The Fruits of Adversity

There is a clear winner in the permanent debate on economic policies, which has lasted throughout the “great recession” between those who support adjusting economies first, so that they can grow later — the orthodox — and those who defend that it is essential to grow first in order to adjust later — the pragmatists: the USA, the truest representative of the second option. Its macro-economic data — growth, and above all, job creation — support this victory with a large clearance.

The debate did not go like this in the toughest moments. After the bankruptcy of Lehman Brothers and the implosion of the financial system in fall of 2008, the leaders of the richest countries in the world, the G20, gathered in Washington — in November 2008 — London — in April 2009 — and Pittsburgh — in September 2009 — and agreed that the only way to avoid bank runs and stimulate the dying world economy was to encourage bailouts of entities that were having difficulties, and to inject public money into the system in order to create jobs and stop the situation from resembling the Great Recession of the 1930s — Spain understood that as Zapatero’s epidermal Plan E. From June 2010 — the Toronto Summit — sensitivities were modified: While one part of the world, led by the USA, kept following a lax monetary policy and incentive measures in order for its economy to continue to grow and stop the suffering of mass unemployment, the other part, Europe, radically changed its views; it implanted the dogma of authoritarian austerity and budget-balancing policies above all other priorities.

The result of both options has become visible now. Obama’s USA, which grew at a rate of 5 percent of gross domestic product in the third quarter, has already recovered all jobs lost during the crisis, and closed the year with a job creation of nearly 3 million, which puts its total unemployment rate at 5.6 percent, or about to reach full employment. On the contrary, the Europe of the euro, of Ms. Merkel, doubles the U.S. unemployment rate — at 11.5 percent — in a climate of economic stagnation and deflation of prices. As almost any other, this average is misleading: While Germany has an unemployment rate of 6.5 percent, the lowest since the country’s unification in the early ‘90s, southern Europe — Greece, Spain and Portugal — is drowning in intolerable percentages: 25.7 percent, 23.9 percent and 13.4 percent, respectively. It is not surprising that when asked about Spain’s reforms, Matteo Renzi, the Italian prime minister, replied: Go back, Satan, “our model is not Spain, but Germany.”

While here we keep waiting — disturbed by Germany’s pressure against it — for the European Central Bank to announce during its meeting in 10 days the start of a quantitative expansion — the massive and direct purchase of government bonds of European countries with the most difficulties — the U.S. has already abandoned this, this past October, after 37 months of applying it, while keeping the price of money — interest rates — close to zero. Both parts of the planet must watch closely for the existing geopolitical risks that can limit the behavior of their economies: the price and speculation on oil, deteriorating commodity markets, the outcome of the Greek elections, and the halt of emerging countries, and among these last mentioned, Russia’s situation. A few days ago, George Soros warned that Russia is the greatest threat to the world’s economic evolution, for the collapse of oil prices adds to the effect of the economic sanctions imposed in the wake of the annexation of Crimea, something that would make a Russian unpaid debt “not surprising.”

One aspect unifies the U.S. and European job markets: the low quality of created jobs — temporary, part-time, no guarantees — and wage devaluation. Along with unemployment, this is the main cause of the exponential increase in inequality during this era. The “great recession” will be remembered for the distribution of income and wealth in the opposite direction of progress.