Welcome to Europe

Another day, another equivocal report on the American economy:

The Commerce Department said Monday that retail sales rose 0.8% in March. That's below February's 1% increase but above January's pace.

Some of the increase went to higher gas prices. Still, Americans also spent more on other goods.

Consumers spent more last month on building materials, autos, electronics, furniture and clothing. Excluding car and gasoline sales, retail sales increased 0.7%. And excluding autos, gas, and home supplies, so-called "core" sales rose 0.5% in March, matching February's gain.

Joshua Shapiro, an economist at MFR, said retail sales "picked up considerably" in the first quarter, after a weak December gain. Sales have been bolstered by hiring, but also unseasonably warm weather, which has added to clothing and home supply sales.

Shapiro cautioned that the warmer weather may have moved up some sales, which could lead to weaker spending in April and May...

Job gains averaged 246,000 per month from December through February. Hiring slowed to half that pace in March, although economists have suggested the lull may be temporary.

With all that said, should we be happy or should we be even more worried than we already are?  It's impossible to say: for every bit of apparently good news, there's a troubling hedge.

There are more jobs - but they pay less.  Spending is up - but mostly that's because of gas prices, meaning we're paying more and getting less.  People did more shopping this month - but will probably do less next month to make up for it.

What kind of a recovery is this?  We are told that the recession ended years ago, and by definition, that's the truth.  The generally accepted definition of a recession is a decline in national GDP for two quarters in a row.  As this official graph clearly shows, that means the recession ended in mid-2009 - too soon for any of Obama's policies to have had an effect on them, by the way, so if the recession was Bush's fault so was its end.  Since mid-2009, our economy has indeed grown each and every quarter.

The trouble is, it hasn't grown much.  The worst loss of GDP was in the 4th quarter of 2008, a stunning drop of around 9%; it's no coincidence that this period spanned the election won by Obama who advertised "change" from what was a very painful situation.  Many people believed that his advent would make things worse and acted accordingly.

Has there been change since then?  Sure, in that the economy overall isn't getting worse, but it's not really getting better either.  The most quarterly growth since then was in 1st quarter 2010, and that was under 4% - less than half of the worst loss.  Growth since then has been even slower, with 1st quarter 2011 notable at a derisory sub-1% growth rate that wouldn't even keep up with population growth.  In that sense, on the average, every American is worse off because there are more mouths to feed.

No, we aren't in a recession, but equally clearly, we aren't in a recovery either.  We are instead in a more or less stable, basically no-growth, high-unemployment place.  As Ben Bernanke recently pointed out:

The increase in employment since the end of 2009 has been due to a significant decline in layoffs but only a moderate improvement in hiring.

In other words, we're in Europe.

Stay Where You're At, For Good Or Ill

Commentators on the right often condemn Europe's economy as a socialistic one that America should avoid at all costs.  In reality, there's no comparison between modern Europe and the lifestyle of the old Union of Soviet Socialist Republics - that is, Communist Russia.  Russian communism brought about universal equality of poverty; anyone who's ever been to Europe clearly sees societies of at least moderate wealth with an apparently healthy spread of working-class, middle-class, and upper-class individuals living out their own lives with a fair degree of freedom.

Europe is a far cry from Communist Russia's phony total employment where everyone pretended to work and the government pretended to pay them.  Europe has an unemployment rate of a bit over 10% - worse than ours, but not by that much.

This number, however, masks a startling truth: the unemployment rate of people less than 25 years old is an astonishing 20%.  What's more, it's hovered between 15% and 20% for years, in bad times and good.  The unemployment rate for older folks is less than half of that, but still higher than what America has traditionally found acceptable.

What do these statistics mean?  They indicate that in Europe, if you have a job, you'll probably be able to keep it, but it's awfully hard to find a job in the first place.

Is that not exactly what we're seeing in the Obama depression?  We aren't still seeing mass layoffs, locked factories, and giant corporate bankruptcies; we mostly got those over with in 2008 and 2009.  Most employees who survived those times are still getting a paycheck.

Most, but not all.  Even the best economy has some churn, some layoffs, and some business failures; but usually the unlucky victims can just go out and find another slot elsewhere.  Now, all the slots are full.

The bottom line?  If you have a job, keep it at all costs.  Odds are you can.  But if not - if you get unlucky or make a wrong move and find yourself out on the street, or if you just graduated from college and need to find your very first real job - you're pretty much screwed.

That's the way Europe has been for several decades, and for good reason: government taxes and regulations make it extremely expensive to hire and fire.  Of course no company can operate with no workers at all, but European businessmen move heaven and earth to avoid hiring any more employees unless business is so surpassingly excellent that they just can't function without more people.

Change You Can Believe In

This dynamic leads to all manner of knock-on effects that aren't evil or Communist but still are wildly different from what we're used to in America.  If your current job is fairly safe and comfortable but you know you'd have an almost impossible time finding another one if you needed to, are you likely to take any chances?  Maybe go work for a new-venture startup company?  Maybe go found a new company?  Even stick your neck out at your current job, angling for a new promotion or proposing a new product?

Not hardly: the downside risks enormously outweigh the potential rewards.  Better just to keep your head down and stay on track for a tolerable retirement.

Of course, every worker had to find their very first job.  American kids are used to going out and looking for one, maybe with the help of professors and college connections, maybe on their own.  That isn't working in Obama's America, and it hasn't worked in Europe for years.

If you can't find a job on your own, how do you get one?  By working family connections - and that leads to, in effect, hereditary positions.  In Europe, if your dad is a plumber or factory worker, there's a good chance he can finagle you into his shop.  What if you want to be an architect instead?  Too bad - he's got no connections there.

What if your dad is a grandee with the government, a graduate from one of France's grandes écoles?  In theory, these French equivalents of Harvard are open to all comers and positions are awarded on merit, just like our Ivy League claims to do.  In practice, of course, children of alumni somehow seen to be much more successful at getting in, and like an Ivy League degree, graduation from one of these schools almost guarantees a cushy high-level job no matter how incompetent or morally debauched you might be.

There is no reason why an ordinary person cannot have a perfectly comfy life in Europe - if they're lucky.  Modern Europe may be socialist but it's nothing resembling a Communist police state.  However, the stability and stasis of Europe means there's much less opportunity to advance or better yourself; if you're dissatisfied with whatever lot in life you were born into, you're very likely stuck with it.

America isn't used to that, which is why we're seeing so much screaming about inequality.  Americans don't mind inequality if they believe that, if they worked hard, they or their children just might be the next Bill Gates.

If, on the other hand, they come to believe that the system is rigged, the deck stacked against them, and they can't progress no matter what they do - then like the Europeans of old, they'll eventually find a certain appeal in thoughts of tumbril and guillotine.  As surely as night follows day, there will be a political party out there offering exactly that - indeed, there already is.

The history of Europe ought to demonstrate that, yes, we really do want to avoid that trap at all costs.  But we're no longer barrelling towards it; as the last few years' economic statistics show, we have in fact arrived.

Welcome to Europe, my friends!