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How Germany got it right on the economy

washingtonpost.com

21–30 of 77 posts

Re: How Germany got it right on the economy

#21

Earlier quoted context omitted.

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 ot…

>> 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.

Yes really, though not always. (The word "only" when talking about who benefits is a little to coarse a generalization...) The tradeoff is between cheap goods now and capitalization (building of factories, etc) for later; often, without tariffs, the local industry would never even be able to get off the ground to where it is competitive. And if "the protected" contribute to the overall economy (a big if, I grant) then the country as a whole benefits. It is how the US did, how Japan did/ does it, sort of how China does it, etc, etc. And you are right that too much protection can make industries less competitive ... except when it doesn't... Like all tradeoffs, there are tradeoffs.

The complexity of human society defies abstract reasoning, and begs for actual example. I don't see any grounding in actual knowledge of history in your arguments (though (1) I grant that too much protectionism is just as bad as too little, and (2) you are probably better grounded in fact than your arguments).

Re: How Germany got it right on the economy

#22

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 t…

What I meant to say was that any statement saying that Germany is an "uninnovative" country is just hogwash. The downvote -- why? Because you disagree?

Re: How Germany got it right on the economy

#23

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 be…

You might be right if you said that my argument was too simplistic... but I think there is plenty of "cheap rhetoric" on your side as well, and the ad hominem attack ("too much education by way of reading opinion articles" is pretty slimy, if you ask me. I could easily have said "too much watching of Fox News"....

Re: How Germany got it right on the economy

#24
post #16

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 pr…

> What happened in the last few years is basically forced deflation through salary stagnation (even reduction).

As I understand it (which is too say barely), German salaries at the high end are nowhere near the UK or the USA.... Some of us think that might be a good thing, but if that is your metric, yeah, Germany probably sucks.

Re: How Germany got it right on the economy

#25

Earlier quoted context omitted.

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 t…

What I meant to say was that any statement saying that Germany is an "uninnovative" country is just hogwash. The downvote -- why? Because you disagree?

I didn't downvote you, and I also didn't say they didn't innovate. Rather, modern German innovation rarely takes the form of transformation, more of incremental innovation.

I can't think of any modern industries revolutionized by German companies. Automotive saw a steady stream of good innovation no doubt, but hardly very transformative.

Re: How Germany got it right on the economy

#26
post #13

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.wolf…

Their unemployment is 6.7%, which observing from the US (9% after massive government stimulus), I have a real hard time seeing that as a disgrace.

Re: How Germany got it right on the economy

#27
post #16

Earlier quoted context omitted.

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 pr…

> What happened in the last few years is basically forced deflation through salary stagnation (even reduction). As I understand it (which is too say barely), German salaries at the high end are nowhere near the UK or the USA.... Some of us think that might be a good thing, but if that is your metric, yeah, Germany probably sucks.

I am talking about average/median salaries (everyday worker) - high end salaries don't matter much at a country's scale, I think. If neither gdp growth (below other European countries in the same category as Germany) nor median income growth is a good metric, what do you suggest instead to measure German success ?

Your comment made me realize I may have not been very clear - the issue is that Germany's success is measured in terms of exportation as is, which is known to be a common fallacy in economics. If it were because German's products became better at a cheaper price, then it would have been a good thing, but I am arguing it has been mostly through artificial deflation (income stagnation instead of money deflation as this is impossible in the eurozone).

This is not very polemic, btw, and is pretty much agreed upon by quite a few people, independently of their political inclination (see e.g. http://www.nakedcapitalism.com/2010/03/martin-wolf-china-ger... for one reference)

Re: How Germany got it right on the economy

#28
I'm not sure I understand the impetus for articles like this. It's the same as the articles arguing why Taiwan's education system is better than the US' or arguing that Canada's healthcare system is better.

Certainly it is valuable and important to understand foreign policy systems and lessons can be learned from these observations. But it is equally important to remember that they are foreign systems. I am yet to be presented with an example of a foreign system that would directly transport to the US and be equally successful.

The US has problems in healthcare, in education and possibly in its economic systems, but non of it is a result (at least in my opinion) of picking the wrong policy system. Largely the policy systems countries choose are based on the demographic, values, economic values, etc. Germany's economic systems work for Germany because they are build for Germany.

I recognize that this article is not directly making the argument that the US should convert to a German style trade and employment system, but it implied multiple times. I would appreciate articles like this much more if they focused more on exploring the system for itself and less time comparing it to the system in the US.

Having said all that, Germany's co-determination system, as described in the article, is an interesting concept. I guess the down side would be a fear of causing separation between the interests of labor leaders and labor workers.

Re: How Germany got it right on the economy

#29

Earlier quoted context omitted.

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 ot…

A completely open market will favor the introduction of single-source monopolies - such as making all electronics in China. It is ostensibly more efficient to do things this way, but there is a massive downside. It's fragile, it's over-optimized to specific environmental conditions.

For an example of a shock that exposes these problems in the U.S./China trade, if oil prices rise, everyone loses. The producers will have to absorb higher export costs by raising prices. Subsequently, sales fall. Recession on both sides.

Trade barriers are a way to encourage local production, which will not only diversify the economy, but insulate against resource shocks. The problem isn't in raising them, but in lowering them later on when the market needs more efficiency; at that point, the fat incumbents will lobby hard to keep their protection.

Re: How Germany got it right on the economy

#30
post #19

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.

Ireland and Greece are a blessing to the German economy, without these two economic ancors the Euro would be rocketing up and pricing Germany out of the market.
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