In the New York Times Book Review over the weekend, the American Enterprise Institute's James Pethokoukis wrote a negative review of James Grant's book The Forgotten Depression. Mr. Pethokoukis wrote:
A better natural experiment for Grant's depression-fighting formula is what's happening in the eurozone right now. With a jobless rate over 11 percent, a combination of fiscal austerity and tight money is on the verge of sending the region into its third recession since 2007.
Steven Rattner, of all people, has a very shrewd response to Mr. Pethokoukis's point (though neither Mr. Pethokoukis nor Jim Grant is mentioned in Mr Rattner's article). Mr. Rattner rejects the stimulus versus austerity debate as overly simplistic. He writes:
the focus on macroeconomic policy underappreciates the critical importance of smaller structural problems that collectively amount to a bigger challenge for Europe.
Archaic restrictions on hiring and firing workers, flawed energy policies and kilometers of red tape that can make even starting a business difficult — just to name a few — have combined to damage the Continent's ability to compete in increasingly global markets....
In France, President François Hollande arrived in office in 2012 atop a leftist wave and responded with policies that ranged from lowering the retirement age to 60 to raising corporate and value-added taxes....
Even generally sensible Germany has veered wildly off course in its energy policy. In the wake of the 2011 nuclear disaster at Fukushima in Japan, the country, which derived about a quarter of its energy from low-cost nuclear power, has begun shutting down its reactors. That came on top of a requirement that utilities purchase specified amounts of clean power at prices far higher than electricity from conventional sources.
A result is weakened competitiveness for Germany's much-vaunted industrial sector and suggestions by businessmen that new facilities requiring large amounts of power may be located in more hospitable countries....
Mr. Pethokoukis might have learned about these problems of Europe from his AEI colleagues Arthur Brooks or Edward Conard, who have been writing and speaking about them for years. But when even Steven Rattner is coming in on Jim Grant's side against the Pethokoukis-Krugman oversimplification of Europe's troubles — well, it is something to behold. The argument matters, because the risk is that Europeans will listen to Mr. Pethokoukis and try to grow by spending or loosening monetary policy rather than by fixing the structural problems of taxes and regulation that Mr. Rattner (and Messrs. Brooks and Conard) focus on.
