October 20, 2011
An NYT news story told readers that it doesn’t like Europe. That is the only thing that readers can conclude from an article that said Europe is “in economic and demographic decline.”
While the collapse of the housing bubbles in Europe have impaired growth, just as they have in the United States, and the drive to austerity has further slowed growth, there is no reason to believe that Europe’s economy will be condemned to permanent stagnation if it gets competent people at the European Central Bank and other policy positions.
Prior to the downturn, productivity growth in Europe had been little different than in the United States. If Europe can ever get competent economic managers, there is no reason to believe that its growth would not return to this path. Lower population growth (or decline) will actually help Europe since it will increase the ratio of capital to labor and reduce the stress on Europe’s infrastructure and natural resources. In other words, the story here is really a failure of the people designing economic policy for Europe, not a failure of Europe.
This fact is reversed in an article that seems to be trying to tell readers that Europe is fundamentally broken. To make this point, it includes the bizarre assertion that:
“Technologically, it is behind the United States, but its pay scales are too high to be an easily competitive exporter.”
The United States is running an annual trade deficit of roughly $600 billion, or 4 percent of GDP. By contrast, the European Union’s trade is roughly in balance. It is not clear how the NYT has determined that Europe is having trouble competing, but it clearly is not using a market measure.
The article also misleads readers on the importance of China, saying that the EUs GDP is three times the size of China’s. In fact, on a purchasing power parity basis, China’s GDP is $11.3 trillion, roughly two-third’s the size of Europe’s.
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