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Thursday, August 14, 2014

Paul Krugman, "The Forever Slump": Comparing the US With Europe

"We have 50 million Muslims in Europe. There are signs that Allah will grant Islam victory in Europe—without swords, without guns, without conquest—will turn it into a Muslim continent within a few decades."

- Muammar Gaddafi

Economics is an inexact science, but it becomes even less exact if you refuse to consider all of the variables.

In his latest New York Times op-ed entitled "The Forever Slump," Paul Krugman again warns against an increase in US interest rates by the Federal Reserve. Explaining that Europe raised interest rates in 2011, but reversed course when it slid back into recession, Krugman cautions against the US making the same mistake:

"The good news is that Janet Yellen, the Fed chairwoman, understands the danger; she has made it clear that she would rather take the chance of a temporary rise in the inflation rate than risk hitting the brakes too soon, the way the E.C.B. did in 2011. The bad news is that she and her colleagues are under a lot of pressure to do the wrong thing from the too-muchers, who seem to have learned nothing from being wrong year after year, and are still agitating for higher rates."

I agree with Krugman that the US economic recovery is still fragile. Moreover, I don't see excessive demand, which could spur inflation, anywhere on the horizon. American unemployment is its lowest level since September 2008, but the decline also owes to the fact that the number of people seeking work has fallen dramatically. As observed in a January Washington Post article entitled "The biggest question facing the U.S. economy: Why are people dropping out of the workforce?" by Brad Plumer:

"The U.S. labor force is still shrinking rapidly. Back in 2007, 66 percent of Americans had a job or were actively seeking work. Today, that number is at 62.8 percent — the lowest level since 1977."

Also consider unemployment among youths, which, although down from a year ago, is still at a troublesome 14.3 percent.

The US economy is anything but robust, and I don't see any reason to raise interest rates.

But compare the US with Europe? It's time to be politically incorrect. As noted in a 2009 Forbes article entitled "The Integration Of Muslims In Europe":

"As Muslims are the fastest-growing group in Europe (by 2025, Muslims will make up 10% of Europe’s population, from 4% today), it is important that they are socially, politically and economically integrated. If not, the result will be the human and economic waste of unemployment, bitterness and possibly further radicalization and violence.

. . . .

In both France and the United Kingdom, Muslims’ economic integration has been poor. In both, unemployment is high (above 20% and sometimes approaching 40%) among Pakistanis, Bangladeshis and North Africans."

In fact, Muslims already account for some 10 percent of France's population and more than 70 percent of French prison inmates.

Was Gaddafi correct? Will Europe become a Muslim continent within a few decades? And if so, what will be the effect on productivity and employment? Time will truly tell.

Compare America's economy with that of Europe? I don't believe in comparing apples with oranges, i.e. America's unsustainable debt (nearing $17.7 trillion) with Europe's emerging demographic timebomb. Although both problems are grim, they are very different.

1 comment:

  1. Ah, what to expect from a Der Neue Stuermer columnist?