OpinionMeister

Saturday, April 09, 2005

Oil Prices a Global Economic Drag

The Washington Times reports that the major economies all are slowing down in the face of high oil prices. Link.
Notwithstanding America's below-average job growth relative to previous business expansions, the U.S. economy, thanks largely to huge leaps in productivity, has been growing by more than 4 percent a year since the end of 2002. Over the past decade, U.S. economic growth has averaged 3.3 percent a year. That includes the recession of 2001 and the job-loss recovery of 2002 and early 2003. By contrast, as Robert Samuelson recently observed, "even with the stimulus of selling to the United States, economic growth in Europe and Japan has averaged only 2 percent and 1.5 percent annually since 1994."
U.S. economic growth is expected to moderate slightly in 2005, but in Europe and Japan, the economic forecast is quite bleak. The European Union on Monday lowered its projection for eurozone growth in 2005 to a paltry 1.6 percent. Germany, the erstwhile European locomotive, will expand by less than 1 percent this year after growing by a minuscule 1.5 percent during 2004. Meanwhile, the February unemployment rate among the 12 eurozone nations increased to 8.9 percent, while surveys of European manufacturing firms in March revealed a sharp slowdown in output and a collapse of new orders.

The figures show the US economy merely slowing to long-term average, while Europe looks bleak. The expansion of markets brought by the EU was enough to overcome the negative effects of overregulation for a while. But those advantages have long ago been felt, so future growth will be stifled by the central planning of the EU bureaucrats. Oil prices are just accelerating the slowdown.

There now are a few low-tax countries in the EU that help the overall numbers, but they take a lot of business away from the larger, high-tax members. The proposed EU constitution would move the zone closer to socialism, but it is looking less and less likely that it will survive the European voters and be implemented. This will be good both for the EU and for the World. The constitution would have made reform near impossible. If it is defeated, as now looks likely, the pressure from the smaller countries may succeed in forcing some free-market reforms.

The original concept of the then-named Common Market was sound: a Europe-wide zone with free passage of goods and labor with no tariffs. The superimposing of a bureaucracy for central planning was unnecessary and harmful. If the free movement can be kept, but the overregulation and overtaxation removed, Europe could be another economic superpower.

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