Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amount on records going back nearly seven decades.
I don’t think we will ever return to the point where the average household will live with a debt to income ration of 160% as they did in 2006. So this will mean a transition towards an economy in which consumer spending plays a smaller part in GDP, kind of like Germany or France.
Which leads me to consider Paul Krugman’s column this morning. To listen to Fox or even many liberal commentators you would think that Europe is an economic basket case.
Europe has its economic troubles; who doesn’t? But the story you hear all the time — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.
As anyone who has walked through Paris’ Gare du Nord to get to the 180 MPH TGV train knows, most of Europe works from a public services point of view. universal health care and first class education are a right not a privilege.
One of two things are happening in this Interregnum. Either we are in a long transition towards an economy in which exports and investment (much of it being government spending on infrastructure) represent a much larger share of our GDP (as in Germany or China) or we are in a transition to an economy where productivity gains are so great that we will exist in a state of permanent underemployment. If the latter is the case and 20% of the working population will always be without work, than a social democracy becomes the only way to avoid civil unrest. If the former is the case (my belief), then the role of government investment in infrastructure and services (health, education and transportation) assumes we are in a European style social democracy anyway. Whatever the outcome, I don’t think we’re going back to 2006.