Benjamin Studebaker

As the rich countries begin to release economic data for the second quarter, we can begin to form a clearer picture of where things stand. To date, it is undeniably the case that the crisis has been much worse for the European states than for the United States. This may change going forward, because the United States is still seeing its case load expand. But at present, the mainstream media narrative that the United States has uniquely mismanaged the crisis does not withstand scrutiny. The Europeans now face new long-term, existential threats to their social programs. They are much worse off.

The Europeans locked down more aggressively than the United States, but for the most part European stimulus was less robust. The European Union relaxed its fiscal rules, and Germany spent very heavily. It’s an export economy–it thrives by flooding Southern European markets with cheap manufactured goods. That leaves it with a large surplus which it can commit to stimulus.

The Southern European countries don’t have this luxury. They have to worry about the future reintroduction of the fiscal rules, and that has limited their ability to maintain powerful stimulus programs for long periods of time. Since the Southern states can’t support big time stimulus, they also cannot support long economic shutdowns. The result is that the Southern European states were both less effective at containing the virus and less effective at buttressing their economies. The German numbers on both metrics are far superior:

Rather than rush to credit Germany, we should be critical of a European economic system which concentrates resources so heavily in the hands of one state, leaving other states with their hands tied, forced to endure both higher casualty rates and greater economic devastation.

The American stimulus was flawed in many ways–it shovelled far too much money to Wall Street and the stock market and delivered far too little to the ordinary person. But the $600 per week it offered to the unemployed helped mitigate the collapse in consumer spending which occurred elsewhere. Economically, the United States as a whole outclassed even Europe’s strongest region:

Of course, coronavirus came to America after it came to Europe. But contraction was already evident in the United States’ data from the first quarter, so it is not as if there is pre-virus data polluting America’s data from Q2. Europe also began reopening earlier than most American states (Texas notwithstanding) and if there were any recovery in May or June, we would have expected that to advantage the European data set.

It’s also possible that the United States will see more misery in Q3, due to the climbing caseload in America. Much of this depends on whether the federal government properly understands the extent to which its superior economic numbers depend on its willingness to provide superior stimulus. For weeks, Senate Republicans have contemplated cancelling federal unemployment supplement, and they are reluctant to extend aid to state and local governments to enable them to preserve their schools, police departments, and pension programs.

The president–who faces re-election in just a few months–is much more willing to spend money. If Senate Democrats can make common cause with the president’s supporters within the Republican Party, they can get a robust package passed.

On deaths, America has put up a figure that is comparable to the European experience, but higher than Germany’s figure:

Because American cases are rising, this number is likely to continue to rise. But so far, the United States has managed a death rate that is comparable to France with half the contraction France has experienced. The significance of this cannot be understated. When the European fiscal rules return, Germany will attempt to use France’s desolate fiscal position to push it into austerity, breaking the back of the French social state. Already, at 9.5%, the United States has experienced contraction that is twice the size of what it experienced in 2008. Our own economic situation is difficult for us to comprehend, and the French and Spanish experiences are on a whole different level. If you’re American, you can’t really imagine it.

The United States must be careful not to end up in the situation these European states are in. If we do more to prevent the spread of coronavirus, we have to protect our economy from the consequences. That means that either our coronavirus measures have to be compatible with defending the economy–like mandatory mask orders–or we have to support more stringent measures with even more powerful economic stimulus. The stimulus we have passed has still allowed an unprecedented level of contraction, and it is by no means obvious that this contraction will be swiftly reversed.

Many are quick to dismiss economic concerns as motivated by a desire to protect rich people’s stock portfolios. But in a capitalist system, the economy is inextricably linked to our people’s ability to pay the bills, go to school, and get healthcare. Our government doesn’t guarantee fundamental economic rights to us, and when the economy contracts those rights are allowed to fall by the wayside. When the crisis ends and the fiscal rules return, the European social state will face an existential threat. That threat is bigger than the lives of the individuals who contract coronavirus–it is a threat to the right of the people of Europe to housing, healthcare, education, and a secure pension. We must not allow those social systems to be destroyed, even at some cost to human life. We cannot let it happen here, or there, or anywhere.

Generations before us fought and died for the social systems and economic rights that we have, as incomplete and unsatisfying as they might be. We cannot let them die out. We must be willing to endure a level of personal risk to preserve them. We cannot be cowards.  We have to keep doing stimulus. We have to do more stimulus. We have to work with the president to get it done.