Quit Blaming Europe for Bad Jobs News in the U.S.
The timing of U.S. Treasury Secretary Jacob J. Lew’s trip to Europe this week couldn’t be better, given the extremely disappointing U.S. jobs report last week showing that only 88,000 new positions were created in March.
No doubt that’s a coincidence and the trip was long planned. But Lew didn’t break with the script that his predecessors have used on these jaunts to Europe, for Germany to boost consumer demand. He, too, is treating the visit as an opportunity to deflect attention back home from the real causes of bad economic news in the U.S.
Timothy Geithner, whom Lew replaced, repeatedly used trans-Atlantic visits to blame America’s jobless recovery on the economic crisis in Europe -- especially in the run-up to last year’s presidential election.
Similarly, when President Barack Obama prodded leaders, including German Chancellor Angela Merkel, to stimulate Europe’s economy at the Group of 20 summit in Mexico last June, he knew she wouldn’t do it. He was looking for a scapegoat for America’s substantial economic problems.
Lew, a close political confidant of the president, will surely do the same -- or else people back home might get the dangerous idea that his boss is responsible both for the bad job numbers in March and the generally shabby state of the employment market.
It is no great mystery why the U.S. job figures slumped last month -- and it has little if anything to do with Europe. The cause was Obama’s high-profile talk about the likely effects of the budget sequestration, which scared the dickens out of most Americans, including the U.S. business community.
Why take risks on new workers, when the president is out there front and center with a megaphone predicting catastrophe if the budget sequestration goes through?
Not smart. In an awkward attempt to blame the Republicans for the unpopular across-the-board budget cuts, Obama put a lid on the ability of the U.S. economy to create jobs. Now his Treasury secretary will try to deflect the blame onto austerity and slow growth in Europe.
Europe or no Europe, you don’t increase employment by frightening the business community with political scaremongering. Too often, political priorities have trumped the requirements of job creation in Obama’s White House.
We saw the same thing in the debate over the “fiscal cliff” last January. Because his political base wouldn’t go for cuts in government expenditure, Obama signed on for a two percentage-point increase in the payroll tax, which is really a tax on labor. It took until March for that move to affect the job-creation numbers. Again, Europe had nothing to do with it.
U.S. Treasury secretaries have long come to Europe to lecture, yet in recent years their dressing-down of counterparts across the Atlantic has had something of a “kettle calling the pot black” aspect to it.
Yes, the U.S. unemployment rate at 7.6 percent may be the envy of many Europeans, but that low number reflects people giving up on the labor market after not finding a job. A steadily declining U.S. labor-force participation rate explains the low unemployment rate. It also hints at an emerging new reality: The economic challenges and situations of the two great trans-Atlantic regions are becoming strikingly similar.
Both Europe and the U.S. have substantial fiscal-consolidation problems: The U.S. has a budget deficit of 6.7 percent of gross domestic product, and a debt pile that is 74 percent of GDP. For the euro area, those numbers are 4.1 percent and 87 percent, respectively. Both have deep structural problems that need fixing. And both suffer from political leaders who, for domestic political reasons, are reluctant to take decisive action to exit the crisis. Europe, at least, has Merkel, who is forcing the fiscal-consolidation process in the rest of Europe.
On the monetary front, I expect Lew to put in his bid for an interest-rate cut when he meets European Central Bank President Mario Draghi in Frankfurt this week. He might get what he wants in the not-too-far-distant future.
But heaven help the new U.S. Treasury secretary should he ask Draghi to go for bond purchasing, which is money creation, Ben Bernanke-style. That simply won’t happen. Everyone wants everything from the ECB these days, and there is bound to be a good deal of disappointment.
In that case, expect the U.S. administration to use Draghi’s refusal to copy the Federal Reserve as yet another excuse for those poor U.S. jobs numbers. There’s no end to this blame game in sight.
(Melvyn Krauss is a professor emeritus of economics at New York University and a senior fellow at the Hoover Institution at Stanford University. The opinions expressed are his own.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the editor responsible for this story:
Marc Champion at firstname.lastname@example.org