This post isn’t going to be so much about some great insight (in fact, there’s nothing totally new in here at all). It’s about an observation I made that I never really spent too much time thinking about before, and I figured chances are some others might find this interesting as well. The basic realization I had was this: the US and Europe (or, more accurately for my purposes, the Eurozone) both cover massive areas of land, inhabited by millions of people. Yet for one of them, we get one ‘core’ statistic: US GDP. For the other, we get 17 different national GDP figures, one for each member state. Imagine the news stories if instead of focusing on Greece (Greece, I tell you!), we focused solely on aggregate Eurozone GDP vs. US GDP:
I mean sure, the US gets going much faster and the Eurozone has a double dip recession, which is a fundamental difference. And it’d still make for bleak forecasts and depressing headlines. But it’s not nearly looking as bad as Spain, Italy or Greece do when compared to the US individually:
The difference is even stronger when looking at unemployment (feel free to check FRED, but this post really can’t take any more graphs than these two and the next one). The Eurozone as a whole stacks up a lot better compared to the US than some of its members do on their own. So I’ve been asking myself why it is that we choose to look at the GDP and unemployment figures of single European countries instead of looking at the Eurozone as a whole. Likewise, why is it that we choose to look at aggregate US GDP, instead of dividing that up by state?
It’s not that the US moves totally in tandem, and so policy recommendations wouldn’t differ depending on which measure you use. There are really strong differences in states’ reactions to the financial crisis:
Michigan not looking so great, and even California wasn’t quite back on track in 2012 (these data tend to be available a little later than the aggregate figures for the US as a whole). But look at Texas, only a short period of stagnation (beginning before the crisis), and that’s basically it. And North Dakota just breezes past everybody else, not even noticing the crisis.
If these states had all had separate central banks and fully independent governments, I’d wager their reactions to the crisis would have been vastly different. Yet because the US has a federal government, they all implemented the same policy. They all got the same federal funds rate, the same QE, and the same stimulus bill. Which means that this policy probably wasn’t exactly ideal for any of them.
Europe didn’t really have individual policies either, because there’s only one ECB and austerity measures were enacted across the continent. Which definitely wasn’t ideal for anybody (by a long shot).
I don’t want to discuss here whether the aggregate figures are better or worse than the more detailed state-level figures. I haven’t thought about this enough myself to really render judgement here. At this point, I just find it fascinating to see how big the differences in GDP movements are when looking at either aggregate or lower-level measures. And maybe someone else shares that sentiment.