I am somewhat puzzled by Tyler Cowen’s insistence that the German recovery highlights the importance of “real factors.” Lets begin where we agree. Tyler says

Germany didn’t have much of a real estate bubble and the Great Recession arrived on its shores, in part, through export markets.  Global export markets collapsed quite rapidly, but they also recovered fairly rapidly (ask Singapore, andhere).  That made the German recovery easier.

This I don’t dispute. Indeed, you can see much the same thing in the US data. Exports were hammered by the Great Recession but have some roaring back.

FRED Graph

What the US has of course, is a depression in construction and a balance sheet recession holding down consumer spending.

However, are these real effects? Has something changed about the fundamental nature of economic production in the United States and the types of goods and services we can produce?

What it seems to me is that we have deep financial issues. Perhaps, this is simply an issue of terms, but I think of the financial economy as explicitly NOT the real economy.  It’s the economy of paper and promises. Extremely important. Fundamental to capitalism. But, not quite the same as the real economy.

The difference is noticeable in part because that we assume away the financial economy when we think of real model of trade and growth. Co-ordination across space and time just happens, with no industry making it happen.

Moreover, there is the obvious issue that monetary policy in Germany seems pretty loose and indeed, is probably looser than we would otherwise think as Euros flow from the periphery inward. I am not devoted to this last point. Its merely an impression and I quite open to evidence to the contrary.

Nonetheless, it looks to me like the difference between Germany and much of the rest of the world is financial and monetary, not real.

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