It’s possible to argue that this following is projecting a little too much onto just the monetary system of the remnant European Union. It’s also more sensible to agree that yes, the recent troubles could have been and in some places were solved by monetary policy and thus if they’ve not been solved then monetary policy is indeed to blame. And the one thing about a single currency area is that you do have to have that one monetary policy.
So, that remnant EU, the UK and the US all got hit by the virus at about the same time. Locked down at about the same time, have been learning how to recover for the same length of time and so on.
Standard Keynesianism tells us that in that sort of extremis shovel the money out the door. Nope, not so that people may live while they cower indoors. That’s nice, sure, but isn’t the point. If nothing is being produced then more money doesn’t solve that problem.
What does matter is consumer confidence. That paradox of thrift stuff. If we’re – entirely rationally- worried about the future then we’ll hunker down and save our groats and farthings. This, in and of itself, produces the future to be worried about as the absence of consumer spending crashes the economy. So, something must be done. We can be more old school Keynes and go build bridges but that takes time. Or more modern – and in according with St Milt – and just hand out the cash. Possibly even just telling the central bank to make the cash to hand out.
Which is what both the UK and US did. The US so much that incomes went up in lockdown. The savings rate hit 35%. Vast gobs of credit card debt were paid down (at something like a 65% of outstanding amount on an annualised basis). This all worked. So far, at least. Retail sales in both places are now above a year ago. GDP is roaring back (I’m a little optimistic in thinking that it’ll get back to within a couple of percent of February by November’s numbers but not all that optimistic). US unemployment is falling by half a percent of the labour force per week and more.
And now we’ve the latest forward looking numbers. The insight of a purchasing manager’s index is that everything that is made or done has to be made of something or done with or to something. So, if we go and ask the people who get the things which stuff will be made from or done to – purchasing managers – what they’re getting in today we gain an insight into what is going to happen to production. Compose a panel of a few hundred (perhaps 800), set the index so that more than 50 means expansion, less contraction and do this every month. This is a reading of what they’ve been doing but it becomes forward looking as a guide.
We have the US numbers:
Flash U.S. Composite Output Index at 55.5 (54.3
in September). 20-month high.
▪ Flash U.S. Services Business Activity Index at
56.0 (54.6 in September). 20-month high.
▪ Flash U.S. Manufacturing PMI at 53.3 (53.2 in
September). 21-month high.
▪ Flash U.S. Manufacturing Output Index at 53.0
(53.1 in September). 2-month low.
We have the UK:
Flash UK Composite Output Index
Oct: 52.9, 4-month low (Sep final: 56.5)
Flash UK Services Business Activity Index
Oct: 52.3, 4-month low (Sep final: 56.1)
Flash UK Manufacturing Output Index
Oct: 56.4, 4-month low (Sep final: 59.0)
Flash UK Manufacturing PMI
Oct: 53.3, 3-month low (Sep final: 54.1)
And the eurozone:
Flash Eurozone PMI Composite Output Index( 1)
at 49.4 (50.4 in September). 4-month low.
▪ Flash Eurozone Services PMI Activity Index(2)
at 46.2 (48.0 in September). 5-month low.
▪ Flash Eurozone Manufacturing PMI Output
Index(4) at 57.8 (57.1 in September). 32-month
▪ Flash Eurozone Manufacturing PMI
(3) at 54.4
(53.7 in September). 26-month high.
Remember, services are about 8 times the size of manufacturing in these economies (only 4x for Germany) so it’s the services, or the composite, numbers that matter here.
Also note what 50 means. Not that anyone’s back to some previous level and then growing more. This is the change in activity from the previous month.
So, what’s happening here? The US, run by the Orange Oaf, is accelerating away into a bounteous recovery. The UK, with an independent central bank and monetary policy, is growing nicely although slower than it was. The eurozone, run by those most perfect technocrats helpfully insulated from any democracy, is still shrinking.
Isn’t that a strong and convincing argument for joining the euro? Especially since the result was the same the last time around after 2008/9. This isn’t specific to the virus, we’ve had two economic crises and both times the eurozone has done the worst of the three.