|Ezra Klein on who gets to pick our next president. Hint: it won't be the SC this time.|
Thursday, May 24, 2012
Ezra Klein's Wonkbook
Ah, here's the number I've been searching for: "For every one-percentage-point decline in euro-area growth, history suggests growth in the rest of the world will take a 0.7% hit, 'with the U.S. seeing a somewhat smaller decline than other parts of the world.'"
That's David Wessel summarizing some research from JPMorgan. The main channel of contagion is financial. Exports to Europe are 1.2 percent of GDP. That's not nothing, but it's not that much. The bigger problem is that "European banks have lent more than $6 trillion to the rest of the world, twice as much as U.S. banks." Indeed, "European loans to the U.S. amount to about 10% of U.S. GDP."
I used to say that Germany's Angela Merkel and the European Central Bank's Mario Draghi were going to decide who America's next president was. If they saved the euro zone, it would be Barack Obama. If they let it fail, it would be Mitt Romney. Then Europe stabilized and I stopped saying it.
Looks like it's time to start again. Though I would amend the remark to say that Merkel and Draghi aren't on their own. John Boehner will have a role, too, as, come the end of the year, markets will be reacting to what they think will happen when we reach the fiscal cliff and and the debt ceiling. Most forecasters agree that a few wrong moves could put us back into recession, and if businesses and investors think that's the likeliest outcome -- or even a likely outcome -- they're going to cut their spending and their hiring in the last quarter of 2012. Boehner is in an excellent position to persuade markets that we're likely to make the wrong moves --or that we're not.
As for Obama and Romney, well, there's little either of them can do at this point to dramatically change the trajectory of the economy. Romney has no power and Obama can't pass the American Jobs Act -- or anything else -- without cooperation from House Republicans. The only empowered actor who is not named here, and who could have a real effect on economic expectations, is Ben Bernanke. The Obama campaign had better hope he's up for a challenge.
So perhaps my old like was a bit too simplistic. What I should be saying is that Angela Merkel, Mario Draghi, John Boehner, and Ben Bernanke are likely to decide our next president.