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Germany’s Recovery

This isn’t even really what his column is about, but this chart from Martin Wolf is worth looking at with regard to recent coverage of Germany’s rapid growth:

Several points about this. I don’t think we should be giving any country credit for impressive recovery until they at least re-obtain pre-crisis GDP levels. The more ambitious goal of pre-crisis GDP per capita might be even better. What’s more, German economic performance across the duration of the crisis has not, in fact, been any more impressive than America’s. What does look better is the German unemployment situation, which sadly isn’t depicted in this graph.

If you look at the contrasting trajectories between unemployment and productivity in the US and Germany I think we’re getting to the real moral of the story here. The Obama administration’s fiscal policies were deliberately designed to maximize GDP rather than employment, on the theory that the specific allocation of labor market resources is best left to the market. German policies like kurzarbeit did the reverse. And thus far both countries have gotten what they asked for — America has a higher GDP and better productivity growth than Germany, but Germany spent less money and has less unemployment. The question is what will look better in the long-run which has now entered “only time will tell” territory. But it’s a strange coincidence of fate and partisanship that in the US we mostly have right-of-center people praising Merkel’s approach and left-of-center defending Obama’s when German-style direct labor market interventions would normally be considered too left-wing for the Democratic Party in this country.

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