What American Economists Do Not Want to See
There is a lot more optimism in the great banks of New York than in Europe about the American economy. In the U.S., economists will not consider the soaring unemployment rate as a structural phenomenon.
Besides the classic expression, "Is the glass half-full or half-empty?", there are today two ways of seeing the future of the American economy. There is no rupture between optimistic and pessimistic people in this case. It would be too easy. Economists' predictions are actually diverging depending on where they live: in the United States or in Europe.
The Americans consider the current beginning of U.S. economic recovery as a typical recovery that takes place after a period of recession. According to the experts, GDP — which is currently boosted by tax cuts — is going to increase faster and faster. Ben Bernanke, the president of the Federal Reserve, recently explained that the crisis has passed, and all is going to return to normal, provided that the U.S. government keeps sustaining the economy. As a result, the great banks of New York are predicting that the growth rate will easily be above 3 percent and will sometimes be close to 4 percent in 2011.
As for the European analysts, they proved to be a lot more cautious. Despite the good indicators from the U.S. industry reports — which ought to result in a substantial increase of GDP at least during the first quarter — they expect the American growth rate to be around 3 percent, maybe less. And above all, in Europe, a finger is pointed at a new phenomenon: the Europeanization of the U.S. economy. In a nutshell, the United States is now discovering the difficulties that are peculiar to the Old Continent — that is to say, the traditional hurdles such as lack of labor mobility and substantial structural unemployment. According to Patrick Artus, the director of economic research at Natixis, his American fellows overestimate the future growth of their country because they will not include the structural evolution of their country's economy in their analyses.
The traditional labor mobility of American employees would now belong to the past. The real estate decline — prices are still below 50 percent of what they used to be in 1996 — makes it almost impossible to sell a property to move elsewhere, or else it ends in a substantial capital loss. There is debate on this point, however. Some economists emphasize the extent of unemployment all across the United States. It is impossible in such conditions to picture big population transfers.
Nevertheless, what cannot be contested is that unemployment soared and remains at a high level. Who would have bet just a little more than two years ago that the unemployment rate of the United States — the country of labor market flexibility — would be the same as France's?
Nobody is really expecting better statistics for January. The unemployment rate will remain around 10 percent. And above all, Americans are exposed to long-term unemployment — which is linked to structural underemployment most of the time — for the first time. Before September 2008, long-term unemployment (i.e. that lasts more than 27 weeks) represented less than 20 percent of the unemployed population. As of today, this fraction has reached 45 percent of the 13.9 million Americans who have filed for jobless claims. This is a first.
Even if unemployment benefits were extended, these potential consumers are now excluded from the economy. And above all, they might become unemployable. This situation can be compared to France's. The high unemployment rate obviously determines the future of wage increases: Unions have less and less bargaining power. This also may lead to a decrease in consumption.
But the American analysts are having a lot of trouble seeing the reality. They limit themselves to the classical conjunctural analysis. For them, the severe 2008-2009 recession — which has not completely disappeared yet, as the production level is still 9 percent under the peak activity that was recorded before the crisis — is the only explanation of the current situation. And the U.S. will spontaneously get out of it, just like it did with previous recessions. Are they a little blind?
In the minds of the Americans, to admit that the U.S. is now more or less confronted with the same obstacles as Europe's would be equal to reconsidering the American model and social mobility that are the foundations of the whole American social consensus. Unimaginable!
Besides the classic expression, "Is the glass half-full or half-empty?", there are today two ways of seeing the future of the American economy. There is no rupture between optimistic and pessimistic people in this case. It would be too easy. Economists' predictions are actually diverging depending on where they live: in the United States or in Europe.
The Americans consider the current beginning of U.S. economic recovery as a typical recovery that takes place after a period of recession. According to the experts, GDP — which is currently boosted by tax cuts — is going to increase faster and faster. Ben Bernanke, the president of the Federal Reserve, recently explained that the crisis has passed, and all is going to return to normal, provided that the U.S. government keeps sustaining the economy. As a result, the great banks of New York are predicting that the growth rate will easily be above 3 percent and will sometimes be close to 4 percent in 2011.
As for the European analysts, they proved to be a lot more cautious. Despite the good indicators from the U.S. industry reports — which ought to result in a substantial increase of GDP at least during the first quarter — they expect the American growth rate to be around 3 percent, maybe less. And above all, in Europe, a finger is pointed at a new phenomenon: the Europeanization of the U.S. economy. In a nutshell, the United States is now discovering the difficulties that are peculiar to the Old Continent — that is to say, the traditional hurdles such as lack of labor mobility and substantial structural unemployment. According to Patrick Artus, the director of economic research at Natixis, his American fellows overestimate the future growth of their country because they will not include the structural evolution of their country's economy in their analyses.
The traditional labor mobility of American employees would now belong to the past. The real estate decline — prices are still below 50 percent of what they used to be in 1996 — makes it almost impossible to sell a property to move elsewhere, or else it ends in a substantial capital loss. There is debate on this point, however. Some economists emphasize the extent of unemployment all across the United States. It is impossible in such conditions to picture big population transfers.
Nevertheless, what cannot be contested is that unemployment soared and remains at a high level. Who would have bet just a little more than two years ago that the unemployment rate of the United States — the country of labor market flexibility — would be the same as France's?
Nobody is really expecting better statistics for January. The unemployment rate will remain around 10 percent. And above all, Americans are exposed to long-term unemployment — which is linked to structural underemployment most of the time — for the first time. Before September 2008, long-term unemployment (i.e. that lasts more than 27 weeks) represented less than 20 percent of the unemployed population. As of today, this fraction has reached 45 percent of the 13.9 million Americans who have filed for jobless claims. This is a first.
Even if unemployment benefits were extended, these potential consumers are now excluded from the economy. And above all, they might become unemployable. This situation can be compared to France's. The high unemployment rate obviously determines the future of wage increases: Unions have less and less bargaining power. This also may lead to a decrease in consumption.
But the American analysts are having a lot of trouble seeing the reality. They limit themselves to the classical conjunctural analysis. For them, the severe 2008-2009 recession — which has not completely disappeared yet, as the production level is still 9 percent under the peak activity that was recorded before the crisis — is the only explanation of the current situation. And the U.S. will spontaneously get out of it, just like it did with previous recessions. Are they a little blind?
In the minds of the Americans, to admit that the U.S. is now more or less confronted with the same obstacles as Europe's would be equal to reconsidering the American model and social mobility that are the foundations of the whole American social consensus. Unimaginable!
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