I’ve suggested on a number of occasions that one good way to understand the problems of the euro is to compare the experiences of Florida and Spain. Both had huge housing bubbles, fed in part by buyers of coastal holiday homes, which burst. Both suffered nasty recessions as a result. But then their destinies diverged, because one was part of a fiscal as well as monetary union, while the other wasn’t. As its economy shrank, Florida paid much less in federal taxes, even as federal spending in Florida rose; I’ve estimated the de facto federal aid to Florida in 2010 at around 5 percent of GDP. That’s aid, not loans; anything on that scale would have been inconceivable in Europe.
Now, as everyone knows, Spain continues to suffer, with unemployment rising ever higher; and despite ECB actions that have contained its borrowing costs, no end to the debt crisis is in sight. Meanwhile, what’s going on in Florida?
Remarkably, the Florida unemployment rate is not only down, it’s slightly below the national average:
How did that happen? It’s not because of a huge employment boom: Florida’s employment decline was much bigger than that of the nation as a whole, and it has not made up the gap:
What has happened, presumably, is out-migration: workers leaving Florida for better job markets. Oh, by the way: further evidence against the notion that “structural” mismatches explain weak employment.
Now, out-migration is a big problem when it happens in Europe, because it undermines the fiscal base; but in Florida, which benefits from federal retirement and health-care programs, housing the elderly is actually an export industry.
So the saga continues — and the evidence continues to mount that Europe just wasn’t ready for a single currency.