New Hurdles Loom in Euro Crisis - WSJ.com
Way back when in the US when the housing bubble was just starting to inflate, the trenchant question was how housing prices could keep rising if incomes weren't (and there were few constraints on adding more supply of houses)?
Today, the question in Europe would seem to be related to how an economy (or group of economies) can continue to fund themselves and stabilize - let alone grow - when the cost of buying goods produced in those societies continues to go up (due to higher taxes) and wages are flat to down? With downward pressure on demand, what will support job growth?
The answer is in 'la-la-land' of politicians and socialist unions.
The hope is that having borrowed all the money there is floating around, governments will somehow be able to keep printing more.
There is a lot governments could do to support job growth - but, they are faced with the huge burden of social costs and a public demanding protection of unproductive bureaucracies and anti-business regulatory environments.
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The latter part of the 19th century in industrial societies may provide an analogy. Back then, everything continued to cost less because of technology (today it's both technology and new supply sources like China).
Perhaps the logical deflation is being masked by the inflationary spending of governments?
In the 19th century, government policies by-and-large did not discourage investment and expansion. Today, policies in the US and Europe do discourage such domestic growth.
Until these policies change, it's hard to see how these economies can have a satisfactory rebound. Instead, these economies are cannibalizing themselves. (Suddenly, the vitality of the economy is gone and there are massive job losses and economic contraction.)
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