Economic Illiterate

Obama's comments on Euro Crisis puzzle, annoy


President Obama told a crowd of donors in Seattle Thursday that the eurozone is “in a difficult state, partly because they didn’t take some of the decisive steps that we took early on in this recession.”

Obama did not specify the steps America took that prevented it from undergoing the monetary-political crisis affecting the eurozone, which most economists ascribe to the mismatch between a currency that spans 17 countries and fiscal policies that do not.

However, a White House official later clarified the president’s remarks. “A senior administration official said some examples included the United States’ early stress tests on banks, requirements that banks bolster their capital cushions and an aggressive early response by the Federal Reserve, the U.S. central bank,” Reuters reported.

Yet none of those policies—which are associated with combating financial risk and illiquid financial systems—relate to the underlying monetary and fiscal dilemma facing Europe.

The Mediterranean countries’ fiscal, tax, and labor policies have made their economies sclerotic and their governments borderline insolvent, yet they are unable to reform labor markets, reduce taxes, or inflate national currencies (since they have no national currencies), economists say.

Obama’s comments on the eurozone crisis fit a pattern of utterances that raise questions about the president’s economic knowledge. For example, the president has said that tax increases on incomes, capital gains, and dividends will result in economic growth, and that additional government spending on infrastructure, green energy, research and development, and education is the only way out of America’s bout of persistent and long-term unemployment.

America, meanwhile, continues to suffer through the worst economic recovery in history, according to Stanford University economist Edward P. Lazear.