American Pragmatism

Nearly five years after the onset of the crisis, it is not the economy that caused it which has the most difficulties to overcome. The United States is growing and is reducing unemployment through substantially correct economic policies. From the beginning, the country’s authorities were sufficiently clear that the main challenge was the risk of a prolonged recession. A prolonged unemployment rate of nearly 10 percent can end up indicating that politicians are not doing their job well. As the crisis evolved and proved to be complex, the similarities to the conditions that precipitated the Great Depression became stronger. Fortunately, in that country, there are politicians with good memories and who know exactly what that long decade meant for U.S. welfare: among them, the current chairman of the Federal Reserve, Ben Bernanke. Little wonder he was appointed by the Republican President George W. Bush, so that adopted decisions have been, as befits the threat, clearly expansionary.

If the U.S. economy today shows signs of recovery, it is because macroeconomic policies have been managed with a pragmatism that Europe lacks. The U.S. is growing because it has lowered interest rates early and without restrictions. They have adopted an ambitious monetary easing (quantitative easing), aggressive interventions in bond markets and absolute transparency concerning the priorities of monetary policy: no official interest rate rise until 2014.

Fiscal policy, meanwhile, has not been subject to unreasonable restrictions such as the ones imposed on the eurozone economy. Although the U.S. has higher deficits and higher debt levels than the eurozone, markets neither penalize its debt nor its economic policy. Like Japan and the U.K., the financial markets seem more concerned about political blunders and shortcomings than the preservation of an irrelevant orthodoxy, having in mind the complexity and severity of the crisis. The International Monetary Fund is right to admit that Europe does not properly manage the temporal distribution of effort. Hence, the disparate results between the two economies.

The U.S. will grow not less than 2 percent this year, with an unemployment rate that is clearly down. The latest indicators of retail sales and industrial orders recorded positive rates of change. In Europe, the opposite is occurring: The recession is becoming more pronounced, the unemployment rate is rising, and in the face of all odds, authorities are concentrating on the errors made, in a kind of outdated therapy. This has serious consequences for the population, with the considerable risk of falling into a situation similar to Japan, which suffered after initial errors in economic policy. The German effort to prolong the purging of peripheral economies will come at the cost of an unstoppable rise in unemployment for Europeans and poses a serious risk to the continuity of the monetary union. The disappointment, the frustration of a growing number of economic operators, is shaping the future dynamic development of European integration.