Recession, the One-Armed Economist, and the European Outlook

President Harry Truman is supposed to have asked for a one-armed economist after hearing a report. He said he was tired of hearing "on the one hand..., and on the other..."

But if we go with that line of thinking, we may not see that economic downturns can destroy wealth and cost jobs; but they also provide opportunities for others to buy low and sell high - whether it's distressed real estate or depressed stocks. Opportunities for those who can take advantage are often the foundation of better futures.

This post by a couple of Harvard professors is on Voxeu.org and talks about how recent events may cause us to forget that and move toward a more "European" system of income distribution. While the authors don't see the U.S. moving totally toward a European system, they do see a possibility of more government intervention in the economy and towards more redistribution.

Now, while it has nothing to do with the dual nature of economic events, I found the Voxeu article to be an interesting juxtaposition to this piece from today's issue of The Wall Street Journal (subscription content, but I found what appears to be a free version of the full article on this site. It may not be there long.)

Europe's economic outlook seems to be darker than the situation in the U.S., and may slow global recovery. My take on that article was that Europe's problems are complicated by the fact that European bank losses are projected to surpass U.S. bank losses, and much of that is due to lending (both commercial and residential) in Europe. Europe's banks have been more restrictive in their lending since the crisis hit. This is perhaps due to less aggressive recovery policies by government? Or it might be because banking regulations are more complex due to national sovereignty? Or exposure to losses in East Europe may be contributing? They are all part of the puzzle.

It is interesting that Europe, with a more egalitarian approach to social policy is having a rougher time than the U.S. It is also interesting that monetary and fiscal policy responses to the crisis are lagging in Europe. I wonder to what extent European budgets are constrained by existing safety nets. While I’m sure that the complex puzzle of European politics complicates things. It is possible that policy-makers felt their existing safety nets were sufficient, especially if the problem was largely the fault of the U.S. financial system, as many thought. But the global economy may be more global than they thought.

Both of these articles are worth your attention. I welcome your thoughts and comments.

This post relates to the following Keystone Economic Principles:
1. We all make choices.
2. There ain’t no such thing as a free lunch.
3. All choices have consequences.
and
4. Economic systems influence choices.