SALON.COM -
How it went so wrong in America -
In the U.S., it rose much quicker and higher than in most European nations -- and it was a self-inflicted -
By Andrew Leonard, staff writer at Salon -
Wednesday, Jun 22, 2011 -
How it went so wrong in America
Some excerpts :
Typically, defenders of free markets see flexibility as a good thing, enabling resources to flow more quickly to where they can best be made use of. And that's certainly true in many cases. The track record of U.S. flexibility has, by and large, been very impressive. But the U.S. experience suggests that too much of a "good thing" can be a very, very bad thing when a big shock hits the system. When employers lay off so many people at once, the cumulative effect catalyzes a vicious, self-perpetuating cycle that keeps an economy in deep freeze -- and potentially exacerbates the effect of the initial shock. In an eight-month period, the cumulative demand represented by 4 million Americans vanished. Not only did all those laid-off workers stop buying automobiles and new shoes and nice dinners but all their still-employed colleagues immediately pulled in their consumer horns as well, fearful that they might be next in line on the chopping block.
But in Europe, where laws, social mores, and strong unions prevented any such flexible reaction, the shock ended up substantially gentler. In Germany, restrictions on firings in combination with other labor market reforms resulted in a dramatically different outcome: Germany's unemployment rate actually fell while the U.S.'s was doubling.
The free market can be a harsh mistress. A strong social safety net, on the other hand, combined with some relative level of labor market inflexibility, seems to have cushioned the impact of the Great Recession on European workers. The millions of Americans who still remain out of work might want to think about which scenario looks more attractive, in hindsight.
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