German Economic

Over the past week my colleagues have been debating austerity measures and in particular the austerity measures of Germany. The basic assumption seems to be that Germany is a success story so we should emulate their methods if we hope to have similar success.

If you look at Germany's economic policies over the past couple years you will see that austerity was part of their solution but to suggest that their subsequent economic success proves or disproves the effects of austerity is an oversimplification.

In addition to cutting back on government spending Germany has taken a number of other steps to promote economic success, one of which Libby mentioned in a previous post, which kept people at work with the government picking up the tab for some of the lost wages. Germany is also looking at tax cuts but only for the low and middle class workers. In addition they passed two different stimulus packages which involved infrastructure spending as well as their version of cash for clunkers. They are also increasing revenue by adding taxes to different segments of the economy.

One other thing that should be noted is that in the New York Times article, quoted in this debate, the writer seems to give credit to an increase in the Germany retirement age for their economic success. That is fine except that the increase in the German retirement age has not occurred yet. It is scheduled to be phased in starting 2012 and fully integrated in 2029. I think it is a stretch to claim the future increase in retirement age as rational for the current recovery.

To the extent that Germany is an economic success story it has achieved this using a balanced approach. If only some American politicians would fight for a balanced approach so we could mimic the success of Germany.