I haven’t seen these 2 pieces of information tied together any where else …
In June, German Chancellor Merkel announced a massive austerity program.
President Obama tried to jawbone her out of it and have her follow his lead and spend, spend, spend.
The German government unveiled the largest package of austerity measures in the country’s history, with deep cuts in social welfare programs and the public sector.
German Chancellor Angela Merkel announced an unprecedented austerity package involving initial spending cuts of 11.2 billion euros . The government hopes to save 80 billion euros by 2014.
Deutsch Welle, German government unveils unprecedented austerity plan, 07.06.2010
http://www.dw-world.de/dw/article/0,,5658604,00.html
Germany’s unemployment rate has been dropping … and is now a full 2 points lower than the U.S.’s
The German unemployment rate was stable in August at 7.6 percent of the workforce, as the number of people seeking work edged slightly lower to 3.188 million people. Europe’s biggest economy continues to power out of its worst post-war recession.
It was the 14th monthly decline in a row and left the unemployment rate at close to a two-year low point.
“The clear rebound of the German economy continues to translate positively onto the jobs market.”
AFP: German official unemployment rate stable at 7.6%, Aug. 31, 2010
So, what are you going to believe – our government models that say that the Stimulus is working – or Germany’s real life experience with an austerity plan.
The Homa Files 
September 1, 2010 at 10:29 am |
Professor Homa,
I feel this may have confirmed your point: private sector is the main force of sustainably creating jobs, instead of government’s stimulus.
In Germany, the private sector is encouraged by their government’s cautious spending on tax. Therefore, they are willing to expand their hiring, instead of what is happening in the US, holding …watching…
September 1, 2010 at 2:35 pm |
1) Germany never had as much consumer debt as the US. It is not surprising their consumers are more able to spend than Americans.
2) Germany has a much stronger safety net than the US. Consumers do not need to RATION for things like health care.
3) What does “spending on tax” mean?
4) Why wouldn’t higher taxes spur investment by making it more expensive to take capital out of a business?
September 1, 2010 at 3:57 pm |
1) Here, debt is problem, the worse is that there is no way to shed off the debt in a short time.
2) From KEYNESIAN THEORY, private sector is expecting the government will increase tax in the future to compensate current tax loss. Therefore, they would like to hoard cash to live through the tough time.
September 1, 2010 at 4:09 pm |
No. 4 was right, if the economic environment was not that bad as what we are in.
September 2, 2010 at 4:29 am |
Hate to burst your bubble, but this is mainly due to highly socialist policies in Germany! Everybody works together to keep jobs… the workers have 50% representation on boards of companies, the local banks are owned/controlled by the local government, both management of companies and unions get seats on the the boards of the banks. On top of that, there are government-funded programs which allow companies to temporarily lay off workers at full pay (up to two years) provided the local Union agrees that it is a good idea — these employees do not count as “unemployed” (And this program is not being cut!).
The end result is that all the business have no orders, but keep their high costs. The losses are effectively financed from cash reserves or by the banks. The good news is that this is all great for turnaround/restructuring specialists — our business is booming, as we eventually have to come in and fire all the excess employees. Last resort is insolvency, which in Germany means Chapter-7-style, as nobody really believes in the German Chapter-11-style equivalent. Plenty of firms are recruiting MBA’s with experience in this area!
September 2, 2010 at 4:29 pm |
DaveM – I can’t tell whose bubble you are bursting. The “highly socialist” policies of Germany sound attractive.