German Economy Bouncing Back: Ideas for the U.S.?

[Firestormalpha]

http://www.cbn.com/cbnnews/world/201...as-for-the-US/

Germany is starting to show signs of bouncing back from the global recession. Last quarter, the German economy grew at its fastest rate in more than 20 years. The positive numbers came after significant reductions in government spending and cutbacks to unemployment programs. Germany also saw a big jump in exports and is now producing more than its European neighbors. With Germany's new economic approach succeeding so far, some wonder if the U.S. could learn from the country's plan

Thoughts? Informed opinions? Uninformed opinions?

[ElfBane]

First of all, was Germany's ecomonic slowdown due entirely to the recession, or was it heavily influenced by their ongoing rebuilding of the former East Germany? Two decades is about the length of time that many thought it would take to rebuild the East's infrastructure. So, letting up on the taxes should be a proper course now.

[Timber Loftis]

Really Unusually Uncertain
By THOMAS L. FRIEDMAN

Berlin

Over the past few weeks I’ve had a chance to speak with senior economic policy makers in America and Germany and I think I’ve figured out where we are. It’s like this: things are getting better, except where they aren’t. The bailouts are working, except where they’re not. Things will slowly get better, unless they slowly get worse. We should know soon, unless we don’t.

It is no wonder that businesses are reluctant to hire with such “unusual uncertainty,” as Fed chief Ben Bernanke put it. One reason it is so unusual is that we are not just trying to recover from a financial crisis triggered by crazy mortgage lending. We’re also having to deal with three huge structural problems that built up over several decades and have reached a point of criticality at the same time.

And as Mohamed El-Erian, the C.E.O. of Pimco, has been repeating, “Structural problems need structural solutions.” There are no quick fixes. In America and Europe, we are going to need some big structural fixes to get back on a sustained growth path — changes that will require a level of political consensus and sacrifice that has been sorely lacking in most countries up to now.

The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines. Now our government owes more than ever and has more future obligations than ever — like expanded Medicare prescription drug benefits, expanded health care, an expanded war in Afghanistan and expanded Social Security payments (because the baby boomers are about to retire) — and less real growth to pay for it all.

America will probably need some added stimulus to kick start employment, but any stimulus right now must be in growth-enabling investments that will yield more than their costs, or they just increase debt. That means investments in skill building and infrastructure plus tax incentives for starting new businesses and export promotion. To get a stimulus through Congress it must be paired with spending cuts and/or tax increases timed for when the economy improves.

Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever.

There is only one way to deal with this challenge: more innovation to stimulate new industries and jobs that can pay workers $40 an hour, coupled with a huge initiative to train more Americans to win these jobs over their global competitors. There is no other way.

But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain.

Keeping up with Germany won’t be easy. A decade ago Germany was the “sick man of Europe.” No more. The Germans pulled together. Labor gave up wage hikes and allowed businesses to improve competitiveness and worker flexibility, while the government subsidized firms to keep skilled workers on the job in the downturn. Germany is now on the rise, but also not free of structural challenges. Its growth depends on exports to China and it is the biggest financier of Greece. Still, “Germany is no longer the country with the oldest students and youngest retirees,” said Kornblum.

By contrast, America’s two big parties still cling to their core religious beliefs as if nothing has changed. Republicans try to undermine the president at every turn and offer their nostrum of tax-cuts-will-solve-everything — without ever specifying what services they’ll give up to pay for them. Mr. Obama gave us expanded health care before expanding the economic pie to sustain it.

You still don’t sense our politicians are saying, “Wait a minute; stop everything; we have got to work together.” Don’t these people have 401k plans of their own and kids worried about jobs?

The president needs to take America’s labor, business and Congressional leadership up to Camp David and not come back without a grand bargain for taxes, trade promotion, energy, stimulus and budget cutting that offers the market some certainty that we are moving together — not just on a bailout but on an economic rebirth for the 21st century. “Fat chance,” you say. Well then, I say get ready for a long phase of stubborn unemployment and anemic growth.

[Firestormalpha]

Originally Posted by Timber Loftis Really Unusually Uncertain By THOMAS L. FRIEDMAN Berlin Over the past few weeks I’ve had a chance to speak with senior economic policy makers in America and Germany and I think I’ve figured out where we are. It’s like this: things are getting better, except where they aren’t. The bailouts are working, except where they’re not. Things will slowly get better, unless they slowly get worse. We should know soon, unless we don’t. It is no wonder that businesses are reluctant to hire with such “unusual uncertainty,” as Fed chief Ben Bernanke put it. One reason it is so unusual is that we are not just trying to recover from a financial crisis triggered by crazy mortgage lending. We’re also having to deal with three huge structural problems that built up over several decades and have reached a point of criticality at the same time. And as Mohamed El-Erian, the C.E.O. of Pimco, has been repeating, “Structural problems need structural solutions.” There are no quick fixes. In America and Europe, we are going to need some big structural fixes to get back on a sustained growth path — changes that will require a level of political consensus and sacrifice that has been sorely lacking in most countries up to now. The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines. Now our government owes more than ever and has more future obligations than ever — like expanded Medicare prescription drug benefits, expanded health care, an expanded war in Afghanistan and expanded Social Security payments (because the baby boomers are about to retire) — and less real growth to pay for it all. America will probably need some added stimulus to kick start employment, but any stimulus right now must be in growth-enabling investments that will yield more than their costs, or they just increase debt. That means investments in skill building and infrastructure plus tax incentives for starting new businesses and export promotion. To get a stimulus through Congress it must be paired with spending cuts and/or tax increases timed for when the economy improves. Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever. There is only one way to deal with this challenge: more innovation to stimulate new industries and jobs that can pay workers $40 an hour, coupled with a huge initiative to train more Americans to win these jobs over their global competitors. There is no other way. But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain. Keeping up with Germany won’t be easy. A decade ago Germany was the “sick man of Europe.” No more. The Germans pulled together. Labor gave up wage hikes and allowed businesses to improve competitiveness and worker flexibility, while the government subsidized firms to keep skilled workers on the job in the downturn. Germany is now on the rise, but also not free of structural challenges. Its growth depends on exports to China and it is the biggest financier of Greece. Still, “Germany is no longer the country with the oldest students and youngest retirees,” said Kornblum. By contrast, America’s two big parties still cling to their core religious beliefs as if nothing has changed. Republicans try to undermine the president at every turn and offer their nostrum of tax-cuts-will-solve-everything — without ever specifying what services they’ll give up to pay for them. Mr. Obama gave us expanded health care before expanding the economic pie to sustain it. You still don’t sense our politicians are saying, “Wait a minute; stop everything; we have got to work together.” Don’t these people have 401k plans of their own and kids worried about jobs? The president needs to take America’s labor, business and Congressional leadership up to Camp David and not come back without a grand bargain for taxes, trade promotion, energy, stimulus and budget cutting that offers the market some certainty that we are moving together — not just on a bailout but on an economic rebirth for the 21st century. “Fat chance,” you say. Well then, I say get ready for a long phase of stubborn unemployment and anemic growth.

The short of it being, that it's not as simple as the article I posted makes it sound. Correct?

[Lord of Alcohol]

The short of it is I would vote for TL, even though I doubt he could do much unless he could somehow disband both the republican and democratic parties. Maybe tactical nukes?

[Timber Loftis]

Originally Posted by Firestormalpha The short of it being, that it's not as simple as the article I posted makes it sound. Correct?

I think that's pretty much correct. It plays to that "pull yourself up by your bootstraps" notion we all like to think we believe in. The idea being that if we end unemployment benefits and a bunch of government programs that all the lazy ne'er-do-wells will get off their lazy butts and go back to work.

That only works if the assumption is correct that people are sitting around suckling the government teat and just being lazy.

But that's not what I see in America right now. I see a lot of educated skilled people who are just dying to work but are un- or under-employed.

And the article doesn't go into the vast number of things that Germany has that we don't. Germany tends to treat its workers incredibly well comparably. The work week averages 35 hours. Most jobs have 3 solid weeks of vacation time, paid. A typical salary for a job like teaching is what we could call upper middle class here. They haven't beaten down their unions to the point where a highly skilled professional such as a pilot makes $20k a year and has to work a second job while not in the air.

They also lack some things we have. Their stores aren't chock full of cheap Chinese shit electronics. They don't have cheap clothing options. Most people have a wardrobe that's 1/3rd or less the typical American's. It's a different form of consumerism -- everything they want and buy and make and do is done at a qualilty level. They aren't vast hoarders of cheap crap from Wal Mart. They aren't afflicted with the "buy buy buy" obsession that makes us so succeptible to the abusive economy caused by a huge trade deficit with people who send us cheapass knick knacks to satisfy our 20 second attention spans.

[Hindsight]

Most jobs have 3 solid weeks of vacation time, paid.

..and that is usually just to start with! It is very different there. They value family time. It is statistically proven, that 1/3 of the German population are traveling abroad at any given time.

[Timber Loftis]

Appeasing the Bond Gods
By PAUL KRUGMAN

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.

The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland.

Maybe those countries had no choice in the matter — although it’s worth noting that all the suffering being imposed on their populations doesn’t seem to have done anything to improve investor confidence in their governments.

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites. Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?
________________________________________

Oh, and there are several related threads going on here about the economy and economic theory and policy.

The others include notably Reagan Insider: GOP Destroyed US Economy and Double Dip Recession just on this front page. I don't mean to suggest it was wrong to start multiple threads, I'm just trying to direct traffic to the rest of the conversation.