Free Markets, Free People

German austerity v. US profligacy – guess which one is working out best?

While the US remains mired in recession (despite the claim its over) and the usual suspects are claiming we need to spend even more money we don’t have, Germany has managed a minor miracle. Eschewing a large stimulus package and instead opting for austerity and pro-business legislation, it has seen almost the opposite of US results:

"Although October’s decline in unemployment turned out weaker than expected, the underlying trend in the German labor market clearly remains one of rapid improvement on the back of strong economic growth," said Aline Schuiling from ABN Amro.

Data on Europe’s biggest economy over the past week has been bullish, signaling its unexpectedly strong recovery could hold up in the face of signs of fragility in the global economy.

Consumer morale remains at its highest level since May 2008 going into November on expectations for a further rebound, a survey by GfK market research group showed on Tuesday.

Business sentiment hit its highest level in 3-1/2 years in October and firms’ expectations also improved, a survey showed last week, and the corporate outlook continued to improve on Thursday.

As I’ve pointed out in many other posts, this isn’t rocket science. People respond to incentives. People respond positively to positive incentives. That’s what is happening in Germany which has economically battled back first from the absorption of East Germany and now a deep recession to a position of prosperity and growing economic stability.

Meanwhile here we’re about to go into QE2 all while popinjays like Paul Krugman encourage us to go more deeply in debt as a country because everyone knows that government spends money much more wisely and well than do individuals.



6 Responses to German austerity v. US profligacy – guess which one is working out best?

  • People respond positively to positive incentives.

    But it’s an article of faith among the Ivy Mandarin Left that the only people who respond positively to positive incentives are violent criminals, Islamist fanatics, and dictators who need a foreign bugbear to distract their population from failures at home. Everybody else — law-abiding gun owners, business owners, doctors, people who actually pay their own mortgages, anybody who drives a car, etc. — is presumed to respond positively only to negative inputs like irrational vilification, senselessly punitive laws, incomprehensible and arbitrary regulations, and the like.

    It’s purely coincidental that they happen to have gotten it precisely 100% wrong both ways. An honest mistake anybody could easily make.

  • OK, here’s the bad news: Germany implemented a capital gains tax of 25% in 2009. Previously they did not have any capital gains tax at all (IIRC.) So, its not all just cutting some spending or spending more wisely. Perhaps we could do something similar ala Megan McArdle’s claim that the Dems are thinking of eliminating the corporate tax.
    Germany also have been doing labor market reforms for the past decade, reducing their cost of labor significantly. I guess we can say we haven’t passed card check yet.
    Germany is a major exporter who can export their way out of trouble. They did very well when the Euro took a dive as their goods looked to be on sale.

  • It’s great that the left and the right can finally find common ground: let’s model our system after Garman social democracy!  Health care for all, generous social benefits, union involvement, advanced infrastructure and environmental policies.

  • Paul Krugman could not be reached for comment as he was hacking a political piece for the NYT.