What’s Up With Germany?

Germany is a power on the rise. Unlike much of the Western world, the country’s economy is humming along as if the Great Recession had never even happened. Indeed, in the last quarter German GDP grew by a heady 2.2.%. This was the highest growth rate since the Berlin Wall fell two decades ago.

German employment is also holding up. At 7.6% in August 2010, German unemployment is actually lower than it was before the Great Recession. For those familiar with the depressing figures of American unemployment, this is quite shocking. How did Germany do it?

Not with an economic stimulus package. Conventional economic theory – i.e. that espoused by the great British economist John Keynes – dictates that the best solution for a recession is government stimulus. This can take two forms: spending and cutting taxes.

Germany’s record of spending and tax cut-less economic success is hard reconcile with this theory. Indeed, when the economic downturn began, there was a great policy debate about whether to focus on economic stimulus or balancing the budget. Most countries, including the United States, came down on the side of Mr. Keynes. German Prime Minister Angela Merkel, on the other hand, stubbornly held onto the position that balanced budgets were more important. Germany did not pass a substantial stimulus package during the recession. And now Germany’s economy is the strongest in the entire Euro zone.

As the case of Germany shows, the application of Keynesian theory to the real world has had mixed results. Stimulus did not work for Japan in the 1990s. In America today, unemployment remains high for all the jobs the stimulus saved.

Yet Keynesians can also boast of powerful successes. Stimulus in the form of WWII ended the Great Depression. China entirely avoided today’s recession through something like a trillion-dollar stimulus.

And other factors are involved in German success. Before the recession, Germany engaged in large scale restructuring and reform; it is reaping the benefits of that today. There is also its enormous welfare and short-term work program, designed specifically to fight unemployment. This is called Kurzarbeit, and no less than Angela Merkel herself stated that, “It is only thanks to Kurzarbeit that more jobs were not lost.” Finally, German banks have by and large avoided the financial implosion that initiated today’s downturn, so Germany is far away from the recession’s epicenter.

Yet in the end this does not get rid of two facts. Fact 1: Germany didn’t do a stimulus, and German unemployment is below what it was before the recession. Fact 2: The United States did a gigantic stimulus, and American unemployment is still in a terrible state. It is hard to believe in Keynesian economic theory when presented with this, no matter what mitigating factors there are.

--Inoljt, http://mypolitikal.com/

 

 

Tags: economics, Germany, stimulus, Keynesian theory (all tags)

Comments

5 Comments

The Greens, for one thing

are very big in Germany now. And no longer a rump for the social democrats either. I'm not saying they are the only reason, but they are a major political force now in the country.

by Jerome Armstrong 2010-09-26 07:32PM | 0 recs
Germany defends its jobs and we don't--we ship them to China

Almost every Global business person you seen for the last 20 years has just about bragged about closing a plant here and sending it to China, Mexico, or India. Then in the next breath they brag how they will be able to send the products BACK HERE TO SELL--what idiots are these. Not so the Germans. As we know they are tough negoitators on trade and here is something they have done that really makes us look stupid.

The Germans have have good fortune in several ways:
1. Their education system doesn't try to send everyone to college--its realistic and tries to match people to the skills needed in the real world. On the other hand, our system is crazy / nuts to have everyone "Prepped" to go to college. However, its a sham system. Only about 20 percent of the students go to a 4 year university. We need to try an education system which is geared to the other 80 percent -- i.e. auto mechanics, bank tellers, repairmen, etc.
2. The Germans like all European countries don't allow the wholesale immersion of their countries in goods from low wage countries without tit-for-tat. For example, in the 1980's when the Globalists wanted to drown us all in foreign made goods and destroy out manufacturing base, the Germans did not allow it to happen--but we did. The Japanese can sell millions of cars here with no restrictions. But the USA can only sell about 30,000 cars there. In Germany, the Japanese car companies are allowed to sell the same number of cars there as the Germans can sell in Japan.
The German system is sensible--ours is irrational. The educate their people for jobs that they have--we give people a non-specific education for jobs that don't exist.  The Germans didn't send their jobs to India and China and Japan....we did....so we have a lot of misery, jobless, infrastructure that crumbling etc.

3. They don't bring in millions of uneducated immigrants from 3rd world countries like Mexico and Africa. Instead they lock their doors, take the people they have and upgrade their skills.  Why do we bring in millions of new immigrants when we have 20 million unemployed skilled people--its NUTS!!!

by hddun2008 2010-09-26 11:44PM | 0 recs
You have your facts wrong

When you say

 

How did Germany do it?

Not with an economic stimulus package. Conventional economic theory – i.e. that espoused by the great British economist John Keynes – dictates that the best solution for a recession is government stimulus. This can take two forms: spending and cutting taxes.

Germany’s record of spending and tax cut-less economic success is hard reconcile with this theory. Indeed, when the economic downturn began, there was a great policy debate about whether to focus on economic stimulus or balancing the budget. Most countries, including the United States, came down on the side of Mr. Keynes. German Prime Minister Angela Merkel, on the other hand, stubbornly held onto the position that balanced budgets were more important. Germany did not pass a substantial stimulus package during the recession. And now Germany’s economy is the strongest in the entire Euro zone.

 

You might want to check

http://krugman.blogs.nytimes.com/2010/09/10/ever-expanding-government/

 

 

by Ravi Verma 2010-09-27 12:42AM | 0 recs
RE: You have your facts wrong

I think the lesson we can glean from the 2008-2009 economic crash is that states in which the government was well vested in the economy (Germany, China, France, Scandinavia) tended to weather the downturn relatively well, whereas states which took a more "hands-off" approach (US, UK, Ireland, Baltics) did much worse.

To that we can add exporting countries did a lot better than importing ones. Essentially this can be explained that once the recovery/stabilization began exporting countries were better poised to take advantage of it than countries based on consumption. 

by vecky 2010-09-27 03:22AM | 0 recs
What about Germany ?

http://krugman.blogs.nytimes.com/2010/08/24/what-about-germany/

Frankly, I am surprised to hear anyone holding up a 2.2% growth rate as "having done well"

 

 

by Ravi Verma 2010-09-27 04:35AM | 0 recs

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