Editore"s Note
Tilting at Windmills

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February 24, 2011

LEARNING THE WRONG LESSONS, FOLLOWING THE WRONG EXAMPLES.... Just this week, in an emailed newsletter, the Weekly Standard's Matthew Continetti offered an economic model he'd like to see the United States follow. (thanks to R.P. for the tip)

"[I]t's worth noting that in recent years German leaders have followed macroeconomic policies vastly different from those prescribed by Paul Krugman and his various Mini-Me's. And Germany is doing fine -- better than fine, in fact. Doesn't that count for something? And isn't it worth trying a different approach to fiscal policy, in the name of "bold persistent experimentation," when two years of economic stimulus have left us with 9 percent unemployment, trillion-dollar-plus deficits, and red ink for as far as the eye can see?"

Now, as stimulus analyses go, this is pretty silly. The evidence is overwhelming that unemployment would be far worse had it not been for the Recovery Act. For that matter, the point wasn't to reduce the deficit; the point was to increase it temporarily while focusing on economic growth and job creation. The right doesn't have to like it, but the stimulus did exactly what it set out to do.

But more important is the notion that the U.S. should be following Germany's lead. The New York Times' David Leonhardt explained why American policymakers would be wise to avoid Continetti's advice.

Remember the German economic boom of 2010?

Germany's economic growth surged in the middle of last year, causing commentators both there and here to proclaim that American stimulus had failed and German austerity had worked. Germany's announced budget cuts, the commentators said, had given private companies enough confidence in the government to begin spending their own money again.

Well, it turns out the German boom didn't last long. With its modest stimulus winding down, Germany's growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States -- where the stimulus program has been bigger and longer lasting -- has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany's.

Republicans in Congress continue to insist Germany not only got it right, but that we should do as the Germans did. Indeed, Continetti summarized the GOP line nicely: Germany implemented the kind of policies Republicans prefer, and it's "doing fine -- better than fine, in fact."

Except, it's not. The Republican line is backwards, bogus, and blind.

Leonhardt added:

Let's start with the logic. The austerity crowd argues that government cuts will lead to more activity by the private sector. How could that be? The main way would be if the government were using so many resources that it was driving up their price and making it harder for companies to use them.

In the early 1990s, for instance, government borrowing was pushing up interest rates. When the deficit began to fall, interest rates did too. Projects that had not previously been profitable for companies suddenly began to make sense. The resulting economic boom brought in more tax revenue and further reduced the deficit.

But this virtuous cycle can't happen today. Interest rates are already very low. They're low because the financial crisis and recession caused a huge drop in the private sector's demand for loans. Even with all the government spending to fight the recession, overall demand for loans has remained historically low, the data shows.

Similarly, there is no evidence that the government is gobbling up too many workers and keeping them from the private sector. When John Boehner, the speaker of the House, said last week that federal payrolls had grown by 200,000 people since Mr. Obama took office, he was simply wrong. The federal government has added only 58,000 workers, largely in national security, since January 2009. State and local governments have cut 405,000 jobs over the same span.

The fundamental problem after a financial crisis is that businesses and households stop spending money, and they remain skittish for years afterward.... Without the government spending of the last two years -- including tax cuts -- the economy would be in vastly worse shape. Likewise, if the federal government begins laying off tens of thousands of workers now, the economy will clearly suffer.

The most frustrating aspect of the discourse surrounding economic policy is its lack of depth. We know what Democrats think, and we know what Republicans think, but the discussion never gets to why they believe in their agendas.

I desperately want to hear John Boehner -- or any GOP leader, for that matter -- take the time to field detailed questions on this. Why would taking money out of the economy make it better? Why would laying off hundreds of thousands of workers make the unemployment rate go down?

The ideology that drives such bizarre ideas simply goes unchallenged most of the time. It's not to late to change that.

Steve Benen 10:45 AM Permalink | Trackbacks | Comments (29)

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Comments

Because liberals want the opposite/a Democrat is president/it would hurt the economy and therefore improve GOP chances at taking the White House and Senate in 2012.

Posted by: Ron E. on February 24, 2011 at 10:51 AM | PERMALINK

I also believe that Germany subsidized businesses as the recession was starting so that they would not have to lay off people. So, in effect, Germany used funds to stimulate their economy well before the US did. Republicans conveniently neglect to mention this.

Posted by: Mike on February 24, 2011 at 11:00 AM | PERMALINK

The Republican line is backwards, bogus, and blind.

The Republican line on any topic is always backwards, bogus, and blind.

Posted by: TCinLA on February 24, 2011 at 11:03 AM | PERMALINK

You could also use England as another example of austerity gone wrong. Their GDP actually shrank after budget cuts.

Posted by: Holmes on February 24, 2011 at 11:04 AM | PERMALINK

Why would any Republican subject their policies to scrutiny when doing so would make them look foolish and bumper-sticker rhetoric is repeated ad nauseum by the media as gospel?

How else do you think they get away with claiming to shrink govt, cut spending, protect civil liberties, and reduce the deficit when they haven't managed to achieve a single one of those goals since Eisenhower was in office - and he'd be labeled a liberal terrorist by the GOP today.

Posted by: Kiweagle on February 24, 2011 at 11:14 AM | PERMALINK

Both sides got it as wrong as it gets. The German economy actually is doing fine as you can see at the unemployment rate, which is to it's lowest point since reunification. And if the GDP is not quite back to pre-recession times, so what? We already employ more people than before. And if economy isn't about the people and the GDP you make the first bad mistake.

BUT: it's also hardly a republican dream-come-true. In fact: the German economy model is a republican nightmare!
Germany traditionally has extremely strong unions that work on a nation-wide basis for entire endustries. Companies like Daimler Benz nearly FORCE their workers into unions, so they have just one party to talk to when it comes to negotiations. And this union is not only for Daimler Benz - or even the auto industry. It is for the entire metal working industry of the country.
Would give the Koch's a heart attack even to think of such a power force.

Even more so: German companies of a certain size have a board - and 50% of the board members are elected by the workers. Thus the working force participates in the decision making - and so far nobody thinks this is a bad idea. The opposite is true: it builds a relationship of trust and good faith between management and workers that is to everyones advantage.

Should I explain the nearly all-encompassing healthcare system? The subsidized short worktime system that prevented workers from being laid-off - and gave Germany a headstart when the economy kicked in again? The unemployment insurance? 30 days of paid leave? Paid sick time by law - not by company decision?

The German economy is strong because even after 15 years of neo-liberal onslaught it's a system that is based on solidarity and understanding instead of fighting against each other.

Ask Steven Hill or read his "How's Europe doing?" blog for further detail.

Posted by: Vokoban on February 24, 2011 at 11:15 AM | PERMALINK

"I desperately want to hear John Boehner -- or any GOP leader, for that matter -- take the time to field detailed questions on this."

They won't.
They can't.
They don't know squat about it.

And, even if the German model was true, let me ask, how much of a percentage of GDP does that country spend on an inflated military, and two useless occupations, as well as providing military security for about 3/4 of the world?

Posted by: c u n d gulag on February 24, 2011 at 11:16 AM | PERMALINK

The more important question is why aren't we hearing from Democratic leaders? Most likely it is because there are no Democratic leaders, but perhaps the Democrats agree with Boehner's assessment. It's hard to say, isn't it, what the problem is with the democrats, or even if there are any democrats left in the world. Their silence speaks volumes, but about what we don't know.

Posted by: CDW on February 24, 2011 at 11:19 AM | PERMALINK

Republicans are clueless as usual. I was just in Germany. It's the Democrats that should be touting Germany's economy. Despite some austerity measures, German economic policy proves that you can take care of your citizens with universal health care, pensions, transportation infrastructure, subsidized higher education, and still grow your economy. And that doesn't even consider the continued support of the arts, the environment, etc. Republicans need to understand that any conservative right-leaning conversation in Germany, and there are many, particularly about immigration, and support for the EU, starts slightly to the left of Dennis Kucinich. Most Germans are appalled by the U.S. conservative movement in general, and the Tea Baggers in particular.
Dianaw

Posted by: Dianaw on February 24, 2011 at 11:21 AM | PERMALINK

"And, even if the German model was true, let me ask, how much of a percentage of GDP does that country spend on an inflated military, and two useless occupations, as well as providing military security for about 3/4 of the world?"

The world has seen more than enough German armies. You don't want us to spend more...
We spend ca. 30 Billion Euro/year on our military forces which is a bit more than 1% of our GDP.

Posted by: Vokoban on February 24, 2011 at 11:22 AM | PERMALINK

in the name of "bold persistent experimentation"

REALLY? I'm not sure we can STAND another experiment...I love all these people with jobs saying...'oh hell let's try THIS!' The GOP will never admit to causing this crisis with their programs...they just blame the President for trying to FIX their experiments.

Posted by: SYSPROG on February 24, 2011 at 11:22 AM | PERMALINK

Am I the only one who sees the irony in cutting spending on benefits and support to the people when the economy is faltering and they need it the most?

What the hell is the point of only paying out on welfare when the economy is going through a growth spurt?

Posted by: Kiweagle on February 24, 2011 at 11:24 AM | PERMALINK

Not long ago David Brooks used the example of Germany to argue against stimulus policy. Maybe he'll update things in a future column.

Posted by: t case on February 24, 2011 at 11:25 AM | PERMALINK

Dianaw,

as a German citizen I can say that you are 100% right. Angela Merkel would be considered a left wing lunatic by 95% of your political pundits.

Posted by: Vokoban on February 24, 2011 at 11:26 AM | PERMALINK
It's not to late to change that.

Yes ... yes it is.

If it wasn't too late, we'd still be hearing about how damn high unemployment is. But we don't.

If it wasn't too late, the media would be talking about ways the government can employ people in order to do things our nation needs, like new infrastructure. But they don't.

If it wasn't too late, Dems in Congress would stand up for their principles and demand more action. But they don't.

It is too late, Steve.

What we'll see from here on out are absurd, abhorrent, and destructive ideas from the right, all blocked by the left, and thus nothing will change for the next two years except the amount of horserace coverage (which will increase exponentially in the coming months).

Posted by: Mark D on February 24, 2011 at 11:27 AM | PERMALINK

Let's look at Wikipedia's lead paragraph for the Economy of Germany:

"Germany is the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP) in 2008.[8] Since the age of industrialisation, the country has been a driver, innovator, and beneficiary of an ever more globalised economy. Germany is the world's second largest exporter with $1.120 trillion exported in 2009 (Eurozone countries are included).[9] Exports account for more than one-third of national output.[10]"

Germany's prosperity up to now has been grounded on exports. Now that the importers are dying, it isn't going to last.

Posted by: Mel on February 24, 2011 at 11:30 AM | PERMALINK

As for austerity measures: it's easy to cut spending a bit in your own country when your economy is mostly based on export - as is Germany's.

And America's not so much. But to start exporting you'd ned the products the world wants to have. And that means starting to produce them in the first place. And that means infrastructure, education and most of the other things the Republicams want to cut.

Posted by: Vokoban on February 24, 2011 at 11:31 AM | PERMALINK

"Now that the importers are dying, it isn't going to last."

It's only one of the importers who is suicidal. But meanwhile there are quite a couple of them.

Germany had the biggest growth of their exports in the emerging markets. China and India are buying German machines like crazy.
If the USA tanks this will cause a lot of trouble. But the USA aren't the only pillar of the world economy anymore.

Posted by: Vokoban on February 24, 2011 at 11:36 AM | PERMALINK

Whenever I hear the word Republican, I hear:

"Embarrassing, embarrassing. No wonder why we’re going down the tubes."

- Sgt. Dave Karsnia who interviewed Sen. Larry Craig, Sen Widespread.

Posted by: Bob M on February 24, 2011 at 11:46 AM | PERMALINK

Yet, the RepuGs are ever so Ruhig about the excellent health care system enjoyed by Germans.

Posted by: berttheclock on February 24, 2011 at 11:47 AM | PERMALINK

If we follow the German economic model we should follow it all the way.

Strong unions
union members on BODs.
6 weeks vacation for all employees.

What's the chance that Republicans would agree to this?

Posted by: John Tomas on February 24, 2011 at 11:56 AM | PERMALINK

The Republican Party is tightly controlled by the wealthy and looks out only for the interests of the wealthy. They will favor any policy which keeps money in the pockets of the wealthy while continuing to drain money from the pockets of others (Bush tax cuts for the wealthy, tax "incentives" for projects owned by wealthy people (sports stadiums, attracting new businesses to nonunion locales, repeal of the inheritance tax, continuation of low capital gains taxes, sales taxes, the flat tax, slashing the government workforce, slashing any form of assistance to the poor or even the general population).

Moreover, they will favor government expenditures and projects that actively transfer public funds into the pockets of the wealthy: the entire panoply of privatization of public assets (schools, prisons, roads, waterworks, hospitals, etc., etc.) to for-profit status, and even the privatization of heretofore sacrosanct government functions (military, homeland defense), our expensive foreign wars and even more expensive defense expenditures.

Deregulation generally translates to sacrificing one form or another of safety for greater profit.

Today's relatively unclever Republicans have a standard pitch for all of their schemes: "jobs".
Often the jobs created are a parody of what was promised.

In fact, try a simple mental exercise: whenever a Republican uses the word "jobs" substitute "greater profits for US". Where are the jobs? thus becomes Where are the greater profits for us?

Posted by: Keeping Track on February 24, 2011 at 12:02 PM | PERMALINK

Angela Merkel would be considered a left wing lunatic by 95% of your political pundits.
Posted by: Vokoban on February 24, 2011 at 11:26 AM

As a Canadian,over the last 40 years I've always found the US political spectrum to be significantly to the right of the Canadian (unfortunately I fear we are moving to the right, although at a slower pace than US).

No conservative politician in Canada would dare question that universal health care was a fundamental right if he wanted to get elected.

Posted by: Johnny Canuck on February 24, 2011 at 12:11 PM | PERMALINK

I would just add to this piece that Germany actually did engage in a fairly substantial stimulus, much of it in the form of subsidizing employment by making up for wages lost due to reduced hours and that sort of thing. That was one of the main factors keeping Germany's unemployment rate relatively low.

When you factor out the anti-stimulus that the states have been engaged in, which effectively canceled out much of the federal stimulus, the stimuli in both countries was roughly the same. Now, where the US has not adopted full on austerity measures, at least at the federal level, the states are certainly adopting them and now both countries are having difficulties again (I wouldn't be too sanguine about our current state).

Posted by: Vince on February 24, 2011 at 12:17 PM | PERMALINK

Steve wrote: "The Republican line is backwards, bogus, and blind."

No, the Republican line is not "blind". It is dishonest. It is a deliberate lie. And it is very effective on people who don't know any better.

The Republicans see very clearly what they want and how to get it.

Posted by: SecularAnimist on February 24, 2011 at 12:26 PM | PERMALINK

when two years of economic stimulus have left us with 9 percent unemployment, trillion-dollar-plus deficits, and red ink for as far as the eye can see?

Yep, two terms of George W. Bush contributed NOTHING to these trillion-dollar-plus deficits.

Posted by: josef on February 24, 2011 at 4:16 PM | PERMALINK

Look. I know a bit about economics; I know more than a bit about the German system and German economics. Trust me. Any attempt at drawing more than some general parallels between the US and Germany in terms of economic programs is absurd. Their system is VERY different [start with - relationships with labor; health care; what kinds of salaries execs make, environmental issues, immigratioh; industrila policies; taxes ....]

Posted by: bigtuna on February 24, 2011 at 5:13 PM | PERMALINK

Again re "when two years of economic stimulus have left us with 9 percent unemployment, trillion-dollar-plus deficits, and red ink for as far as the eye can see?" No honest person would ever refer to what a recent plan had *left us with* without specifically relating to the starting point levels of that period, which were of course horrendous. All I can say to that hack Matthew Continetti is, "bikini graph."

As for Germany, what I synthesize from previous commenters and elsewhat (hey, I'm trying to coin a new word) is that D. already invests a lot in its economy, national industrial policy and safety net etc., so the issue of how much they inject as specific, demarcable "stimulus" is not per the same baseline as in USA.

Posted by: neil b on February 24, 2011 at 7:16 PM | PERMALINK

Vokoban: Thanks for your kind words. I visited both Berlin and Bavaria (Munich, Wurzberg, Nuremburg), and was struck by the difference in political outlook in the 2 regions. I don't pretend to any expertise regarding German politics, but it was clear that Southern Germany is much more conservative. However as you noted, Merkel is a product of the former East Germany, and was handily elected by all Germans. There does seem to be a more conservative political trend in Germany at the moment for a lot of reasons, but absolutely no one is talking about shredding the social infrastructure there, at least as far as I could tell. Great country. Thanks again.

Dianaw

Posted by: dianaw on February 24, 2011 at 10:18 PM | PERMALINK




 

 

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