution/2013/04/tra...

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.

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.

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

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.

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"

[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

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