While U.S. economic growth surges, high-tax Europe declines

When the U.S. economy surges and a Democrat is in the White House, the media usually tells us it’s because Democrats are better at “managing the economy” than Republicans. Of course, Republicans understand (at least some do) that it’s not the job of politicians to “manage the economy,” and the fact that reporters think it is represents evidence of their ideological bias. But I’m getting off track.

When the U.S. economy surges under a Republican president, one of the media’s favored methods of explaining it away is to tell us it’s just part of a global growth trend, and it’s nothing to do with anything specific to the U.S., and certainly not specific to Republican policies. So it would be a pretty big problem for those making this argument if we found ourselves in a place where the U.S. saw surging growth on the heels of a tax cut, while high-tax Europe found itself lagging behind. Or should I say, this is a pretty big problem for these people, because the scenario I just described is exactly what is now happening:

The eurozone’s economy slowed slightly in the three months through June as imports jumped despite weak household spending, with few signs that a rebound is in prospect soon. The loss of momentum stands in contrast with the U.S., where growth surged during the same period in response to a package of tax cuts and government spending increases. The eurozone economy enjoyed a strong 2017 on the back of rapid export growth, but that has faded in 2018 amid worries about future trade relations between the U.S. and its partners. The European Union’s statistics agency Friday said gross domestic product—the broadest measure of the goods and services produced by the eurozone’s 19 members—increased at an annualized rate of 1.5%, slightly below the 1.6% rate of expansion recorded in the three months through March. It was well below the 4.2% annualized increase in U.S. GDP during the three months through June.

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For the second straight quarter, trade was a drag on economic growth in the eurozone, as imports rose at almost twice the pace of exports. But household spending was also weak, rising at less than half the pace of the first quarter.

The media are trying hard to elevate government spending to the same level as the tax cut in explaining why we’re getting such robust growth at the moment. But government spending was high before. What changed dramatically is that 14 percent of corporate earnings that were once sucked up by the federal government are now being invested into productive pursuits in the private sector. Europe’s basic tax structure is much more burdensome than America’s, and the difference is even more so since the tax cut. That’s the only major variable that’s happened in the past year and would explain why U.S. growth is surging and Europe is stuck in the mud. But the Europeans are pretty confident they’re going to get more spending coming soon to boost their growth! I hope Europe grows faster, because it really doesn’t help the U.S. in the long term if Europe stagnates. That said, we already know business investment will continue to grow in America because corporations were already earning the capital, and now they’re allowed to keep and spend more of it on the things they choose as priorities rather than hand it over to politicians. And since the corporate tax rate isn’t rising from 21 percent back to 35 percent any time soon, that growth is going to be with us for awhile. Try to keep up, Europe. Maybe you can learn something by how we did it.