Some are drawing parallels between today’s European debt problems and the sub-prime problems of 2008. We don’t think European debt problems will cause a recession in the US. However, there are clearly similarities between the two events.
Those similarities result from the role of government. Both the 2008 panic and today’s European debt crisis result from policy mistakes. In the US politicians of all stripes decided that using subsidies and regulations to boost homeownership was a legitimate goal. All of these policies came together in a perfect storm of over-investment in the early 2000s.
In Europe, politicians decided that the “good life” was an achievable and legitimate goal of government: a 32-hour workweek in pleasing, stress-free jobs, with early retirement, free healthcare, and long vacations.
The US built houses it didn’t need. Europe tried to buy a way of life it couldn’t afford.