It’s the European economy, dummkopf!

Ezra Klein argues that neither presidents nor congress, no matter which party, will be able to do much to influence the economy.  What will either pull us down further or bring improvement is what happens in Europe.  And so, if the state of the economy is what determines who gets elected president, our elections are in the hands of Angela Merkel:

Sometimes, the things driving the country’s economy are not passed by Congress. Sometimes, Congress has almost no influence over them. And this is one of those times.

Europe has reached a tipping point. Without a systemic solution — and fast — Greece will default. If Greece falls, chances are that Ireland and Portugal will follow. Desmond Lachman, a fellow at the American Enterprise Institute, compares it to Bear Stearns collapsing and dragging Lehman down with it.

If that happens, we’re going down, too. The European Union is a big economy. Bigger than ours, in fact. In 2010, the United States exported $240 billion worth of products to the European Union, and imported $320 billion. And our other major trading partners — Canada, Mexico, China, etc. — are similarly interlinked with the European economy. So just as a financial crisis that began in the United States was capable of creating an economic crisis around the world, a debt crisis that begins in the European Union has plenty of channels through which it can shatter a fragile global economy. . . .

Even the not-so-bad outcomes are still, well, pretty bad. Goldman Sachs estimates that if the European Union simply limps along the way it is now, the financial stress “is likely to slow the U.S. economy to the edge of recession by early 2012.” . . .

That’s the reality of the economy over the next year. If Europe gets its house in order, we might see a recovery. If it continues staying one step ahead of catastrophe, we’re likely to continue stagnating. And if it makes a mistake, we’re likely to follow it into recession.

In determining the likely future of our economy, Europe will probably also determine the outcome of our election. And that means that Congress, the president, and even the Republican presidential candidates, for all that they will pretend otherwise, will not. In 1992, James Carville, an adviser to Bill Clinton’s presidential campaign, used to constantly remind his candidate, “It’s the economy, stupid.” In 2012, it may well be the European economy, dummkopf.

via How Angela Merkel could defeat Barack Obama – The Washington Post.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • DonS

    Klein is right that governments cannot improve the economy in a measurable way by traditional interventionist tactics. The debt overhang casts a shadow far too large for a government to build confidence by more spending. And confidence is the key to economic recovery.

    Confidence would best be boosted by the enactment of a cogent plan for government to live within its means, and to begin to address its public debt and unfunded entitlements. We are better off to have some short term pain and sacrifice, in these present years, and set our future on a better course, then to attempt to revive the economy in its current, terminally ill, state, only to limp along until the next debt crisis rears its ugly head.

  • DonS

    Klein is right that governments cannot improve the economy in a measurable way by traditional interventionist tactics. The debt overhang casts a shadow far too large for a government to build confidence by more spending. And confidence is the key to economic recovery.

    Confidence would best be boosted by the enactment of a cogent plan for government to live within its means, and to begin to address its public debt and unfunded entitlements. We are better off to have some short term pain and sacrifice, in these present years, and set our future on a better course, then to attempt to revive the economy in its current, terminally ill, state, only to limp along until the next debt crisis rears its ugly head.


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