The divergent policy paths taken by the world’s advanced economies provide lessons for global leaders navigating difficult post-crisis environments.
The U.S. and U.K. appear to have gotten something right, while the eurozone and Japan have fumbled. Unemployment rates after the crisis peaked at 10% in the U.S. and 8.5% in the U.K., and are down to 5.8% and 6%, respectively. The eurozone rate has climbed in the past few years to 11.5%, while Japan’s economy has fallen back into recession.
The American and British central banks embraced aggressive easy-money policies early on. Japan lurched toward consumption-tax increases to restrain budget deficits, while Europe moved slowly in addressing weaknesses in banks and stuck to a course of fiscal austerity.
As the United States’ central bank now exits the extraordinary measures it undertook to defeat the financial crisis’s aftereffects – and Europe first wades into the waters of stimulus – it’s worth thinking about the consequences of trying versus not trying to save one’s economy.
We did the former, imperfectly but doggedly. Europe went the other way – raising rates into the teeth of the crisis while attempting all manner of ridiculous fiscal austerity experiments. The results of this divergence in response could not be more stark. Our capital markets are on fire, corporate profits have never been higher, real estate is stable-to-strong and unemployment is falling to levels not seen in almost a decade.
Jon Hilsenrath compares the approaches at Wall Street Journal at the link above.