America's economic structure, its leaders' ability to make rapid political decisions and cultural memories of the Great Depression have been the engine of its recovery
Any way you cut it, the US recovery from recession has been weak. Measured by jobs growth, factory output, growth rates, house prices or the federal budget deficit, it has been the feeblest pick-up since the second world war. When he was running for re-election in 1984, Ronald Reagan ran ads boasting of "morning in America", hailing the boom that followed the slump of the early 1980s. Barack Obama can make no such claims.
But everything is relative. From a European perspective, the world's biggest economy looks in reasonable shape. It may not be firing on all cylinders but the economy is expanding and jobs are being created. That cannot be said of the eurozone, where unemployment has risen to a record one in eight of the workforce and the economy has contracted for the past 18 months.
There are three main reasons why the US has outpaced Europe in the early stages of what has proved to be a prolonged period of rehab: economic structure, policy decisions and culture. Starting with structure, America is a true single market and Europe is not. Rich states such as New York subsidise poor states in the south without the bitterness that surrounds fiscal transfers from, say, Germany to Greece. Moreover, labour-market mobility means that workers who lose their jobs in one part of the US head off to a state where prospects are brighter. In 2007 almost 900,000 Americans moved from the north-east to the sun-belt states of the south and west.
American voters are often frustrated by gridlock in Washington, but in times of crisis the US can move swiftly because it takes only a handful of policymakers – the president, the chairman of the Federal Reserve and the treasury secretary – to make a big decision. Those who think the US political system is dysfunctional should look across the Atlantic to Europe, where decisions require the approval of 17 governments in the eurozone.
This helps explain why the US has proved more nimble and imaginative than the eurozone in tackling the crisis. In the autumn of 2008, when the entire global financial system was on the brink of collapse, it was the supposedly non-interventionist, free-market US that swiftly deployed the full power of Washington to slash interest rates, pump money into the economy and – crucially – allow troubled banks to dispose of their toxic assets. Where Europe's banking system remains in poor shape, America's has been largely cleaned up and is starting to lend again.
The Obama administration has also been more relaxed about deficit reduction than governments in the eurozone. Put simply, the president's approach has been that economic growth should take priority over repairing the damage to the budget caused by the slump. Fiscal policy is being tightened in the US, but at a more leisurely pace than in the eurozone.
In large part, the differing way of thinking about austerity reflects cultural differences – the third big factor that divides the US and Europe. Washington's policy response has been shaped by memories of the soup kitchens and the dole queues of the Great Depression. Given America's relatively ungenerous welfare system, the Fed sees its primary task not as tackling inflation but bringing unemployment below 6.5%. The European Central Bank, cloned from the German Bundesbank, sees things differently.
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