Theories fail to accurately explain differences between rich-world economies

Theories about the productivity of rich-world economies outside the U.S. are skewed interpretations assumptions. Both the German and British economies are seeing higher GDP growth and lower unemployment rates than the United States. Hypothesized theories as to why these economies are doing better than the U.S. include variations in fiscal policies, exchange rates and debt levels. While promises to deal with budget deficits has lead to an increase in private spending in Britain, recent sudden spurts cannot accurately explain growth. Other theories deal with currencies. Growth for Germany, as seen in the second quarter, can be attributed to by the euro pushing down against the dollar and trade activity. However, the demand for exports from Germany doesn’t affect the exchange rate. Similarly, the weak pound might explain Britain’s recent growth but net trade barely had an effect on Britain’s growth last quarter. An important item to note is the fact that not all of these rich-world economies are at the same point in their business cycles. In general, European business cycles are behind America’s by one or two quarters, which could explain for the divergences. Also, differences in rich-world economies are better clarified by the type of recession each country has experienced. In the case of the United States, the road to recovery is far more advanced.