One of my favorite variables, all too often underused, is real GDP divided by the price level. It really only works as a useful measurement in large, populous single-currency areas, though -like the United States, China, or the Eurozone. Basically, it’s a measure of how efficiently a region is using its resources given its nominal GDP. For example, if a country enters a deflationary depression due solely to collapsing NGDP, its RGDP should suffer. But its RGDP should also fall at the same rate as its price level.

These are the real GDPs of Portugal, Italy, Greece, Spain, Germany, and Ireland:
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And these are the price levels of the same countries:
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At first glance, Ireland’s real GDP up to Q4 2014 seems in the same boat as that of Portugal, Italy, and Spain, except that Ireland had no double-dip recession.
But look at the real GDPs of the same countries divided by their price level:
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Between Q1 1997 and Q4 2007, the largest improvements in real GDP divided by the price level were seen in Ireland, then Germany, then Greece, then Spain, then Portugal, then Italy. Between Q4 2007 and Q4 2014 (seven years of pain!) the smallest deteriorations in the same measure were seen in Ireland, then Germany, then Spain, then Portugal, then Italy, then, lastly, Greece.

Neoliberalism works! The Celtic Tiger lives! The only thing that’s missing is the aggregate demand (and even that’s coming back)! Meanwhile, anti-neoliberal Greece and Italy remain in their own boat of awful, which even the greatest quantity of monetary stimulus can’t fix. Italy had virtually the same inflation as Germany from 2007 onwards, yet it had a severe double-dip recession while Germany didn’t. Ireland remains a classic case of economic convergence, while Italy and Greece may soon be known as classic cases of economic divergence.