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How Germany got it right on the economy

washingtonpost.com

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Re: How Germany got it right on the economy

#11

Post by Stormbringer »

I find it interesting that over the last hundred years or so, especially in the US, the 'hidden cause' of financial upheavals is usually legal - often something as simple and innocuous as changes to the rules for how savings/superannuation are taxed.

When you think about this it makes sense, the rich pay attention to these changes, and move their money accordingly. It's like trying to stabilise a rowboat, you notice that the starboard is a little low, so you order everyone to rush to the port side...

Another interesting parallel is between Apple and Germany. Apple's detractors have been screaming at them for over a decade about how they are going to lose because they don't have market share. Meanwhile, the computer manufacturers who pursue market share at the expense of profitability go bankrupt in droves ("we're making a loss on each unit, but we'll make it up in volume").

Disclaimer: I'm not German, but I do drive a German car :D

Re: How Germany got it right on the economy

#12

Post by jacoblyles »

forkandwait wrote: post #4

I think one of the interesting things about Germany, Japan, and China is that they are NOT strictly capitalist countries, and they do NOT follow Chicago style economic models (which, ahem, seem to be inaccurate when one attempts to verify them empirically). I think a little bit of socialism is necessary to keep a thriving industry (not finance) driven economy going. Trade barriers, spending on long term public educat…

There's an awful lot of assumptions to unpack in this comment so I'm not going to address everything. But can we all agree that a country which had GSEs pouring $500 billion into the mortgage market and a decade's worth of government holding short term interest rates at 0% isn't some kind of laissez-fare paradise?

You had "Chicago style" economists yelling at the government to dismantle Fanny and Freddie for years before the collapse, those shining examples of government long-term economic planning. For decades free market economists advocated replacing the Federal Reserves short-term focus on quarterly GDP with a mandate to maintain long-term price stability. Oh, and they have been railing against both parties for racking up such a huge public debt.

Then when the shit hits the fan, all people remember is a caricature of "Chicago-style" economists, not what they actually said and did.

The narrative that the United States lost its way through too much deregulation and free market fundamentalism is cheap rhetoric that doesn't become any more true the more often it is repeated. It is symptomatic of too much education by the way of opinion articles.

Re: How Germany got it right on the economy

#13

Post by edderly »

nickpinkston wrote: post #5

While certainly Germany has done a lot right and deserve credit for their current economic strength, we have to recognize that they've both chosen a very different path: i.e. stability over growth, and also have a very different culture than we Anglo-Saxons - which I would argue are quite inter-related. When it comes to quality manufactured goods, Germany is legendary and has strongly biased its economy over the past…

I suggest that people don't go too overboard in praising Germany. Their unemployment rate over the past 20 years has been a disgrace and do not forget that though their trade surplus is healthy some consider it also reflects the weakness in German commodity consumption.

Some food for thought (though the later figures don't seem accurate): http://www.wolframalpha.com/input/?i=us+gdp+growth+since+199... http://www.wolframalpha.com/input/?i=us+employment+since+199...

Germany's (previous) economic woes could be reflective of the pain of integrating E. Germany. But then again that illustrates the problem of comparing economies directly. For e.g. could the influx 'cheap' east German labor make the overall German economy more competitive.

Re: How Germany got it right on the economy

#14

Post by forkandwait »

nickpinkston wrote: post #5

While certainly Germany has done a lot right and deserve credit for their current economic strength, we have to recognize that they've both chosen a very different path: i.e. stability over growth, and also have a very different culture than we Anglo-Saxons - which I would argue are quite inter-related. When it comes to quality manufactured goods, Germany is legendary and has strongly biased its economy over the past…

Just as a plug for German innovation -- consider the 19th century: if you include Austria/ Vienna, people who spoke German (and were often Jewish) basically invented modern thought, ranging from mathematics to chemistry to music to philosophy to psychology etc. England was great in applied physics and math, France in dynamics and biology, but in theoretical math, music, and philosophy Germany TOWERS above anyone in the 19th century.

It all went south with the Kaiser's attempt to imitate Napolean and then National Socialism; but if Germany had avoided militarism and kept the Jews they basically would own Europe by now (they sort of do even with the setbacks of the first half of the twentieth century).

Re: How Germany got it right on the economy

#15

Post by wheaties »

The problem with this article is that is glosses over one major problem: if Germany's currency moved in accordance with its economy rather than the entire European Union then its exports would be grossly overpriced and uncompetitive. It's the formation of the EU and a single currency that has allowed it to remain an exporting country rather. The article can not compare apples to oranges and make sense.

Re: How Germany got it right on the economy

#16

Post by cdavid »

nickpinkston wrote: post #5

While certainly Germany has done a lot right and deserve credit for their current economic strength, we have to recognize that they've both chosen a very different path: i.e. stability over growth, and also have a very different culture than we Anglo-Saxons - which I would argue are quite inter-related. When it comes to quality manufactured goods, Germany is legendary and has strongly biased its economy over the past…

I think so-called German "miracle" is mostly a journalist and politics invention. What happened in the last few years is basically forced deflation through salary stagnation (even reduction), since you cannot play with you money anymore in the eurozone. This is very good for the companies which export a lot, but is pretty bad for everyone else (including its neighbours).

Economic improvemnts are mainly coming from productivity gains - artificially lowering your costs instead of trying to build more with less is not a sustainable past. But this kind of story is gold for newspapers: export (good !) vs import (bad !), family capitalism (good !) vs shareholders (bad !). All the usual cliches are there.

This story has been told for years in Europe, especially in France, where it is said we should follow the German way. It is very ingrained in the news reporting and the general level of discussions. One striking example is the French left and right discussing about Germany: both will assume that German growth has been better than France, and the left will claim that it shows growths is not well shared, and the right will use it as the proof that salaries are too high in France. Even though until 2008, Germany per year gdp growth has always been lower than France since the reunification.(http://www.wolframalpha.com/input/?i=gdp+growth+france+germa...). The OP article basically tells the same story from an Americain POV, even though the data do not back it up at all.

Re: How Germany got it right on the economy

#17

Post by brc »

forkandwait wrote: post #4

I think one of the interesting things about Germany, Japan, and China is that they are NOT strictly capitalist countries, and they do NOT follow Chicago style economic models (which, ahem, seem to be inaccurate when one attempts to verify them empirically). I think a little bit of socialism is necessary to keep a thriving industry (not finance) driven economy going. Trade barriers, spending on long term public educat…

I think this is a bit revisionist at best. One of the defining characteristics of post-war West Germany was the embracing of free markets and de-regulated business. The most influential post-war Economics Minister, Ludwig Erhard was a fierce proponent of liberal economic theory and laid down the foundation for the decades of strong growth that West Germany experienced. He flatly rejected calls for subsidisation of industry and threw out all the price controls that had been in place.

In contrast to the UK, which went the other direction after the war and nationalised and socialised so much that it's economy was moribund by the 1970's, in complete isolation with the emerging powerhouse that was the West German economy.

Sure, the Germans have had a problem with unemployment, and youth unemployment in particular, but they enjoy a high standard of living and a stable and prosperous economy. And the unemployment rate has been dropping since the conservative-minded government has been in power. It is now lower than most US states.

So I would contend that Germany, particularly throughout the period from 1950-1980 was following a classical liberal economic philosophy more closely than just about any other Western country, the US included. And the results showed. Though I would say it was more Austrian school based than Chicago.

I also don't agree with your assertion that socialism is required to keep an industry going. For that you just need an export-led manufacturing sector, good technical training in schools, and to keep the finance sector in it's place, instead of being allowed to dominate the economy and thus wield political power.

Interestingly enough, the Germans haven't had a housing crash because there was no housing boom. And that's because there was no attempt to change the ownership levels amongst people who didn't own a home.

Re: How Germany got it right on the economy

#18

Post by jacques_chester »

forkandwait wrote: post #8
nl wrote: post #6

Earlier quoted context omitted.

Well generally I agree except for this: Trade barriers WTF?! Trade barriers are very, very bad for industrial economies. Also, I think the case for subsidies is arguable at best. Subsidies may be useful in emerging market sectors, but are usually better structured as public spending on research etc. (Obviously argument this doesn't apply to health care any more than it does to other areas of public good such as roads…

Trade barriers, in the sense of protective tariffs to prevent outside manufactures selling cheaply in your domestic market, can be very, very, very good for industrial development. Governing a nation is like cooking a small fish, grasshopper. A little bit of salt (subsidies, tariffs, regulation, taxation to pay for infrastructure, etc) is a wonderful thing, too much salt is unfortunately very easy to apply. And argum…

> Trade barriers, in the sense of protective tariffs to prevent outside manufactures selling cheaply in your domestic market, can be very, very, very good for industrial development.

Not really.

You hurt your own economy because your own consumers now to pay a higher price for their goods. The protected manufacturer has reduced incentive to reduce costs or improve quality. And of course you have hurt people on the other side of the world, who also happen to be humans with families and aspirations, by cutting them out of your market.

The only winners from trade barriers are the protected. Everyone else loses, over and above the ostensible benefits.

Re: How Germany got it right on the economy

#19

Post by brc »

wheaties wrote: post #15

The problem with this article is that is glosses over one major problem: if Germany's currency moved in accordance with its economy rather than the entire European Union then its exports would be grossly overpriced and uncompetitive. It's the formation of the EU and a single currency that has allowed it to remain an exporting country rather. The article can not compare apples to oranges and make sense.

But you could make the same argument against any US state that remains cost competitive due to the currency. And it also discounts the fact that Germany did very well during the period when it did have it's own currency. As it is, German economic performance does have an effect on the Euro, being the largest member state.

Re: How Germany got it right on the economy

#20

Post by whakojacko »

brc wrote: post #19
wheaties wrote: post #15

The problem with this article is that is glosses over one major problem: if Germany's currency moved in accordance with its economy rather than the entire European Union then its exports would be grossly overpriced and uncompetitive. It's the formation of the EU and a single currency that has allowed it to remain an exporting country rather. The article can not compare apples to oranges and make sense.

But you could make the same argument against any US state that remains cost competitive due to the currency. And it also discounts the fact that Germany did very well during the period when it did have it's own currency. As it is, German economic performance does have an effect on the Euro, being the largest member state.

>But you could make the same argument against any US state that remains cost competitive due to the currency.

Indeed you can.

>And it also discounts the fact that Germany did very well during the period when it did have it's own currency.

This is true. However Germany also gets decent manufacturing benefits from the income disparity in the east.

>As it is, German economic performance does have an effect on the Euro, being the largest member state.

Of course. However, about half of Germany's exports are to Eurozone, for which EUR flucations have no effect.

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