Regional Differences In Outcome Only Natural

A rather strange discussion has arisen in the "Macromania" blog run by David Andolfatto. Andolfatto notes that Germany has in recent years had a lot stronger growth than most other euro area countries (Though at least three countries, Slovakia, Luxembourg and Austria, has had even stronger growth) and argues that this is an argument against Nominal GDP(NGDP)-targeting, to which one advocate of the rule, David Beckworth argued that this reflects that the euro area isn't a "optimal currency area" and that the ECB has geared toward the German economy.

Both sides mistakenly assume that it is somehow unnatural for there to be regional differences in outcome within currency areas. But it's not. Quite to the contrary, because some behave better or are more lucky (meaning usually that they, like North Dakota, have found rich natural resources) while others behave worse (think Greece) or are more unlucky, it is basically unavoidable for regional differences to develop. And that will happen regardless of whether it is a "one country-one currency" currency area or a monetary union and it will happen regardless of whether the central bank targets NGDP or not.

Within the U.S., for example, cumulative real GDP growth in the period 2008-11 ranged from  29.7% in North Dakota and 7.2% in Texas  to -8.2% for Michigan and -9% for Nevada.  The difference between North Dakota and Nevada is almost as large as the difference between the strongest (Luxembourg) and weakest (Greece of course) euro area country

And such differences doesn't just exist within large countries like the U.S. NGDP growth in Sweden ranged in the 2007-2010 period from 4% in the Blekinge region to 23% in the Norrbotten region.

And even within these areas large geographical differences exists, with the cities in North Dakota that has oil drilling likely growing a lot faster than those without, and the parts of Norrbotten where new mines were opened similarly grew a lot faster than those which had no mining activity.

Indeed, any currency area that consists of more than one person and doesn't impose complete economic equality will have internal differences in economic development. Whatever you may think about NGDP targeting or multi-national currency unions on other grounds, the existence of internal economic differences isn't an indictment of them as that exists in all currency areas, whether they consist of only one state or several, and regardless of whether they target NGDP or not