The Relevance Of The European Economy

One of the most overworked qualifiers to forecasts for our economy is the uncertainty of the European economy. If history has any relevance, however, that doesn’t wash.

Italian economist Vittorio Valli compiled data representing the annual growth of various economies normalized to purchasing power parity (PPP) beginning in 1870. His data is represented in this chart comparing the growth rates in the economies of Germany, France (which is nearly identical to that of Europe as a whole), America, and the world as a whole:

In the years between world wars the US economy was only marginally influenced by the rapid decline in Germany, even though that had a significant impact on the global economy. And although we shared in the economic boom created by post-war reconstruction, it was not nearly pronounced as it was in Europe.

The end result, however, is that everything settled back down to virtually where it started. And there is a lesson in that.

Whether it be reconstruction after conflict or make-work government-funded projects, the net effect over time is negligible. Without intervention economies will stabilize on their own. As the chart clearly demonstrates, all that is accomplished by massive government spending are inflated cycles and therefore greater instability.

If we tend to our own problems and address them with forward-thinking creativity, we will be able to sustain the stability we have enjoyed for nearly 150 years. If instead we continue down the path of artificial stimulation fretting over what goes on in Europe, we will succeed only in creating growing volatility here at home.

As the Beatles said, “There will be an answer: Let it be.”

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