Paul Krugman has a good op-ed tonight on how Germany has fared versus the US in the global financial crisis. Recall that there was much hectoring of Germany early on, for its failure to enact stimulus programs. German readers were puzzled, since Germany has a lot of social safety nets that serve as automatic counter-cyclical programs. As an aside I visited a few cities in Germany on the Rhine and Danube in June (unfortunately in heavy book writing mode, and so did not get to see as much as I would have liked) and it was remarkable how there were no evident signs of the downturn: no shuttered retail stores, no signs of deterioration in public services, stores and restaurants looked reasonably busy (although I had no idea of what norms there might be).
Krugman holds Germany up as an example of the merits of employment oriented policies (which had been the norm in America prior to the shift to “markets know best” posture (and more aggressive anti-union policies) inaugurated by Reagan:
Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.
Don’t you think Country A might have something to learn from Country B?
This story isn’t hypothetical. Country A is the United States, where stocks are up, G.D.P. is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a hit to its G.D.P. when world trade collapsed, but has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment….
Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.
Should America be trying anything along these lines? In a recent interview, Lawrence Summers, the Obama administration’s highest-ranking economist, was dismissive: “It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.” True. But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. So shouldn’t we be considering other measures, if only as a stopgap?
Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.
Yves here. Krugman does Germany an injustice by failing to contest US prejudices about European (particularly German) labor practices. If German labor practices are so terrible, then how was Germany an export powerhouse, able to punch above its weight versus Japan and China, while the US, with our supposedly great advantage of more flexible (and therefore cheaper) labor, has run chronic and large current account deficits? And why is Germany a hotbed of successful entrepreneurial companies, its famed Mittelstand? If Germany was such a terrible place to do business, wouldn’t they have hollowed out manufacturing just as the US has done? Might it be that there are unrecognized pluses of not being able to fire workers at will, that the company and the employees recognize that they are in the same boat, and the company has more reason to invest in its employees (ignore the US nonsense “employees are our asset,” another line from the corporate Ministry of Truth).
A different example. A US colleague was sent to Paris to turn around a medical database business (spanning 11 timezones). She succeeded. Now American managers don’t know how to turn around businesses without firing people, which was not an option for her. I submit that no one is willing to consider that the vaunted US labor market flexibility has produced lower skilled managers, one who resort to the simple expedient of expanding or contracting the workforce (which is actually pretty disruptive and results in the loss of skills and know-how) rather than learning how to manage a business with more foresight and in a more organic fashion because the business is defined to a large degree around its employees.
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This post is interesting because I’ve lived the last 10 years in Europe, with 9 of those near the small city of Trier, Germany. I can say that, while there are headlines about job losses or difficulties for jobless youth, there is no glaring evidence of a downturn, either in southwest Germany or the nearby parts of Belgium, France, or the Netherlands. There don’t seem to be any more residential ‘for sale’ signs than normal, and only slightly more in the small commercial spaces on the ground floors of apartment buildings.
I’m an IT indian, not a chief, and so am not qualified to address the manager question. But I can say that the average tenure at a job is longer here, so that one has more of a stake in the quality of one’s work (if you mess up the system, you’ll be the one to have to fix it).
Regarding restrictive firing rules that make it difficult to shed employees on a whim or in a panic, I’m reminded of the essay you hosted by Richard Kline a couple of years ago in which he discusses how barriers which reduce efficiency in easy times (e.g, firing restrictions, capital controls) serve to slow down systemic contagion when it’s bouncing around. Perhaps that essay is relevant to this discussion.
Oh say hey there, Cap’n, it’s interesting to see that someone both read and broadly remembers what I wrote in May 08. Now, I did not actually use the example of dismissal restrictions as a systemic buffer, but your observation of potential relevence is cogent, to me as well. A cascade of firings crashes demand; we’ve certainly seen that in the US, and I think comparing such action to an over-connected, under-buffered system is fair, certainly in the ‘net of similar nodes’ hypothetical example I extended in that essay.
There is a potential downside to such restrictions at the nodal (employer) level: if you’re restricted from firing employees in the face of demand for your product/service, the system (economy) may be saved but _you_ may go broke in the process. Germany seems to have thought this through as well as one can in that employers are _subsidised_ by the government for part of their costs in retaining the employee, with more of the costs potentially recapturable indirectly by not having to train replacements once business recovers into a normal range. To me, that is good systemic thinking, as well as healthy community cooperation. There is the further, non-systemic benefit, potentially, in that employees who are kept on in bad times are going to be around long-term, as you say, and have some incentive to help things run well as opposed to just picking up a paycheck. Employee goodwill and committment is something US employers have thrown out the window, too.
Remember all those (Anglo) doomsayers a year ago who were screaming how rotten, sick, and incipient things were ‘in
Europe’ and how terrible German banks were, and how the ECB had it all wrong and Germany was goint to [something]. Idjits. Or more accurately anti-Eu ideologues. Germany, the government, has lost a great deal of money propping up its banks, and no one should think all of this thing is over. The idea that Europe, the economy, was going to do worse than the US-UK was patent nonsense, and now we begin to have facts on the ground to validate that.
Suppose that you, coporate owner/universal master CEO aquire a position of resposibility running an existing enterprise and judge that it is desirable to increase your profits over whatever they were previously. One method is to improve your business; build new products, refine production, develop new markets, acquire a genuinely useful strategic partner, find another investor to grow your shop. Yah know, Commercial Practice. All of those methods have risks of failure. Few of those methods are guaranteed to yield increased new profits. Another method is to fire 10% of your employees, bullyrag the rest into taking up the slack in production, and pocketing the labor cost difference as profits from ‘productivity gains.’ Just like it looks, Robber Baronage. This method is guaranteed to yield money for the firm if executed successfully _regardless_ of the actual state of the business or its products or its markets or its supports. Since everyone likes guaranteed profit gains, and the latter method is legal in the US because, frankly, American citizens are in the main idiots, we have had thirty years of just such Baronage. Now, having run the country into the ground, said barons, or a faction amongst them, has set themselves up to loot the Treasury of the country and leave the bill with the populace as a whole. Yah know, a Ruling Class. This is an historical analogy, not a systemic one, and a few comparables come to mind: France, Austria, Russia, China, could name a bunch more but that’s enough. I think most of us would prefer Germany of 2009 to what the US has set itself up for, but here’s one thing to remember: Germany, too, tried almost every possible alternative before settling upon democratic socialism by the default of exahustion _and_ under foreign occupation. I can’t say what exigency will be required to effect changes of similar nature and scale in the US, but we may be sure the experience is likely to be . . . painful. Pity.
The US has, up until now, had a hybrid economic model, based partly on conquest and plunder (geographic expansion and then empire) and partly on internal production. But the empire part has seen its better days.
It’s been quite a while, however, since Germany has had imperial pretensions. So maybe Germany is just a little farther along on the learning curve of knowing how to make an economy operate on domestic production alone, without the plunder part.
Jefferson wrote about a difference that existed between Europe and the US during his lifetime. And what was happening then in Europe seems to be what is happening in the US now. “Under the pretense of governing,” he declared in describing the European nations, “they have divided their nations into two classes, the wolves and the sheep. I can apply no milder term to the governments of Europe and to the general prey of the rich upon the poor.”
Jefferson marked the difference between Europe and the US up to the superior American social life. And ever since, we have variously attributed American prosperity to our superior diligence, our greater skill or (more recently) to our more fervent devotion to the ideals of freedom. But perhaps our abundance had more to do with providence—the almost unlimited natural resources that lay before the young nation—than it did to how good we were.
But it all seems to be catching up with us now. As Reinhold Niebuhr predicted several decades ago in The Irony of American History:
When the frontier ceased to provide for the expansion of opportunities, our superior technology created ever new frontiers for the ambitious and adventurous. In one sense the opulence of American life has served to perpetuate Jeffersonian illusions about human nature. For we have thus far sought to solve all our problems by the expansion of our economy. This expansion cannot go on forever and ultimately we must face some vexatious issues of social justice in terms which will not differ too greatly from those which the wisest nations of Europe have been forced to use.
Very well said, Richard Kline. Thank you.
Ginny G.
Germany is a competitive country.
Having said that the GM Opel deal fell through to great relief of Magna International. Magna would never have been able to trim the company to make it meet economic reality.
I don’t agree with these general assumptions in this blog from some Europeans that Europeans have a better, more focused work environment.
Nor are North Americans lazier. There are individuals within a company that work the hardest, make the smartest decisions, and motivate people. It’s not hard to prove that American businesses succeed here.
The failure of the United States is in keeping a very high dollar and an open market system. If you want exporters to do better and slow down imports, than you are going to have to deflate your economy. It is by all means, inflated thanks to thirty years of credit. Salaries and wages are probably 20% to high to compete.
I also have first-hand experience with the differences alluded to in this article. In my experience working in a high-tech company in Germany, I was amazed at the level of cooperation among employees, compared to what I was used to in North America.
Everyone on the team ate a sit-down lunch together, almost every day. People who sat at their desk with a sandwich or whatever were considered ‘anti-social’ and looked upon somewhat suspiciously.
And because they socialized at lunch so consistently, goofing off between 9-12 and 1-5 was also not common. Everyone left at 5 to catch trains and such, but work got done. They also helped each other rather than looking upon each other as competitors, and this is what made them highly productive.
Now contrast that with your typical high-tech company in California. Tech people arrive at 10 or later, goof off till 12 or so, grab lunch at Baja Fresh at 130, stay at the office till 8-9pm to avoid traffic and actually get some work done. Having a life? Nah, you have to work “hard” so those 20 of 200m available stock options you will vest in 4y from now make you rich!
I also spend nearly 10 years in Europe, working in Vienna for a large European electronics company and agree completely with your assessment of the differences between European and North American workplaces. They were more cooperative, efficient and democratic, partly because managers were unable to terrorize employees with the fear of immediate and arbitrary job-loss. People worked hard, when there was a lot of work to do and took time off (ah those many weeks of vacation) to recharge their batteries regularly versus the unending rat-trap of working here.
One other thing that I have always felt Europe does better on the job front is the practice of double paying salaries twice a year (just before Christmas and the summer holidays) which goes a long way towards smoothing out the consumer spending cycle. Everyone has money (vs. credit) to make sure that there are presents under the tree and a family vacation without incurring debt. When you add to that effective health insurance (in the case of Austria, large, semi-private health insurance companies that cannot pick and choose who the cover) you end up with a more stable workforce who can live a reasonably secure and comfortable life without ending up neck-high in debt. Slower growth perhaps, but less bubbles as well.
Here’s a better description of what Krug alluded to.
http://www.bloomberg.com/apps/news?pid=20601039&sid=ax3kyE3bILDY
Of course US labor mobility is not all its cracked up to be. The lack of universal health care inhibits a lot of job moves, including leaving to start a new business. Its pretty dangerous to leave a job with health care to a position where you have none or have to pay insane premiums.
Then again look where America has lost its jobs. Most losses were in construction and manufacturing. The construction jobs were always going to go because unlike Germany the US overbuilt.
“Krugman does Germany an injustice by failing to contest US prejudices about European (particularly German) labor practices. If German labor practices are so terrible, then how was Germany an export powerhouse, able to punch above its weight versus Japan and China, while the US, with our supposedly great advantage of more flexible (and therefore cheaper) labor, has run chronic and large current account deficits?”
There is an essay by J.Schmitt called “Inequality as Policy” available for download here at CEPR:
http://www.cepr.net/index.php/publications/reports/inequality-policy/
Though primarily a discussion of inequality, it is also relevant to what Yves Smith calls “…our supposedly great advantage of more flexible (and therefore cheaper) labor…”, and where that comes from and what that means. Might be challenging for some, but not because of technicalities. These things have got to be faced.
Personally I’ve been puzzled for a long time about why the EPI’s “Agenda for Shared Prosperity” has received so little attention on the WWW. It’s been out for a long time now – well over a year, I think – and I would have thought that even if it was full of bad ideas there would have been discussion and criticism. But the silence has been deafening, particularly since so much work obviously went into it. Maybe readers of this blog can shed some light.
http://www.sharedprosperity.org/
Germany itself is a tale of two countries. The problems of having absorbed the old East Germany have not been solved, particularly if you compare unemployment in the country’s two regions. I just quickly tried to find some figures with Google and couldn’t, but remember between 16 and 17% for the East, and 5-8% for the West. Unemployment problems in the East are very stubborn; this week Germany celebtrated 20 years since the fall of the Wall.
Also, a perusal of the 2009 ILO Yearbook with data going back to 1998 shows a pattern of higher unemployment in Europe than in the US. My reading of this is that western European governments tend to accept unemployment as an inevitability, but, being somehow less offended by it, cushion its negative effects on the economy at large by giving the unemployed enough money to spend. High taxes forcing trickle-down, so to speak. One way or another you have to keep purchasing power out there strong. People have to keep consuming. Growth is all.
Philosophically you can have a problem with people getting something for nothing, and I think, crudely speaking, this is how America feels about state handouts. There is nothing wrong with this analysis in and of itself, but whichever way you choose to go, there are costs, of course. America pays for its preferred method with wilder swings and more suffering, Germany (and others) pay with a large army of people who become totally dependent on the State. Pick your poison.
And now I mention yet again what the mainstream does not want to address, technological unemployment. While it is true that the amount of work to be done in an economy is not fixed (I refer to the Lump of Labor fallacy), the amount of work that need be done by human hand or mind has limits, in that our technologies are getting better and better, slowly, at replicating what humans can do, typically vastly improving on it. Rifkin, for example, quotes a figure of 2% global workforce on the factory floor by 2020. All those calling for bringing manufacturing back to the US need to address this. Utlimately, therefore, it does not matter whether you go the way of Europe or the US; technology will increasingly undermine people’s ability to find work, while forcing greater proportions of the working population into services.
I know full well this is an old theory, over 100 years old in fact, and has had many advocates, almost all of whom have been proven wrong no doubt. I think only their timing was off, plus their knowledge of how hard it is to replace human soft skills. But hard does not mean impossible. The other factor slowing technological unemployment down is that work is essential to any economy, regardless of hue. All possible efforts are therefore made to create work, by hook or by crook. But it’s getting harder and harder.
On top of this is the carrying capacity of the planet. If we keep insisting that ever increasing consumption is a must, with population growth slowing and predicted to peak in 2050, we are going to run into a very hard wall indeed. Not only are infinite wants impossible, insisting that demand is infinite gears our economics in the wrong way, and forces us to ignore the ecosystem upon which it depends. I have said so before, and will say so again; we need a new economics. The only one I am aware of is resource-based, but will listen to other ideas. This is something we have to start discussing as a matter of urgency, and not just economists and bloggers, but physicists, architects, zoologists, genetecists, educationalists etc. We urgently need an apolitical, cross-discipline debate to expose the nature of the problems we face as a species on a planet, and which are the strongest ideas are for dealing with them.
Toby you have it right. Technological unemployment and carrying capacity of the planet are key factors. Factors that the ruling elite are well aware of and so constantly deflecting the public’s eyes away from.
As for an apolitical solution there is no such animal as all of life is politics. The best one can hope for is people to get out of their system assigned boxes and wake up to the course we are on with the present deceptive politics of life where we soon will have a two tier ruler and ruled world. Recognition of that fact coupled with the realization that the ruled class will be extremely small is what is needed.
Unfortunately the marks are being conditioned to believe that any minute they will be; the next millionaire, the next rock star, the next movie hero, the next fortune five hundred CEO, the next lottery winner, etc., and so they believe that they will be included in that small ruling elite. Nothing could be further from the truth. Added to that is that there is always an out of balance application of past solutions applied to this totally new and very unique situation.
Krugman is a deceptive system tool.
Perception is the key to change.
Deception is the strongest political force on the planet.
Thanks iotbp.
By apolitical I mean a(party)polical, that is; as non-tribal as possible. I have yet to come up with a decent definition of politics, but am aware that it is part of human society, almost by definition.
And yes, deception is a very powerful tool, not least because there is no such thing as “the truth,” and yes, we are each of us tasked with a long and difficult process of self- re-education. We have to pull our heads out of the trough, detox, and look around. The chance that we won’t make it, as a species, should spur us on the more.
And thanks too Mickey, although the idea I have aligned myself with would render monetary profit redundant, but that’s a whole other story. If, on the other hand, by profit you mean something like “safe production surplus” I would agree.
Toby,
But somewhere somehow we have to get from here to there… Profit of the monetary kind will still be with US for a while.
very true, and I think the trickiest part of the transition.
Toby,
On the mark…as usual. It’s simple as ESP: EQUITABLE SUSTAINABLE PROFITABLE. All three must be in balance.
Further to Toby’s comment. Article 2 of the new EU Treaty (Lisbon). These principles and objectives should be reflected in all actions of the EU and of its Member States:
1. The Union’s aim is to promote peace, its values and the well-being of its peoples.
2. The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, in which the free movement of persons is ensured in conjunction with appropriate measures with respect to external border controls, asylum, immigration and the prevention and combating of crime.
3. The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.
It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child.
It shall promote economic, social and territorial cohesion, and solidarity among Member States.
It shall respect its rich cultural and linguistic diversity, and shall ensure that Europe’s cultural heritage is safeguarded and enhanced.
4. The Union shall establish an economic and monetary union whose currency is the euro.
5. In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter.
6. The Union shall pursue its objectives by appropriate means commensurate with the competences which are conferred upon it in the Treaties.
The new EU treaty sounds great on paper. Yet, there is still a long road ahead until it becomes reality. The main obstacles, as I see it, are, nationalism and discrimination. However, not all EU nations are equally evolved. While much of Germany and most Nordic nations have evolved an EU-compatible postmodern mindset, I am afraid much of Southern European and British populace remains rather 19-th centurish.
Nonetheless, I truly hope this treaty will become reality, if not in my lifetime, then at least in my children’s. As a dual national, US-EU, who spends about half of every year in America and the other half in Europe, I am dismayed by what the US has become lately, by the current health care debate, the blatant hate US businesses show toward their employees, and the breakdown of the most fundamental elements of the social fabric of the United States. As a parent, I am beginning to see Europe as the much better option for my family. I realize that my career will never be as successful in Europe (if money is our unit of measure), but at the end of the day, to those of my background, family is primary.
Vinny G.
To Vinny G.
I have many friends who are U.S. citizens, sent to the old continent for professional reasons (private sector, UN, etc.), who have decided to spend their future and that of their childrens’ youth in this living museum of ours, pretty much for the same reasons you mention. They say that the U.S. has changed profoundly for the worse over the years and they see no end to it, really. Some of them have deviced their stays in Europe so that they can apply for citizenship quickly in a EU state (e.g. the UK) thusly becoming EU citizens and enjoying all freedoms to move around etc. granted by the EU Treaties.
Krugman last December: “…the German problem. At a time when expansionary policies are desperately needed, the leaders of Europe’s largest economy seem to have their heads in the sand.”
So, when Krugman asks “Don’t you think Country A might have something to learn from Country B?”, it would seem that part of the lesson might, in fact, be that expansionary policies are less than they’re cracked up to be. Just saying…
– a
A good observation and accurate so far as it goes, a. Of course at the time of Krug’s prior comment (and still at present), the US had no such matrix of supports to fall back on as he mentions now, and so falling back upon them wasn’t an option. Stimulus was our fallback position when speculation, peculation, and fakery ceased to suffice.
The situation says nothing about the _effectiveness_ of stimulatory policies, only that having an alternative to having to resort to them in place might be desirable. Which seems to be Krugman’s present point. That’s to say unfettered crony capitalism isn’t all it’s cracked up to be.
Why does the situation say nothing about the effectiveness of stimulatory policies?
Krugman presents two countries: “Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.”
And he asks, “Don’t you think Country A might have something to learn from Country B?”
Logically, the only thing one can conclude is that, taken as a whole, what country B is doing is better than, taken as a whole, what country A is doing. But Krugman thinks he’s entitled to look at one aspect of what country A does (the part that he approves), and leave out every other aspect (including the parts that he doesn’t). Krugman is not trying to build a logical argument, he’s just being a polemicist, concluding what he’s assuming to begin with, although not, of course, writing it that way.
Incidentally, I agree that the German and continental European attitutde to work makes much more sense than the American. But Germany’s attitude to stimulus, interest rates set by central banks, money, and loads of other things, is also far superior to American and Anglo-Saxon attitudes (and that includes Krugman’s).
In general, I’d say that the manufactured goods I have from Germany–from bicycle panniers to camera lenses–were more expensive than goods from other places, but of top quality. Quality control and skilled labor are still valued there, and it shows in the output.
One of my coworkers is German – anything that’s actually important (stroller, car seat) she buys imported from home.
Well, except for cars, American-made products are usually of high quality as well. Too bad it’s so hard to find anything made in the USA anymore.
Vinny G.
Krugman was a fierce critic of german policy back in december as reader a has mentioned. At that time he was probably somewhat unfamiliar with the german social system that he failed to see the inherent stimulus character of these laws.
It may be argued that this kind of inherent stimulus is not in itself efficient by means of bang for the buck. But that is only one side of the coin. The other is that the system as a whole creates a great deal of confidence among the populace that can hardly be expressed in numbers, let alone currency numbers.
And there is another driving factor: Germany has experienced a decade of lagging growth and high unemployment. People were rather frustrated and believed germans were the losers. But then that changed, partly due to some reforms and partly due to technological advance. german growth came out ahead of most west european countries. That restored a feeling of “we can do it” (eager to avoid this ‘yes, we can’ :=). Still that mood hasn’t lost its thrust.
The order books for the Ms are still running pretty low. It’s ok for some of the companies – a rather large number Ms are fully equity financed, in fact some of them can boast that “they had no debt for last 30 years”, and build up large cussion in good times.
That still leaves quite a few of them who do use debt financing, and the banks in Europe are tightening the screws considerably. If the trade doesn’t pick up considerably (which it doesn’t seem, especially with EUR pretty high), they will have to start laying staff off and even go bust.
Basically, the German system is pretty good for dealing with relatively short-term problems, but can cause huge disaster when the problems with longer-then expected periods of trouble – and can’t deal quickly with paradigm shift. My metaphor is leveraged super senior CDO tranche – when it works, it works fine, when it breaks, you’re dead. Infinite gamma :). Question of course is, whether once-in-four-genrations problem is really worth catering for at the expense of making the life of people in between considerable better.
One thing that I’d put as a huge plus for Germany in general though is that they still produce a large number of capable engineers etc. instead of relying on brain imports, because all the americans with brains became lawayers/doctors/business consultants.
This echoes my own views. “Counter-cyclical” policies work well when the economy is on its down cycle; they do not work when the economy is actually shifting into lower gear, as there is not a pending up cycle where the negative effects (debt, etc.) can be unwound.
Regarding “infinite gamma”, that may be an apt description of the variability of employment in an economy with heavy pro-labor regulations. I worked previously for a German company with operations around the world. In our very large division, they were hiring heavily in India, only occasionally in the U.S., and doing everything in their power to not add a single person to to payroll in Europe. Employment in their European group may not have been going down, but it certainly was not going up. The only way that their employment situation in Europe would have changed significantly would have been if the company had gone bankrupt, at which point employment would have fallen off a cliff.
An employment “miracle”?
Interesting that this same newspaper of Krugman’s wrote this about Germany, just 3 days ago:
“It has come to this: Germany will almost certainly have a bigger budget deficit next year than Italy will. Traditionally, Germany is the Continent’s keeper of fiscal rectitude, perpetually fretting that the Italians and other free-spending Southern Europeans are about to undermine the euro and rekindle inflation by not reducing their red ink.
“The German shift underscores just how profoundly the economic and political situation has changed in Berlin, as well as how desperate Chancellor Angela Merkel is to restore growth in Europe’s largest economy as she begins her second term.
“‘Given the enormous rise in public deficits and the strain this will put on future budgets, the fiscal exit strategy will have to kick in as soon as the recovery has firmed up, which means no later than 2011,’ he said.
“‘Among ordinary Germans, the desire for fiscal discipline still runs deep as well, setting the stage for further tensions down the road if the economy lags.'”
But borrowing and spending has nothing to do with it. Instead, this is a Miracle!
Cue the Angelic Choir…”Hosana in the highest glory!”
On your knees…prostrate before the Weimar!
Where is it posted here or on Prof. Krugman’s site that German policies toward preserving employment would come without any side effects?
They merely made a choice: people over money, workers over Das Kapital….mein Kaiser!
It is rather obvious on which side you tilt. Like so many neoconservatards, you love America but hate ordinary Americans.
Talk about cognitive dissonance!
As has become par for the course for you, Dan, your comment makes no sense whatsoever.
Germany has a large fiscal deficit and a relatively benign employment situation.
The US has a large fiscal deficit and the worst employment situation since the Great Depression.
Now given the option between the two, which one would anyone, other than some Ayn Rand sycophant, choose?
I hear what you’re saying DownSouth…
My point is, however, Germany’s employment stasis is not really miraculous…or the result of “Special Employment Programs”. Rather, the employment stability results from the pedestrian Borrowing and Spending.
One can argue that this is exactly what Germany SHOULD be doing…OK, fine.
But Krugman and Yves appear to be attributing all of the German employment stability to these special programs. I don’t think there’s anything magic or special (and certainly not “miraculous”) in the state borrowing and spending to keep people employed. It’s been Germany’s healthy balance sheet that has allowed them to increase borrowing during a time of need that’s allowed its workers to escape unscathed…not some special, miraculous edict by the government.
As for me being an “Ayn Rand sycophant”…
The barb would be more effective if you used the big word— “sycophant” in its proper context. Being a sycophant has to do the attempt to curry favor with a person of influence via excessive flattering or being obsequious (another big word, sorry).
Seein’ that Ms. Rand is dead…well, I’ll just let you connect the dots. Maybe it’ll enhance your self-esteem.
Perhaps you meant that I am an Ayn Rand “acolyte”?
I guess it’s the “Y as a vowel” thing that threw you off…
“Acolyte or Sycophant? Hmmm…Both use the letter ‘Y’ between consonants, so I guess they’re interchangeable.”
“I am DownSouth…and I remain…Hooked on Phonics”.
Setting aside the petty and hurtful — not cool at all — bickering … the story behind the stories …
The New York Slimes — one of the ultimate system tools — is playing an asymmetrical good cop bad cop game and thereby steering and controlling the debate for energy dissipation purposes. The first bad cop article cited by Dan does an in depth of, “how desperate Chancellor Angela Merkel is to restore growth”, through stimulus spending of course (read enslavement to the bankers). The article is a half truth — it omits the enslavement to the bankers details — and is presented to gain credibility for the New York Slimes.
The second, the good cop article, by Krugman, glosses over that lightly and diverts from the stimulus spending (enslavement to the bankers), and focuses instead on (read: deflects to), the comparatively trivial employment structures of each country, and as a result everyone dissipates their energy on that side show decoy and not the enslavement to the bankers in both countries which trumps all. And, the article of course scores, “He’s just like us.” brownie points for sell out Krugman.
The harsh reality here is that when you are enslaved you do not get to choose how you will be exploited. This is bye bye middle class time globally. The more equitable socialist model of employment in europe is now also a target — just like the scamerican middle class — for decimation by that enslavement to the bankers. Focusing on, and eliminating, those who enslave you and are now reducing your crumb supply is what is important.
Looking at employment structures and governments in germany (and japan), it is important to consider; who set up those entities directly after WW II, and; the migration of talent and thinking, especially from germany, to scamerica. Nation states are constructs of the ruling elite.
Krugman is a deceptive system tool.
Deception is the strongest political force on the planet.
Your comment was the best of the entire bunch so far although I did enjoy many of them. What we need is global collaboration among global citizens and feel free to email me if you agree and want to discuss. I warn those that do, I really am into lengthy contrarian debates.
What we are seeing is a global feudal empire. Feudalism failed at the local level, city-state level, national level and soon to be the global level all for the same reason:
When people cannot afford to live they destroy the entire establishment in an attempt to free themselves of tyranny. Sadly, good leadership at the time it occurs perishes with the perpetrators of the true crimes.
The oldest debate must surely be whom has the right to another individual fruits of labor. People respond best with the opportunity to benefit. That is Sales 101 by the way.
Fear of loss works for limited amounts of time (don’t work, you die type policies). That is why Communism as a government type has a 40 year fatality sequence while Democracy lasts 200 years.
As a Democracy (or substitute your own flavor of representative government if you choose) slides into Fascism and Communism the rate of looting from treasury increases.
Then the Democracy typically has a Despot for a short time as anarchy reigns. Communism is a continuation of looting the people’s wealth.
As an American, I cannot say I am especially proud of our fall from grace and moving away from the practice of the concepts of truth and justice.
But in analyzing these government types throughout history, a Republic is still the best form of government.
Certainly, the current global monetary lending model is due for evolutionary restoration. Perhaps the Federal Reserve and its behavior was the evolutionary catalyst that killed the king. If that is the case, than long live the king! Peer-to-Peer banking in my opinion is the way to go after the world completely decentralizes (be it economic, war or likely combination of both).
I do apologize for socioeconomic commenting on a financial blog. At a later time I will drop back in and be happy to discuss the drier portions of economic analysis.
To Yves, great blog site. I know a thing or two about social networks and will provide the tech for you if you are getting sick of the games of Google and WordPress. Also, at your recent Treasury meeting in the USA, you were probably the most talented in terms of economic understanding and fundamental understanding of labor markets. I wish I could have had a couple of my friends also attend such as Karl Denninger, John Lounsbury and a couple of others. Take care and thank your for stellar educational service to the public at large!
OK, let’s take it from the top and go back to what Krugman actually said in regards to the “miracle,” which is this:
Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment….
This carries us right back to something Gordon said yesterday about “opportunity cost.” “The real question about stimulus/job creation,” he said, “is how best to spend money, given that there are lots of alternatives.”
Now back to Krugman:
Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.
So Germany spent money.
The US spent money.
Germany took care of its workers by spending money on workers.
The US “took care of its workers” by spending money on bankers.
Is the difference between those two really that difficult to see? And the difference in the employment situation between Germany and the US is rather stark. So to reiterate, your original comment makes no sense whatsoever. All you did was to assert that Germany spent money. But who ever said it didn’t? Krugman and Yves are talking about how money was spent, not whether money was spent.
Now, as to the word “sycophant,” my Webster’s New Collegiate Dictionary gives the following definition:
a servile self-seeking flatterer: PARASITE
In my book, “Ayn Rand parasite” describes Lawrence Summers, who is the only person Krugman calls out by name, pretty darned well. And it fits those TBTF banks that Summers carries water for pretty well too, talking about obsequiousness.
“Europe’s recession officially ends as Britain lags behind”:
http://www.telegraph.co.uk/finance/economics/6560031/Europes-recession-officially-ends-as-Britain-lags-behind.html
Paul “Shifty” Krugman … Late to the party and already drunk …
Krugman’s latest is yet another too little too late missives that pass for foresight …
Does anybody remember ” Magneto Trouble” as our economy was imploding?
Anybody that wants to come close to solving the unemployment problem had better come with more than the milquetoast Krugman offers up in this column …
See Mish’s column today: Mish Unemployment Projections Through 2020 – It Looks Grim
What is needed is to make employees cheaper to employ. Single Payer, USG funded an expanded unemployment ins, Employee funded retirement, SSI … a 30 hour workweek.
Then there are tariffs that need to be implemented, say on the order of 20% … Just about every other country in the world runs a mercantilist trade policy while we “free trade” our economy away …
And how do we get real dough into the economy? A carbon tax distributed per capita would solve two problems. Getting money into every nook and cranny of the system while pushing people away from energy usage …
We need bold new answers and Krugman hasn’t any as of yet …
I have noticed that, too. And it is indeed pertinent to the discussion.
oops – my last reply belongs under the comment just below this one,i.e. Germany is full of Germans
Has anybody noticed that Germany is full of Germans?
There are lots of Turks too… :)
vinny
There are likely too many variable to draw any meaningful conclusions.
Many can agree on some basics –
Government is not the source of real jobs
CEOs expertise at mature companies tends to be political vs. entrepreneurial.
Real jobs are created when someone develops a new idea into a durable business.
Politicians, bankers, and cash cow CEOs tend to garner far more credit than they deserve.
Maybe Germany outperforms the US because its economy is more flexible.
“What?” you say. “America has the most flexible economy in the world!”
No. Labor unions are only one piece of the puzzle.
What about the tax code? The IMF has ranked the U.S. 75th in tax prep simplicity — lower than nearly all other industrial countries. Almost nowhere else does every entity have to prepare TWO tax returns — one for state, one for federal.
For example, at my own company, tax preparation — not the tax, but just the preparation of the various returns for all the myriad taxing agencies — costs 3% of the entire after-tax income of all employees.
As another example, in California, every corporation or LLC pays $800 per year, minimum, just for existing — a huge regressive tax on new business formation.
What about debt? High debt levels are the very definition of economic inflexibility. In a downturn, a business cannot do any long-term thinking, such as preserving brand — it just have to keep selling, regardless of the long-term consequences. When you walk the malls these days, and see perennial sales running in every shop, you see the consequences of high debt. Everyone knows that these sales do not increase long-term income, they just teach consumers to time their purchases. It’s ruinous. If everyone knows that, why do it? Debt. They need the cash now, regardless of the consequences.
Germany may have trouble with unions, but we have a few problems of our own to work on.
All that we call “civilization” is based on deception and lies. It really boils down to “whom” (in any particular era) hijacks the most loot from the top of the pyramid scheme of “we, us”; doing so undetected.
Is it true that 227 families control 47% of the world’s wealth?
America Incorporated is a typically Quarter company. Only the next Financial Quarter is important if we d9 alright there then all’s dandy.
The typical lifespan of a CEO is 3, max. 4 years, of which most is spent networking for the next job.
I’ve never met a bunch of managers with such a limited vision as in the US.
The opposite is the fact in the EU where long term vision is more important.
Invoke the EU? Oh please! As long as (in the Dutch case) fighting unemployment is transferred to lower authorities and the ECB not a lender-of-last-resort, please leave it out of the discussion.
The comparison between the US and Germany is irrelevant. Both US and Germany could work wonders with a ‘Jefes de hogar’, Argentinian style. Offer anyone, willing and able to work, a job for 8 bucks (either $8 or €8). I bet the East-Germans would love it.
As many have noted Germany is a two part story …
West Germany is doing fine … East Germany is a mess …
Yet Paul “Shifty” Krugman offers up this as an example of ideas that need to be considered …
The fact is Germany runs a mercantilist economy. We, on the other hand, run a financialist economy where our productive assets are mortgaged, re-mortgaged and then sent overseas producing LBO fees, trading profits while killing wages and tax receipts.
Killing wages increases profits while killing tax receipts produces public infrastructure to privatize and tax free muni bonds to enrich the already rich.
The comparison between the “German” model and the American way of doing business should conisder the following :
1. Methodology : Unemployment levels should consider a larger period, since it´s impossible to compare two systems by sampling few monthes or even quarters.
2. American GDP per Capita is higher than German figure for a long time
3. Germany enjoyed since WWII an American military umbrella without almost no pay. As a matter of fact the German miracle including a generous welfare state and a relative advantage thanks ( among other factors) the American Bayonets ( 700 Billion per year) spread around the world which defends also fortress Europe cheap and secure oil etc.
American GDP figures are wildly distorted, this has never gotten the press it deserves. The US is the ONLY economy that uses hedonic adjustments to GDP. That means it increases GDP to allow for the fact that computers have become more productive over time (this is completely different than the hedonic adjustments for inflation, BTW).
A modern desktop computer is about as powerful as a mainframe as of late 1980s. So I kid you not, these adjustments started in 1987, and they count you desktop in GDP as the same value what the equivalent big iron computer would have cost in 1987. Mish managed to get the BEA to send him a spreadsheet in 2005, and it showed the cumulative impact was 22% of GDP. This is far and away the most dubious of the official statistical adjustments, and gets far and away the least commentary.
The Bundesbank has also complained a few years ago that if German calculated GDP the way the US did, it’s growth rate would be a half a percent higher. If you take the Bundesbank figure instead, and calculate GDP growth over 22 years, using 2.5% versus 3.0% growth, you get an 11% cumulative difference.
Thanks, Yves. That’s why I’m a fan of John Williams’ “Shadow Government Statistics” website, where he puts up the correct numbers as far as he can calculate them. Even if you don’t always agree with the ways he makes his corrections, he’s always transparent about what he’s doing. His graphs would make your hair stand on end.
No, we’re not related or in business. This is an unsolicited testimonial!
http://www.shadowstats.com/
And I wonder whether John Williams would enjoy a look at “Mish’s” spreadsheet!
There are quite a few great comments already – let me add another angle: In Germany, the financial sector is a LOT less relevant in many ways than in the US. As vlade mentioned, many of the mid-size businesses are family owned and not very reliant on debt.
The status of the financial sector in Germany however has other implications as well:
– Banking/finance is not nearly as attractive to bright young kids as it is in the US
– The downside of the above is that there are arguably too few smart people in banking in Germany, and so GS and others had an easy time offloading their AAA rated crap to German banks
– More importantly though, the financial sector does not nearly have the same influence over politics than it does in the US, and there clearly isn’t the mindset in Germany that bankers are or should be the Masters of the Universe.
I would agree that Germany may still run into trouble medium term. Bank balance sheets don’t look very good at all in many cases, ‘Kurzarbeit’ is designed to help overcome a somewhat short term employment problem but cannot help with longer term economic downturn, and the willingness to address problems with anything but short-term fixes is arguably no greater in German politics than in US politics.
If we had been reliant on debt-financing for the industrial revolution we would still be riding horses and using sailing ships.
Let me draw a less peachy picture of Germany.
Note: I have lived most of my life in Germany, but left in 1996 to finally get my first good job (in Switzerland). So while I have no first hand experience, I still have lots of friends there.
As Ambrose Evans-Pritchard correctly observed, German workers have been constant slowly squeezed for more then 10 years now, which resulted in increased competitiveness and ever greater exports until recently. So salaries have risen below official inflation rate, but rising energy costs and fees (less visible than taxes) have contributed to purchasing power decrease and most Germans are realizing the effects.
Unemployment has been around 10% since the reunification.
At least there was no German housing bubble.
The German mercantilism approach (exports) has covered up the demographic problems for more then a decade, but this is coming to an end: Since 1970 the German birthrate has been below 1.4 so in other words the populace shrinks by a third per generation. I believe that starting around 2020 (boomer retirement) the German social security system is going to implode.
Membership in labor unions has been dropping as fast as in churches or political parties, as all are painting unrealistic pictures and people know it.
While I agree with Moopheus that German manufactured goods
are usually more expensive than goods from other places, but of top quality, it was discomforting to see the majority of German shoppers turning to cheap products over the years, disregarding quality concerns – but maybe that was just the knee jerk reaction to dropping purchasing power?
A friend of mine started his own heating/plumbing company 10 years ago, and is doing quality work, mostly for retired home owners (as the retired are still the most wealthy fraction due to guaranteed rents). But he cannot hire anybody, as the costs are too high to allow him to get across the usual seasonal slump in February/March. So he has grown a bit by making 2 friends become partners in the company (they needed to put €20,000 down each, work hard, and have no guaranteed income).
Overall I prefer the US model, even if it leads to “cascade of firings”. However people here should become aware again that this means they need larger savings for rainy days!
I am.
Correction:
(as the retired are still the most wealthy fraction due to guaranteed PENSIONS)
> If German labor practices are so terrible,
Even Germany gives the employer some leeway to get rid of employees: Germany gives employees protection, AFTER they have survived a six-month “probation period”, during which most of the workers are employed at will. Six month is long enough to see if a worker fits into a group. After that, the worker can only be laid off if the employer proves the economic need to do so to survive itself. Firing a worker is limited to cases of the worker committing a crime against the employer, showing gross negligence or something similar.
As a German, I would like to add that German job protection is limited to companies with more than 10 employees. Besides, you can hire employees temporarily for up to 2 years in order to avoid job protection (even for 4 years in a startup company).
A couple of comments..
1. Krugman and Yves and most commenters praise Germany’s relatively small decline in unemployment levels without recognizing that unemployment levels in Germany have been in the 8%-10% range for a couple of decades, and underemployment levels cosistently 8-10 points above that during that time. Is the really what we’re praising?
2. Yves’ question that “If German labor practices are so terrible, then… [why has the US] … run chronic and large current account deficits… and hollowed out manufacturing?” Current account deficits are more about the post Bretton Woods arrangement than anything else – the US agreeing to be a net importer of goods & investments, and a net exporter of primarily Federal Reserve Notes.
This is true, but mainly because of the unfortunately very high unemployment rate in Eastern Germany. In the Western part, the rate is only about 7%. On the other hand, the current real German unemployment rate might be higher now as it looks like, because of some changes in the statistical method made in 2009.
Besides, what Germany almost doesn’t know is the phenomenon of working poor (5% of US workforce, as far as I know) or high poverty in general. But I admint that it is mainly an ethical question whether you want that or not.
Also most European countries measure unemployment more accurately (and honestly) than we do in the US. There, if you are not working but looking, you are counted as unemployed. Here you are counted as unemployed only if you are not receiving benefits, a big difference (no benefits then you’re employed whether you have a job or not). By their measure, our unemployment rate is closer to 17%. Our stats like our accounting standards are mostly fraud.
Europeans can weather economic storm better than the US because they have a healthier and wealthier middle class through greater commonwealth investment, progressive tax policy, and democratic (not corporate) government. Laissez faire, disaster capitalism here has nearly cooked the middle class goose, so it can no longer lay the golden eggs to which the plutocrats have grown so accustomed.
Nobody is mentioning that the restrictive “job protection” regime in Germany allows a significant percentage of German employees as large companies to be flatly insubordinate and/or do nothing for 29 years after spending one year working hard. Anyone who’s actually held a senior management post in a large German company knows this is the truth.
As one commenter mentioned the place is good because its filled with Germans. That I agree with. Even with a free ticket once employed at a big company most Germans do opt to work. What is amazing is that Germany is as rich as it is despite such an insane approach to labour policy.
The slavish worship of government power and the desire to have edicts dictated to all by krugman-like elites has really turned this site into an echo-chamber
Where Krugman keeps it clinical, Ives vital human insight clarifies the true strength of Germany’s economy versus ours. Long term, there is incalculable productive value in the moral, social commonwealth foundation so pooh-poohed as inefficient by “free” market Darwinists. The creative dynamism of America’s vibrant, educated middle class and has been squandered, its productive capacity hollowed out, and its critical self-confidence beaten down in less than a generation. Parasitic capitalists have cannibalized their own legs and now seem genuinely mystified in not being able to get up and run.
She wirtes: “If Germany was such a terrible place to do business, wouldn’t they have hollowed out manufacturing just as the US has done? Might it be that there are unrecognized pluses of not being able to fire workers at will, that the company and the employees recognize that they are in the same boat, and the company has more reason to invest in its employees (ignore the US nonsense “employees are our asset,” another line from the corporate Ministry of Truth).”
I love that. In a tough economy, the Ministries of Truth and Peace are working overtime.
Dear Ms Smith,
I’m a great fan of your website. I know this isn’t the right forum in which to bring up a technical problem — I couldn’t find your email address or a contact page — but I haven’t yet been able to e-mail one of your posts to a friend, despite many attempts. I get to the email page, I fill everything out, but under the “Mail It!” button there’s a circle of spinning dots; underneath I read “loading.” It never finishes loading, and clicking on “Mail It!” does nothing. What is it loading? Maybe the image verification — it doesn’t look like other image verifications I’ve seen — it’s just regular font letters that a spam program would have no trouble reading. I’ve tried in Safari and in Firefox, always with the same result. What do you think is going on? Do you have any recommendations? I have many friends who would be interested in your posts.
Thank you,
Jane
Jane,
Thanks so much for your interest, and I am sorry you are having these difficulties. I have alerted my tech guy.
This is old-fashioned, but you might be able to just cut-and-paste the text of a post into a new mail window you open with your email program. Sometimes simple works best.
In Europe, people are sometimes wondering why Americans can apparently only be “motivated” by millions of dollars in salary (probably this isn’t the case even in the US, but in public discussion, it sometimes seems so). I think industriousness might have social reasons, too: If in Germany you’re lunching with your colleagues, and they believe that you work much less than they do, then you probably won’t feel very comfortable. And of course, if you want to be promoted, you need to struggle in Germany, too.
It is not only the banks that are TBTF—it is the multinational corporations that are TBTF—heck they love the undocumented and even hire people to bring them in–cheap labor. I’ve never benefited from corporate profit motives. I daily benefit from government run institutions. I’m one of the unheard citizens who likes my post office, national parks, state capitals, national science foundation, firefighters—and you know AL Gore was right in a wierd way—-he did invent the computer. Actually it was my tax dollars that allowed supported the eduction, and institutions in wich the innovation oringated. Oh and I will forever love TR—not an inch of the national parks would exist with out the national government. Actually I call the current situation coporatism—our gov’t now represents only coporate power—we need to bust them up after we finish with the banks. Let them pay the same percent that comes out automaticaly with the withholding accounts as they do from my pay checks these last 45 years. (the state of CA is withholding an additonal 10% right now)Why didn’t this administration stop the Bush tax cuts. Oh I give up. I have always enjoyed paying taxes because I have benefited as a citizen from the dream the USA almost realizes. This blog is so complicated for me. BUt I am learning a lot. Just wish we could get money to jobs especially building our green infrastructure up rather than into the pockets of the upper 1%. Some one said “where there is great weath there is great criime” I beleive it.
One aspect I did not see mentioned in this great discussion is that Germany is a very pragmatic nation, while the United States is becoming increasingly paralyzed by ideology.
Vinny G.
Cynicus:
“Aye and mark ye this good Horatio
Poor Yoorick dug himself a home, poor man
that he was, and a common laborer.
No friend in the court or the countryside
to plead his case, and give it a true cause.
And mark ye how this ditch doth wind and weave.
Why even the river be as a ruler
laid against it! But care ye not, nor me,
for the King paid a good sum to make it,
And now it be a graveyard for paupers
that labored, and as for the others they
give it nay a thought. Aye, but that their purse
wert lighter than it was, and what was theirs
Now be housed in manors, or cannonballs.”
-Scamlet, Act III. scn. 4