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Buying anything with dollars these days will make you feel poor. I haven't been to Europe in over six months. Things felt reasonably normal price-wise at that time.

Norway had an asset price bubble in the early nineties, since deflated. I wonder if you were there during that period. I've never been to Norway.

It has to be more than that, since the variability between Germany and Austria (for example) is so large - and they're both eurozone countries.

I'm not sure why Germany has become so hideously expensive (up from merely outrageously expensive), but it's very noticeable that something has happened there in the past few years.

I haven't been to Norway for a few years, but it was quite a shock back in 1999 - despite them being oil sheiks. As far as I can tell, they just tax everything to death, and use the proceeds to keep farms running all over the country just for aesthetic purposes.

Sweden is not as bad but pretty frightful - the last time I was there (a couple years ago), a modest meal and a local draft ran close to $40.

In contrast, an evening in Vienna (stopover on the way back from further east) is quite reasonable.

The dollar decline is a recent factor, but things have clearly been messed up in particular countries for a long time....

BTW, interesting that I was specifically picking on Germany, Norway, and Sweden (deservedly) in that. I was just reading through Larry Kudlow's column over at today's NRO and he notes....

Imitate the failures of Germany, Norway, and Sweden? That’s no way to run economic policy.

Great minds think alike.... :-)

I like Larry, and in any case we need all the pro free-market, pro free-trade journalism we can get, God knows.

But in many significant ways, Europe have been getting their economic policy house in order. It's a little dangerous to criticize them for poor policy. I say this mostly because, to American Conservatives, European economic policy is thought of as nothing but a bad joke, and it's not good to be blind to real change.

At this time last year, expectations for Eurozone growth were considerably higher than in the US. They got hit very hard by the subprime crisis and subsequent credit crunch because many (perhaps most) of the now-distressed MBS were purchased by European investors.

I was in Europe last May, immediately after writing my first scare story about the subprime crisis here on RedState. (I remember weighing carefully whether to raise the specter of Long-Term Capital Management, which I ended up doing. No one else had done so in public at the time, to my knowledge. Who could have guessed then that the 2007 crisis would be far worse than 1998?)

At that time, business people over there were telling me they were expecting a great year. They didn't get it, of course.

But my point is that, absent major financial disorders, the old European countries are slowly starting to get their policy act together. That includes Sweden. Norway has so much oil they don't really have to reform. The Germans will always lag behind because they have such a firm commitment to social justice.

the old European countries are slowly starting to get their policy act together.

If only "policy" could solve societal sclerosis....

Given the demographics and the cultural stultification of long-term "entitlement" mentality, it's going to take a lot more than "policy" to fix that mess....

Money quote-

.....Given the demographics and the cultural stultification of long-term "entitlement" mentality, it's going to take a lot more than "policy" to fix that mess....

schools in general? How about obesity? Crime? You can take a high and mighty stance all you want with regards to their cultural stultification but your not doing yourself any favors.

Go ahead, make your jokes, Mr. Jokey... Joke-maker. But let me hit you with some knowledge. Quit now.

-White Goodman

You're saying what everyone knows about old Europe. That automatically makes me wonder if the truth may in fact be different.

Credit conditions are as frozen in the Eurozone as they are here. Probably more so. It's going to take a lot of time for that fog to clear, years maybe. When it does, we'll see if the policy reforms happening in places like France and Spain actually work. Looking out over the next several decades, I don't think it makes sense to count Europe out.

If you're right, I'll buy you a single-malt. If you're not right, I'll already have been trading there so I'll buy you something more expensive. ;-)

Well, perhaps it's the "conventional wisdom" NOW, but I was on this more than a decade ago (even before Mark Steyn was), and I can prove it since I wrote a piece about it in a business publication back in 1998....

Well, anyway, I'd be worried about misoverestimating the efficacy of "policy" in really addressing the larger problems. The laziness and passivity in "old" Europe are incomprehensible to Americans - we react and do, while "old" Europeans just stand there like cattle.

The "European mindset" is the opposite of ours in so many critical ways. Europeans have much more faith in "organizations" rather than individuals, and are much more interested in "process" rather than "results."

The lesson I take for things over here is that the welfare state is a form of drug addiction - once people get in, they don't just walk back out. They need de-tox....

You're right (and so is c17wife) about relative productivity levels between the US and Europe. Europeans, of course, will put a very different spin on it ("We work to live, you Americans live to work.")

Still, I'm always amazed at how well the Italians manage to live. I think they have some kind of magic secret. ;-)

I've always said that the overall way Europe manages business and economic activity hasn't changed in a thousand years. The Brioni-suit-wearing executive elites with tight connections to government bureaucrats are precisely the same as the land-owning feudal vassals of the Middle Ages. Economic productivity among the serfs has never been the focus, and it still isn't today.

Europe has always struggled to find the balance in this system between power and the desire of ordinary people to have the basic necessities. But this is the normal human way societies are organized.

It's the English-speaking societies, which emphasize individual self-reliance and a deep distrust of elite rule, that are the oddballs.

When you speak of the welfare state as drug addiction, that squares with my fear that Americans, especially younger Americans, are reverting to the historical norm. They're losing the sense (if they ever learned it in the first place) that they are the creators of their own prosperity, not merely parties to a social compact in which they acquiesce to rule by elites in return for bread and circuses.

And nothing speaks to that more than Obamamania. It literally turns my stomach to see intelligent young people look at this man, with his will to power, as the savior of their world.

Wake up, you stupid kids! Obama is just another man who wants to spend your money and tell you what to do! Are you going to take that from him, or from anyone else???

Unlike Skanderbeg, I have only traveled once overseas on business- to Spain. (that trip was a doozie, though)

But I deal constantly with overseas parties, mainly by email and fax. Some country observations:

UK- basically similar to American practices. Often speak by phone- Cute accents!

Ireland- same, but even cuter accents. My mind wanders and I think I'm speaking to Maureen O'Hara from "The Quiet Man". Once I dialed what I thought was an office number and landed in this lady's home in Shannon at dinner time, as she was yelling at her kids in a most decided brogue! Then I KNEW I reached Maureen O'Hara.

France- surpisingly willing to communicate in English, given their cultural suspicions. Notices are not very timely and tend to have errors.

Germany- curt communications, often frequently in German only. Resistant to documents sent via pdf - they love paper!

Japan- given the differences between English and Japanese, I marvel at their proficiency. Timely up-to-date communications and thorough followup.

...because they'd rather speak our language badly than hear us speak theirs badly.

;-)

Will anyone in Germany have the guts to stand them down the way Thatcher did her unions?

Probably not - the demographics are fatal.

More than a decade ago, I was walking around in a suburb of Munich and was thinking to myself, "There's something odd here, but I can't quite put my finger on it." A couple years and a couple visits later, it finally hit me - there was hardly anyone on the streets who was younger than about 55.

When an oversized chunk of the population is in their 60s, you won't get progress, because you have all these old geezers holding what amount to IOUs and they don't see why someone shouldn't pay them off....

The gulf between the U.S. and Europe is much bigger than most everyone (especially most Europeans) realizes....

I heard a report the other day about our own future in the US looking very similar. Something like 70% of the population consisting of children and geezers that get their support from the resut of us (suckers).

www.scottbomb.com

Our problems on that count pale in comparison to Europe's.

The birth rate here is still a little bit above replacement (2.3). In much of Europe, it's below 1.5 and continuing to drop. That's almost a disappearance plan....

presence of all these young'uns on RS who will have to support me.

Work harder, guys! I want a Winnebago.

Third sector industries such as regulated monopolies and the public sector do not respond to market pressure on price nearly so much as political pressure. Wage increases, even appropriate increases, may not be passed on into prices because "the people" don't like to pay for things. Consequently, the increased costs are compensated for in reduced quality, reduced service, higher subsidies, or all of the above.

We have a very centralized economy here. I won't say "centrally planned" or "centrally controlled" economy, since that would imply that some rational thought goes into revenue distribution. It is fair to say that the people of this State are unwilling to pay for anything and they expect everything. Any political figure who dares to propose an increase in any tax or fee puts his office forfeit. The only way you can get people to approve necessary schools and the like if for the State to underwrite the bonded debt 80/20 or 90/10. Then while their property taxes are only paying ten or twenty percent of the cost of their schools, they bitch endlessly about how the State spends too much money and their taxes are too high.

In Vino Veritas

Consider this scenario:

A coalition of unions demands higher wages.

Their employers give in, but have to raise prices proportionately in response.

How is that not inflation, when goods and services all cost more? How do you measure the value of money but for what people will give you for it?

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The employer gives in, and raises prices proportionally in response. Even so, the economy is still worth the same amount. So a couple things can happen.

The employers product is more expensive. If a customer buys it at the new price, that will give them less to spend elsewhere. So the overall value of the economy remains the same. But somewhere else the price has to drop to maintain the same number of sales.

The consumer may decide not to pay the higher price of the employers goods/services. Demand falls because consumers are not willing to spend more for it. The employer will have to reduce prices or accept the loss of sales. But the money supply as a whole will not be affected. The employers labor costs which he tried to forward to the consumer is not inflation.

If demand for the employers goods is very inelastic, then the result will be less demand for other products and services, because there simply is not the money to purchase them. Its not inflation because the value of money has not changed. The economy adjusts.

A rise in the price of one commodity. But there is no inflation if all else is equal. Another commodity or commodities price will drop.

Based on this, how do you think the inflation rate in this country will go in the next few years based on the flooding of money into the financial markets that is going on?

Who paid for inflation in 2000? Stockholders after the stock market bubble. Who is paying now?

Our Fed and the governments in other countries have been playing some games with this. But the day of paying the Piper may be coming. How may bubbles can you create to hide inflation? I think our inflation that last few years is badly understated because they are measuring the wrong things.

You're arguing from an assumption that the money supply is fixed until the monetary authority specifically goes out to expand it. (Thus the effect that inflation someplace produces deflation somewhere else.)

But it's possible to get serious inflation through a shift in the risk profile of the investments that people make.

Right now, a wage-price spiral seems impossible to me in the US, and frankly in Europe, for the same reason: there is now an extraordinary aversion to risk in all sectors of the bond and money markets. It's very similar to what happened in the US between 1933 and 1937 or so.

You can get runaway inflation (and asset bubbles, which is the same phenomenon appearing somewhere else) in times and places where the perception among investors is that their downside is limited.

Current case in point: China. The leading indicator is deteriorating credit quality, which perceptive people have been detecting in China for nearly two years now.

"The leading indicator is deteriorating credit quality, "

It is interesting that you don't see any possibility for wage price spiral in the USA. If the leading indicator is deteriorating credit quality, how exactly do you characterize the sub-prime mortgage fiasco and the bloodbath it is causing in our financial services sector? That seems like a pretty good example of deteriorating credit quality to me.

I think the entire housing price boom was essentially a manifestation of inflation. And most of the $3 cost of gasoline can be traced directly to the falling value of the dollar. And food prices are spiking sharply too. There is a lot more inflation going on then anybody is admitting too. And minimum wage is set to rise by a whopping 20% in a few months and that will ripple upwards through the wage structure.

...at the moment.

You can cut short-term interest rates, but you won't create inflation in so doing if there's no place for the money to go.

At this moment, I believe that lower interest rates are being used by the banking system to repair its collective balance sheet after the mortgage-bubble disaster. You can see that in the fact that credit spreads have started ticking upward, and also the Treasury yield curve is steepening as the 10-year note falls in value.

For a more retail-oriented confirmation (not my specialty, so you may disagree), mortgage rates appear to be rising again.

So there's no danger of serious inflation because there's no excess liquidity that's finding its way into investments of less-than-ideal quality. (That's what I mean when I talk about "deterioration of credit quality." It's not happening anywhere in the US, to my knowledge.)

I would argue that you overlooked several critical factors in the housing bubble, which started in 2000 rather than 2003 (when policy interest rates hit their cyclic lows).

First, the role of financial engineering, which connected a huge flood of investor demand to a US consumer-mortgage market that had a badly mismatched amount of supply.

Second (and closely related), the enormous global savings glut, largely driven by the governments of developing economies, which persists to this day.

Third, globalization. (Which I use in its narrow sense to mean the connection of low-cost final-assembly capacity in Asia to consumer markets in Europe and the US.)

I think it's quite plausible that an inflationary effect from low policy rates in the US played into the housing bubble. But it wasn't the cause, and it probably wasn't the biggest factor.

Side point: twice you've mentioned $3 gasoline. Has it occurred to you that upstream and downstream are very different markets? Twelve months or so ago, when crude oil cost one half as much as it does today, gasoline wasn't going for $1.50 in the US. The more interesting commodity from a monetary-inflation perspective is not gasoline but crude oil, which many speculators are now using as a rough proxy for money.

...(more specifically, the monetary authority) creates inflation.

But it's simplistic to say that monetary authorities create money to address deflation in oranges caused by supply constraints in apples. (For one thing, apples and oranges may be partially substitutable for each other.)

The challenge is to create enough new money to match the amount of organic growth potential in the economy, without going too far and causing a deterioration in credit quality.

I don't watch the ECB as closely as I watch the Fed. The Fed's so-called permanent increases in the money supply have been extremely small over the past year. The primary effect of their interest-rate changes so far has been to steepen the yield curve and start re-liquefying the banking system, a process that usually takes a few years.

In Europe, the problem is that they need lower interest rates, but they can't get them because of the inflation problem.

I have to side with Neil on this one, Bob.

If you travel among a number of the "eurozone" countries, the disparities in costs are truly astonishing - comparing Germany and Austria provides a good example.

There's more to it than just "inflation" since that should (monetarily) hit everyone in the same way. Germany was always a bit pricey but the recent run-up into Norwegian territory has been pretty shocking; there's already considerable business flight to Austria because of this.

The ECB is in a pretty ugly box because its existence is an attempt to impose a "US Federal Reserve" onto a much more disparate group of economies. But central banks aren't nearly as instrumental to economies as they like to think that they are....

Skanderbeg, you say that your perception is that Germany is extremely high-priced compared to Austria.

Germany is one of the top exporting countries in the world, even bigger than Japan. They run an annual trade surplus in the neighborhood of 150 billion euros. But Austria's current account is roughly in balance. They have a trade surplus of maybe a billion euros or so.

High-exporting countries always have a tendency to feel "expensive" to people from other countries. There's an implicit "inflationary" effect from taking in money from other countries.

Does that explain it?

I don't think so.

"Inflation" narrowly defined refers to a monetary phenomenon rather than more generally to "rising costs of everything."

I don't know for sure on anything of this (it's just a glaring observation that can't be missed), and it doesn't have to have a single "identifiable" cause.

But Germany is clearly in more trouble than even France on the general basket of a pampered and aging population, strict work-prevention rules, demographic implosion, union strangleholds, sky-high taxes, unmanageable entitlements run amok, etc.....

...took place in late 1979, before Reagan was elected. Fed Chairman Volcker, who raised rates and killed inflation, was first appointed by Carter.

You could argue with me on this because at that time, the Fed didn't publish its policy interest-rate targets.

The US monetary authorities are basically pretty independent from the machinations of the President or the Treasury Department. (Although President George H. W. Bush threated to curtail the Fed's independence at one point.) One hopes a President Obama will be too much of a creampuff to make anything like this actually happen.

You recall correctly. Things had gotten so out of hand that even Jimmy Carter started to do a few things (I seem to recall that he even pushed a capital gains tax reduction through Congress).

Hopefully we haven't forgotten....

Volker was a monetarist and he was not overly concerned with "target interest rates" which is mostly a Keynsian machination. Volker used interest rates to brutally contract the money supply and he caused one of the worst recessions in American history. It was tough medicine. (Some people have argued that Volker was a large part of the reason that Jimmy Carter was not elected. Personally I think Jimmy inherited more economic woes than he caused. People voted against him for other aspects of his failed leadership like the Iran Hostage Crisis).

Volker's tough medicine was the right medicine. He finally slew the inflation dragon and set the stage for two decades of perhaps the greatest prosperity we have ever known.

I personally think that around 2000 Greenspan abandoned everything we learned from Volker and brought inflation back to life with his ridiculous efforts to influence the economy in the short term first by overly raising interest rates and then by overly lowering them and leaving them low to the point where he unleashed a tidal wave of new money supply. I give Greenspan most of the credit for $3.00 gasoline and the housing excesses and the current credit fiasco. And now Bernake is following in his footsteps trying to head off another minor recession with low interest rates rather than trying to head off the far worse problem of inflation that will plague us longer after this minor recession is a bad memory.

In Bernake's own words: ""We have the keys to the printing press, and we are not afraid to use them."

Terrifying!

put together by my employer for a corporate relocation a year before.

My rate on 30yr fixed - 8.75

Market rate " " - over 15 (!)

I had travelled to Europe in 1994 and 2000/2001. It was fabulous and glamourous and all that jazz.
Living here is another thing all together.
Thomas Friedmann was on to something.

That's a good line - I'll have to steal it. :-)

As I babbled above, there is a huge cultural gulf between US (U.S.) and Europe - not only do few Americans properly appreciate it.... even fewer Europeans do.

Over the past 6 - 8 years, my business dealings in Europe have drifted more and more to the east for a variety of reasons. One is the sanity of costs, the other is that there's still a vestige of a work ethic over there. Long term, we may have to just try to peel off a bunch of the eastern countries and try to save them while writing off the western countries to economic sinkhood and accession to the caliphate.

c17w, are you in Germany? Yes, it's all become quite shocking, hasn't it. Hopefully you'll soon be redeployed to one of the new bases in Romania. :-) (While you're over there, it's worth traveling into the eastern zone for the lower costs, less crowding, and amazing things that haven't been "discovered" yet.)

Budapest in particular. Seems as if there might be some airplanes going there someday.

Living here has made me appreciate the American work ethic so much. Never again will I sit silent as someone bashes the American workforce.