Free Riding

Felix Salmon thinks the rest of the world is shirking:

Justin Fox has an interesting breakdown of global stimulus packages by country: the US, China, and Spain have big ones, while the rest of the world just doesn’t seem to be trying so hard….He’s right, and no amount of “buy American” provisions in the bill will prevent money from leaking overseas in a globalized economy. Liquidity, you might say, always finds its level. At the margin, it does seem that countries such as the UK are freeloading on the US bailout — both in terms of the stimulus package and in terms of the bank bailout.

I don’t know about Spain, but the U.S. was able to pass a big stimulus bill because we had a shiny new left-wing president with lots of political capital to spend, and China was able to do it because they’re an autocracy. Conversely, most European governments range from the not-very-shiny (Germany, say) to the downright superannuated (Britain).  They don’t have a yearlong campaign of hope and change to draw from.  What’s more, as Matt Yglesias and Megan McArdle point out, there are also institutional and cultural issues holding Europe back.  The Germans are still scared of a resurgence of the Weimar Republic, and the European Central Bank humors them by keeping monetary policy absurdly tight.  The EU’s stability and growth pact probably doesn’t help things either.  The upshot is that Europe isn’t doing much to fight the meltdown, and that’s especially true of Germany, which ought to be leading the charge since it runs a big current account surplus and could afford to spend much, much more.  Instead, it’s one of the chief obstacles to recovery.

I don’t have any brilliant suggestions for getting Europe to become a little more proactive on the let’s-avoid-another-great-depression front.  Just one more job for the Obama economic team to work on, I suppose.  Maybe someday Treasury will actually hire someone besides Tim Geithner and we can start pushing on this a little harder than we are now.

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