Rich Miller reported for Bloomberg yesterday that “The U.S. is back in the driver’s seat of the global economy after 15 years of watching China and emerging markets take the lead. The world’s biggest economy will expand by 3.2 percent or more this year, its best performance since at least 2005…” The reason? Turns out, it’s because Washington has treated itself with less austerity than it has long proscribed for other nations, as even the establishment is now acknowledging (not an insignificant admission given the dogma we’ve been fed for decades):
The U.S. has pulled ahead of other industrial nations partly because its policy-making has been better, according to Paul Mortimer-Lee, chief economist for North America at BNP Paribas in New York.
European Central Bank President Mario Draghi and his colleagues are still weighing whether they should buy government bonds to fight off the danger of deflation — a step that the Federal Reserve first took back in 2009.
U.S. budget policy also has been more effective than the euro region’s austerity strategy, which undercut the continent’s economy, Mortimer-Lee added.
Even Alberto Alesina, a long-time proponent of government spending cuts, thinks the euro area should adopt a more expansionary fiscal stance. Alesina, who is a professor at Harvard University in Cambridge, Massachusetts, told the AEA conference on Jan. 5 that he favors more “aggressive” tax cuts by the region’s policy makers.
Japan, meanwhile, managed to throw its economy back into a recession by raising its consumption tax to 8 percent from 5 percent on April 1.
Looking across much of the rest of the world, “the U.S. continues to dominate,” Hubbard said.