Sunnyside Up On Europe?

The Economist has an article this week which essentially pushes the theme that "the euro area's economies are in better shape than they look". This may well be true, especially if you think they are in very, very bad shape: everything is relative to the expectations of the beholder.

I find the article a frustrating one, since some of the points it makes are extremely valid, and yet overall it still fails to grasp the underlying 'big picture'.

Things they get right:

1/. Eurozone economies are picking up speed. (Although not all of them, Italy isn't, and picking up speed for how long?).

2/. By American standards eurozone growth looks sluggish.

3/. The main reason - for the extra US growth - is that America's population is increasing much faster than the eurozone's.

4/. Spain has enjoyed the fastest expansion in jobs, 4% a year since 2000. (And Spain has the fastest growing eurozone population, thanks to a 1.5% increase per annum from immigration).

5/. Employment has not grown particularly slowly in the eurozone: "employment has grown a tad faster in the euro area than in America whether one looks at the past five years or the past ten - a striking improvement over the decade to the mid-1990s".

6/. Europe has to learn to live with a shrinking workforce and an ageing population.

Things that it gets not quite right:

1/. The article doesn't look at comparative numbers for changes in productivity. This - eg - is obviously in favour of the US (although this is one of the things which may change).

2/. The Economist claims that "even in Germany there are now signs that domestic demand is stirring". This, I think, is hope against hope. As the article itself notes, "economists at HVB, a big German bank, reckon that private consumption probably shrank for the third quarter running, for the first time on record". I see no reason why this situation is going to change dramatically.

3/ Really they fail to distinguish between France and Spain on the one hand, and Germany and Italy on the other ( See my posts on AFOE here, and on Afem here).

Basically I think their conclusion - "given that Europe's unhappy economies have not been doing so badly compared with America's jollier one, the rewards from further reform might be all the greater" - is a mistaken one.

It is mistaken since in the first place it is not a valid procedure - IMHO - to put all Europe's economies in the same basket in this context, and in the second place, because the whole argument depends on a kind of steady-state prejudice. Simply put, the only reason to assume that the Eurozone economies having grown slower than the US one for sometime may now grow more quickly, is the idea that they all share one common 'steady state' balanced growth path. This I think is a theoretical prejudice and a mistake, and if this assumption falls, then so does the argument. None of which should be taken as implying, of course, that most of the reforms the Economist is advocating aren't badly - and in most cases very badly - needed.

Contradictory Surveys?

The FT reports this morning on the latest survey from the Pew Research Centre to the effect that:

"Some 42 per cent of Americans say the country should 'mind its own business internationally and let other countries get along the best they can on their own'"

"As the Iraq war has shaken the global outlook of American influentials, it has led to a revival of isolationist sentiment among the general public"

On the other hand Brad Setser points us to an Economist article which highlights the fact that:

"In America, China looms enormous in the public's fear of globalisation. According to a recent Harris Poll, four in ten Americans believe that China will be stronger than America within a decade, and most reckon the Asian giant will have a negative effect on the future of America's economy."

Perhaps I am alowing myself to be influenced by the fact that Brad's prime target in his post was how the 'China menace' perception might fuel an Asian interventionist policy from the Pentagon (itself financed by dollars lent by the Chinese themselves), but it does seem to me that the Harris poll would lead you to expect more not less intervention in the future.

Perhaps the way to square the apparent anomaly would be to imagine that it is perceptions of globalisation, and its advantages and disadvantages, which may be changing inside the US.

India Picks Up The Reform Baton

Well, its not the last word in "open-ness", but it certainly is a step in the right direction. According to the FT, India’s government is about to move forward on package containing sweeping liberalisation of foreign direct investment rules in order to kick start a long-stalled programme of economic reforms.

Kamal Nath, India’s minister for commerce and industry, has proposed allowing 100 per cent foreign direct investment in a range of sectors, including airport construction, oil & gas infrastructure and cash & carry wholesale trading.The cabinet will also debate whether to allow FDI in the exploration and mining of coal, lignite and diamonds, and in the cultivation of important plantation crops such as coffee, tea and rubber....

The measures will disappoint the US and UK government, however, who have been lobbying aggressively for foreign direct investment thresholds to be allowed in the Indian retail sector and for the ownership ceiling to be raised in insurance. Mr Nath, in an interview on Tuesday, said he would be in a position to put a proposal to the cabinet permitting FDI in retail, allowing companies such as Wal-Mart and Tesco to enter into the $205bn Indian retail market, within three months.

Paul Colinvaux and Rivers That Flow Uphill

Here's a new take on the 'living in interesting times' theme: the curse is really that with so many interesting things going-off its hard to concentrate sufficiently on any one of them. The latest case in point is Robert, who wrote me about the size of an acre, and indirectly pointed me towards the work of Paul Colinvaux. As can be seen from the photo, he must undoubtedly be a man after my own heart.

Colinvaux's work is ecological, and he is, of course, interested in population dynamics. Equally interesting, he seems to have attracted the attention of fellow Bonobo enthusiast William H Calvin. Calvin discusses Colinvaux's work in The River That Flows Uphill, which is his river diary of a two-week whitewater trip through the bottom of the Grand Canyon. Again, well worth the read.