Old US Recovery Model Now The German Recovery Model

[Annie]

David Brooks:

http://www.nytimes.com/2010/08/27/opinion/27brooks.html?_r=1

August 26, 2010
The Parent Model
By DAVID BROOKS
During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence.

The debate got pointed. American economists accused German policy makers of risking a long depression. The German finance minister, Wolfgang Schäuble, countered, “Governments should not become addicted to borrowing as a quick fix to stimulate demand.”

The two countries followed different policy paths. According to Gary Becker of the University of Chicago, the Americans borrowed an amount equal to 6 percent of G.D.P. in an attempt to stimulate growth. The Germans spent about 1.5 percent of G.D.P. on their stimulus.

This divergence created a natural experiment. Who was right?

The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels....

 

[Greenbeard]

WSJ:

German exports are almost back to pre-recession levels. A steep drop in global trade at the end of 2008 and early 2009 hammered its export-dependent economy during the recession, with GDP falling nearly 7% from its peak in early 2008. The recovery has been quite mild so far due in part to the end of the car-scrapping program last summer and a harsh winter that delayed construction projects. In the fourth quarter of 2009 and this year's first quarter, Germany grew at rates below 1%.

The second-quarter surge "is a combination of catching up after the winter, then there's the strong demand for German manufacturing and a stabilization of private consumption," says Carsten Brzeski, economist at ING Bank.

A smaller stimulus would've produced this result in the U.S. (i.e. a surge in exports)?

 

[Toro]

"Germany is a socialist state."

Told to me by a money manager who invests in France but not in Germany.

 

[Foxfyre]

David Brooks:

http://www.nytimes.com/2010/08/27/opinion/27brooks.html?_r=1

August 26, 2010
The Parent Model
By DAVID BROOKS
During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence.

The debate got pointed. American economists accused German policy makers of risking a long depression. The German finance minister, Wolfgang Schäuble, countered, “Governments should not become addicted to borrowing as a quick fix to stimulate demand.”

The two countries followed different policy paths. According to Gary Becker of the University of Chicago, the Americans borrowed an amount equal to 6 percent of G.D.P. in an attempt to stimulate growth. The Germans spent about 1.5 percent of G.D.P. on their stimulus.

This divergence created a natural experiment. Who was right?

The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels....

It is probably significant that our President has not spent much time in Europe since he met fairly unified criticism of his methods to bring the USA out of recession. And, based on Europe being essentially recovered and their economies are rocking along fairly well, it appears that they were right.

I was listening to a discussion this morning as to whether Obama in the face of increasing bank crisis despite all the 'economic reform', and more mortgages on the brink of collapse despite all the bail outs, and hundreds of thousands of new jobless claims coming in every week despite the stimulus, will now reverse course and listen to other than the financial advisors who have obviously steered him very very wrong, Despite one or two who continue to dutifully recite the party line that the stimulus is working, there was a pretty solid consensus that the President is too much of an ideologue to admit his policies won't work and the wheels have come off.

If they are right it will all come down to November and what happens in the November election whether we can stop the runaway train. We may have to wait until the election following that to elect somebody who will consent to the wheels being put back on.

 

[Political Junky]

WSJ:

German exports are almost back to pre-recession levels. A steep drop in global trade at the end of 2008 and early 2009 hammered its export-dependent economy during the recession, with GDP falling nearly 7% from its peak in early 2008. The recovery has been quite mild so far due in part to the end of the car-scrapping program last summer and a harsh winter that delayed construction projects. In the fourth quarter of 2009 and this year's first quarter, Germany grew at rates below 1%.

The second-quarter surge "is a combination of catching up after the winter, then there's the strong demand for German manufacturing and a stabilization of private consumption," says Carsten Brzeski, economist at ING Bank.

A smaller stimulus would've produced this result in the U.S. (i.e. a surge in exports)?

Thanks, the US exports nearly nothing. We need to impose high tariffs on imported goods, like we did before Reagan.

 

[Foxfyre]

George W. Bush tried that. He tried to shore up a sluggish steel industry by increasing the tariffs on imported steel. The result was that he almost doubled the unemployment rate in that industry.

There are too many economic powers in the world to believe that they absolutely have to do business with America to survive. That is no longer the case. The only way we can compete is by providing a superior product at a fair price in a free market. That means that our tax and regulation structures must be favorable for Americans to be able to produce a superior product at a fair price. Otherwise we will continue to lose business to those countries who do.

 

[Trajan]

WSJ:

German exports are almost back to pre-recession levels. A steep drop in global trade at the end of 2008 and early 2009 hammered its export-dependent economy during the recession, with GDP falling nearly 7% from its peak in early 2008. The recovery has been quite mild so far due in part to the end of the car-scrapping program last summer and a harsh winter that delayed construction projects. In the fourth quarter of 2009 and this year's first quarter, Germany grew at rates below 1%.

The second-quarter surge "is a combination of catching up after the winter, then there's the strong demand for German manufacturing and a stabilization of private consumption," says Carsten Brzeski, economist at ING Bank.

A smaller stimulus would've produced this result in the U.S. (i.e. a surge in exports)?

Thanks, the US exports nearly nothing. We need to impose high tariffs on imported goods, like we did before Reagan.

oh yeah, hey smoot-hawley did wonders...

 

[Foxfyre]

WSJ:



A smaller stimulus would've produced this result in the U.S. (i.e. a surge in exports)?

Thanks, the US exports nearly nothing. We need to impose high tariffs on imported goods, like we did before Reagan.

oh yeah, hey smoot-hawley did wonders...

Yep. One of the major contributing factors to many additional years of depression that we didn't have to endure.