Friday, October 22, 2010

Germany Dumps Keynes, Recovers Fast

Gee. Maybe "Mo'Money!!!!" isn't the magic.

Germany's Chancellor Angela Merkel said: “The crisis did not take place because we were spending too little but because we were spending too much to create growth that was not sustainable..."
(August, 2009)

In that article I noted:

According to the IMF Germany’s stimulus amounted to 1.5% of GDP...

And he goes on to compare v. the US stimulus, which he calculates to be near 20% of GDP in actual "spend" plus various commitments (mostly the GSE lines/loans.)

Next event:

In October 2009, Merkel's party, the Christian Democratic Union (CDU), a center-right party, with its political ally, the Free Democratic Party (FDP) and another Bavarian party, won the Bundestag (lower house) elections. The FDP are my kind of people, and they came in on a platform of lower taxes and cutting government spending.

...Germany is the world’s fourth largest economy, they are successful manufacturers and exporters, and their government’s deficit as a percentage of GDP in 2010 is expected to be about 5.5% versus about 10.1% in the U.S. Their fiscal stimulus was largely in the form of tax cuts rather than government spending.

So what? Here's what:

Read it and weep all you Keynesians (from today's WSJ):

Germany's economy is set to grow 3.4% this year as its recovery continues across almost all sectors, the government said Thursday in its updated forecast for this year. The growth forecast for 2011 is a more modest 1.8%.

The government's previous forecast in April predicted 1.4% growth this year, before Europe's largest economy posted a blistering 9% annualized rate of growth in the second quarter and other indicators, such as unemployment rates and business confidence, continued to suggest a more rapid rate of recovery.

Granted the German economic structure is a bit different from the US'. And there are demographic differences, too.

But the Germans explicitly eschewed "Mo'Spend/Mo'Debt"--unlike the Socialists here--and are showing a helluvalot more economic progress than the Obama/Doyle bunch.

On to 11/2!!

13 comments:

J. Strupp said...

This is misguided. Germany is a case for Keynes.

First, German GDP collapsed into a much deeper recession than did the U.S. economy. Recent GDP growth has managed to only make up the difference lost between their collapse in GDP and ours.

Second, German has the policy "kurzarbeit" which is a government subsidy of private industry which pays businesses to keep workers working in recession rather than lay them off. This allows the German industry to ramp up production faster, following a downturn and, therefor, boost GDP faster once the economy rebounds.

Third, Germany actually spent more than the the U.S. on stimulus as a share of GDP.

Last but most important, the Eurozone has a common currency now. If each struggling European nation (Spain, Portugal, Greece, even France) didn't have a common currency with Germany, they would be devaluing their currency against the Deutsch Mark and, thus, boosting exports which would partially offset a portion of Germany's domestic production. IOW, the Germans are benefitting from their neighbors who are unable to devalue into the face of the Great Recession. This is why nothing is gettting better anywhere in Europe accept Germany. Germany's neighbors need to devalue just like the world needed to devalue in 1932.

In short, the Eurozone is contrained by it's modern day Gold Standard. The austerity folks want to hold Germany up as an example of the failure of Keynes. That's wrong. It's the opposite.

Dad29 said...

"kurzarbeit"

Umnnn. Nope. Yes, there is such a policy, but 'jump in GDP' does not follow 'having people in factories.'

Increased shipments, a proxy for GDP, cannot occur unless there is raw/semi/finished inventory in place. There may have been SOME of each of those categories, but unless the factories have a...ummm....boatload... of warehouse-space, there couldn't be too much of them.

Germany actually spent more than the the U.S. on stimulus as a share of GDP

Not according to the citation I gave. YMMV, but produce a cite.

neighbors who are unable to devalue

Interesting, but irrelevant. If Germany, using the Euro, is able to export, then all OTHER Euro-denominated countries should be able to export, too. Unless, of course, their social costs are impairing their industries' financial flexibility, which is the point of the article.

neomom said...

So is Keynes some long-lost relative of yours Strupp You sure seem to be pretty tight. Has Keynes ever worked btw? I'm thinking no.

Me, I'll take the fiscally responsible approach.

btw - how do you think the coming "we'll inflate our way out of the debt" strategy play with the middle class?

Carter - part deux - only worse.

J. Strupp said...

"Yes, there is such a policy, but 'jump in GDP' does not follow 'having people in factories.'"

My point is that German industry has the ability to respond faster to an uptick in demand with workers already in place.

"If Germany, using the Euro, is able to export, then all OTHER Euro-denominated countries should be able to export, too."

No. No no. You ignore exports by Euro nations within the Eurozone. Spain, etc. is not able to boost exports to northern European countries because their currency is unable to depreciate vs. northern European countries such as Germany(which should happen considering Spain's mass unemployment and collapse in GDP). Second, you ignore the Euro's relative strength vs. many other currencies. Do you think that Italy benefits from $1.50 Euro/Dollar right now (just an example)? Hell no. On the flip side, do you think Germany benefits from a currency with it's valuation vs. other currencies weighted down by it's southern neighbors? You bet.




How is the exchange rate "irrelevant" espcially in a export driven economy such as Germany's?

neomom said...

You do understand that Germany, Spain, and Italy are all on the Euro right?

Other countries on it... Andorra, Austria, Belgium, Cypres, Finland, France, Greece, Ireland, Kosove, Luxembourg, and Malta.

With that - most of your argument makes zero sense.

neomom said...

Actually, when you look at all those countries on the Euro, it makes no sense that it is as strong against the dollar that it is. Unless our own government is intentionally weakening it.

Dad29 said...

You ignore exports by Euro nations within the Eurozone

Neomom's right.

You want it both ways: that Euro-denominated countries (Germany) can export due to Euro valuation AND that they cannot export due to Euro valuation.

See:

Do you think that Italy benefits from $1.50 Euro/Dollar right now (just an example)? Hell no.

So if Italy and Germany are both Euro-denominated countries, why is Germany recovering and Italy not?

Certainly not the Euro, good man.

J. Strupp said...

"You want it both ways: that Euro-denominated countries (Germany) can export due to Euro valuation AND that they cannot export due to Euro valuation"

No I don't.

"You ignore exports by Euro nations within the Eurozone. Spain, etc. is not able to boost exports to northern European countries because their currency is unable to depreciate vs. northern European countries such as Germany"

and,

"On the flip side, do you think Germany benefits from a currency with it's valuation vs. other currencies weighted down by it's southern neighbors? You bet."

J. Strupp said...

Oh yeah and Neomom. Your google cut and paste of EMU nations left out a few. The ones from N-Z.

Prolly should step away from this one.

Now go google EMU.

neomom said...

Oh my, I did not include every single country like Portugal, Slovakia, Denmark, and the Netherlands, etc.

You were the one trying to say that Germany was at a currency advantage over Spain and Italy even though they are on the same currency, not me.

Whatever makes you feel better.

Just keep clinging to that "Keynes Works!" philosophy. I'm sure the Japanese will agree.

J. Strupp said...

Good god,

"Spain, etc. is not able to boost exports to northern European countries because their currency is unable to depreciate vs. northern European countries such as Germany(which should happen considering Spain's mass unemployment and collapse in GDP)."

Did I have to put quotes around "currency". Spain and Germany share a common currency. No kidding. The point was that Spain is not able to devalue because it doesn't have it's own currency. It probably could have been worded better. But figure it out and follow along. I think it's pretty safe to say that I have no problem indicating who is in the Eurozone and who is not. Let's move on.

neomom said...

So lets repeat (paraphrased) Dad's question...

Italy, Spain and Germany are all on the Euro. Germany is recovering, Italy and Spain are not.

What is the difference?

Maybe its because Germany didn't spend as much?

Or are you sticking with trying to perpetuate lost decades all over the world?

Dad29 said...

By your logic, Strupp, Alabama can't sell any goods in Michigan.

OK.