February 14, 2019
The New York Times ran a piece headlined “Europe’s middle class is shrinking. Spain bears much of the pain.” The gist of the piece is that the middle class in Europe, and especially Spain is disappearing as the result of some mysterious process.
It tells readers:
“Spain’s economy, like the rest of Europe’s, is growing faster than before the 2008 financial crisis and creating jobs. But the work they could find pays a fraction of the combined 80,000-euro annual income they once earned. By summer, they figure they will no longer be able to pay their mortgage.” [The “they” refers to a formerly middle class couple who lost jobs in the downturn and had to find new jobs at far lower pay.”
The piece continues:
“It is a precarious situation felt by millions of Europeans.
“Since the recession of the late 2000s, the middle class has shrunk in over two-thirds of the European Union, echoing a similar decline in the United States and reversing two decades of expansion. While middle-class households are more prevalent in Europe than in the United States — around 60 percent, compared with just over 50 percent in America — they face unprecedented levels of vulnerability. …
“The hurdles to keeping their status, or recovering lost ground, are higher given post-recession labor dynamics. The loss of middle-income jobs, weakened social protections and skill mismatches have reduced economic mobility and widened income inequality. Automation and globalization are deepening the divides.”
Just about every part of this story is wrong, as a quick look at the data would show. To start with, Spain and most other European countries are not growing faster than before the recession. According to the IMF, Spain’s economy grew at a 2.7 percent rate in 2018 and is projected to grow 2.2 percent this year. By comparison, it grew at an average rate of more than 3.9 percent in 2006 and 2007, the last two years before the recession.
Spain’s per capita GDP was just 3.0 percent higher in 2018 than it was in 2007. By comparison, coming out of the Great Depression in the United States, per capita income in 1940 was more than 8.0 percent higher than in 1929.
Other major economies in Europe have also been seeing slower growth. France’s economy grew at a 2.4 percent rate in the two years prior to the downturn, it grew 1.6 percent last year and is projected to grow the same this year. For Germany, the rate was 3.6 percent before the recession and 1.9 percent last year and this year. In Italy the pre-recession growth rate was 1.7 percent, the average for last year and this year is 1.1 percent.
It’s also not accurate that automation has been especially rapid in recent years. Productivity growth has been extraordinarily slow in recent years.
This all matters, because while growth is not everything, the fact is that the European Union has imposed slow growth policies on the member countries of the euro zone. These policies have needlessly kept millions of people from getting jobs and put downward pressure on the wages of tens of millions who are working.
There is nothing mysterious about this process. If a left-wing government had caused similar economic damage with misguided nationalizations and/or inflationary spending, the media would not be shy about pointing it out. It should also be pointing out the horrible damage being done to Europe and its people because of pointless austerity.
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