Monday, April 20, 2015
Sunday, April 19, 2015
BRUSSELS — America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground.
But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s.
Why has Europe done so badly? In the past few weeks, I’ve seen a number of speeches and articles suggesting that the problem lies in the inadequacy of our economic models — that we need to rethink macroeconomic theory, which has failed to offer useful policy guidance in the crisis. But is this really the story?
No, it isn’t. It’s true that few economists predicted the crisis. The clean little secret of economics since then, however, is that basic textbook models, reflecting an approach to recessions and recoveries that would have seemed familiar to students half a century ago, have performed very well. The trouble is that policy makers in Europe decided to reject those basic models in favor of alternative approaches that were innovative, exciting and completely wrong.