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Sunday, November 3, 2013

Paul Krugman, "Those Depressing Germans": Should Germany Suffer Like the Rest of Us?

I have never been comfortable visiting Germany owing to the Holocaust, and their recent agreement to boost cultural ties with Iran (see: http://english.farsnews.com/newstext.aspx?nn=13920726000340), at a time when Tehran threatens Tel Aviv with annihilation, stones women to death, hangs homosexuals and oppresses Baha'is, Kurds, Sunnis and Christians, makes my skin creep. However, it would be difficult not to acknowledge Germany's successful economy, which, at a time of world economic decline, has led to job growth (unemployment of only 5.5%) and a decline in its national debt.

Why is Germany prospering while much of the rest of Europe is on the skids? According to a recent DW article entitled "The secrets of Germany's economic success" (http://www.dw.de/the-secrets-of-germanys-economic-success/a-17169035):

"'An important part of that was the creation of a low-wage sector, the deregulation and flexibilization of the job markets,' said Uli Brückner of Stanford University. 'That created more jobs on the one hand, but it also created a lot of badly paid jobs.'

. . . .

While the political gears still creak occasionally, real engineering in Germany is first rate. Around 100,000 new engineers and scientists arrive on the job market every year - young men and women who have just received a top class education at one of the 200 engineering schools, or in the technical faculty of a university.

But also uneducated, still well-qualified workers also contribute to the country's high productivity. This is the result of the dual education system, whose roots lie in the medieval crafts and trades teaching system, whereby young people acquire practical abilities and basic knowledge in a vocational school. 'If I'm working in the logistics industry, then I learn languages, book-keeping, and how markets work, and that becomes the framework within which I operate as a logistics expert,' Brückner said.

Family businesses

This provides the German economy with a reliable stream of skilled workers, from which mid-sized companies benefit the most. These, defined as companies that employ no more than 500 people - the so-called 'Mittelstand' - are the backbone of the German economy. They stand for 99 percent of the approximately three million companies in Germany, most of them family-owned.

. . . .

One guarantee for the success of the 'Germany Model' is advanced technologies. Germany is practically forced to innovate, because it doesn't have any real natural resources. As many as 11 percent of German workers are employed in high-tech industries - far more than the EU average.

Every year, around 70 billion euros ($96 billion) is spent on research - more than in any other European country."

Hmm. Deregulation of the jobs market, an abundance of engineers and scientists, an apprenticeship system, prospering family businesses, and large expenditures on research. Perhaps there is something to learn from Germany's model, but of course Paul Krugman doesn't think so.

In his latest New York Times op-ed entitled "Those Depressing Germans" (http://www.nytimes.com/2013/11/04/opinion/krugman-those-depressing-germans.html?_r=0), Paul Krugman criticizes Germany for its trade surplus:

"Remember the China syndrome, in which Asia’s largest economy kept running enormous trade surpluses thanks to an undervalued currency? Well, China is still running surpluses, but they have declined. Meanwhile, Germany has taken China’s place: Last year Germany, not China, ran the world’s biggest current account surplus. And measured as a share of G.D.P., Germany’s surplus was more than twice as large as China’s."

But unlike China, Germany's currency is the Euro, which Krugman cannot claim to have been manipulated by Bonn. Krugman's response:

"Furthermore, as it happens, Germany isn’t blameless. It shares a currency with its neighbors, greatly benefiting German exporters, who get to price their goods in a weak euro instead of what would surely have been a soaring Deutsche mark. Yet Germany has failed to deliver on its side of the bargain: To avoid a European depression, it needed to spend more as its neighbors were forced to spend less, and it hasn’t done that."

Ah yes, spend, spend, spend. But would German spending have pulled Portugal, Italy, Greece and Spain out of their crises, unless much of that spending had been directed toward the purchase of olive oil and the promotion of tourism?

Krugman concludes by demanding that Germany reduce its trade deficit:

"Germany’s trade surplus is damaging for the same reason cutting food stamps and unemployment benefits in America destroys jobs — and Republican politicians are about as receptive as German officials to anyone who tries to point out their error. In the sixth year of a global economic crisis whose essence is that there isn’t enough spending, many policy makers still don’t get it. And it looks as if they never will."

Instead of examining Germany's work ethic, engineering capabilities, apprenticeship programs and R&D expenditures, all of which have spawned that surplus, Krugman would demand that the German economy flounder like those of its European neighbors.

I suppose this "egalitarian" line of thinking - everyone must suffer alike - is what makes for Nobel Prizes in economics . . .

1 comment:

  1. A brief look at some of the numbers happening in the US:17 trillion deficit-not only is that staggering,but the short time that it took to reach it from less than half of that amount,is more than a little worrisome.
    Half of newborns are born out of wedlock.How does this statistic play out in twenty years?What kind of society results?
    One in seven,or one in seven families,(I'm not exactly sure of which one,but that's immaterial) receive food stamps.What hope is there that number will decline?

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