According to this article, the answer is: Yes.
http://www.spiegel.de/international/business/0,1518,707231,00.html
Anyone want to disagree?
“the German economy will grow by well over 2 percent this year”
Dude… you call this working? The European economies have set the bar pretty damn low if this is good.
And to be honest, Germany was less Keynesian than the other economies in this recent financial crisis/recession.
Look at Germany debt to GDP - it’s lower than most and Merkel has been outspoken about the need for austerity.
^Agreed. Saying that the Germany is slightly better than the rest of shitty Europe’s economy doesn’t correlate with that article’s title. Some slight short-term growth is understandably attributed to stimulus, but it’s not light they hit gold or anything.
Keynesian economics “working” in Germany compared to the rest of Europe isn’t saying anything. Just like I’d be better off with chickenpox than smallpox, I’d rather just have neither.
That article is hilarious.
"The government kept moribund banks alive and rescued companies that didn’t need rescuing. It spent money to allow companies to scale back production and paid consumers premiums to destroy assets with intrinsic value. Streets were repaved only to be torn up again soon afterwards, and schools were renovated and later shut down.
Although a gigantic waste of money was put into motion, it did prove to be extremely beneficial during last year’s historic economic slump. Government debt skyrocketed, but in return companies received new orders, consumers had more money to spend and banks, no longer fearing that their borrowers could soon go out of business, started lending again."
More:
"This is true, for example, of the scrapping premium – a program similar to “cash for clunkers” in the US. The name alone suggests that it has little to do with conventional ideas of economic prudence. Under the program, consumers buying new cars received €2,500 for their old cars, which were then scrapped.
This was nothing but a government incentive to destroy billions in national wealth, and quite a few observers were surprised by the enthusiasm with which Germans took the government up on its offer. Hundreds of thousands of perfectly functional cars were taken out of circulation, while new car ownership grew by an impressive 23 percent.
The incentive program cost the government €5 billion, while primarily benefiting foreign makers of small cars."
More:
"The package was of truly Keynesian proportions. For the British economist, whether government spending programs provided practical benefits was secondary. He argued that the most important thing was to distribute as much money to the population as quickly as possible, even if it meant that the government “were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again.”
Seen in this light, the most recent stimulus programs completely satisfied Keynes’ requirements. Millions were spent on swimming pools that had seen declining numbers of visitors for years, or on schools that had to be closed soon afterwards, because there weren’t enough children to fill the classrooms."
More:
“A government-owned stud farm in the southwestern town of Marbach, which includes a breeding facility for Arabians, is being renovated to the tune of €7.5 million. Schöningen, a town in the northern state of Lower Saxony, has plans to build a €15 million interactive museum for old hunting weapons. The Hamburg zoo is using €7.5 million in government subsidies to build an Arctic Sea habitat that will initially house polar bears, common murres and other animals.”
Ok, can anything mentioned above possibly help an economy?
Now let’s look at the proof that it has worked:
“Total unemployment is expected to drop below the 2.8 million mark this fall, the lowest level since 1991.”
Key word here is expected. In other words they are taking the credit before the results come in.
“According to an internal government assessment, the country’s gross domestic product increased by more than 1.5 percent in the second quarter of this year. In their last prognosis, completed in April, government officials had predicted only 0.9 percent GDP growth.”
The key flaw here of course, is that gov’t spending is included in GDP. And of course, since they spent like drunken sailors, GDP went up. But it proves nothing about the economy getting better.
“Production in the manufacturing industry increased by 5 percent over the previous quarter. The government assessment also shows that exports grew by more than 9 percent in May.”
I’m betting that this happened despite the Keynesian madness, not because of it. Maybe the drop in the Euro from 1.32 to 1.22 made German goods more attractive. Or that there was a drop in other areas of the economy. Or that they will soon be hit by inflation, if they got the money by printing Euros.
Truth be told, I need help with this one. From someone who knows more about the German economy.
“If the trend continues, say the experts, the German economy will grow by well over 2 percent this year, or almost twice as much as in most neighboring countries”
Key phrase here is "If the trend continues". They are taking credit for something that has not yet happened.
After all, Obama had his green shoots, which then went bad. Let’s wait and see here.
If there is a stimulus package and the economy does not recover, they argue the stimulus wasn’t enough and it wasn’t directed properly.
If there is a stimulus package, and a recovery, they attribute the recovery to the stimulus package.
There is no way to test the validity of these claims, yet they are made and taken to be true.
That’s true as far as it goes.
But what about looking at it from the Austrian point of view?
From what I gather, the actions described in that article can only bring ultimate disaster according to AE. I’m not sure about this, but I think it depends on how the stimulus was financed.
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If it was done through taxation, then any benefit to one sector is immediately cancelled out by a worse stomach punch to another sector.
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If it was done by printing money, it will bring a boom, followed by a bad bust and inflation, leaving everyone but a very few worse off.
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If it was done by borrowing from Germans, it will bring a boom, followed by a worse bust when they don’t get paid back, [or are paid back by methods 1 or 2].
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If it was done by borrowing from abroad, it will bring a boom, followed by ill will when the foreigners are not paid back. But the Germans may get away with having someone give them money for nothing. However more likely is them resorting to method 2.
Bottom line [EDIT:if 4 is what happened], I think that from the Austrian point of view, Germany has taken the first steps to becoming another Greece. But since the German economy is [I think] healthier than Greece ever was, and is only taking the first baby steps down the Greek road, it may take awhle till we see Germany get some Greek medicine.
I really would like to hear from someone who knows about whats going on there.
Two quick things.
First: according to our wise Euro leader we are not only officially out of recession but we are already growing at full steam. The press is doing its utmost to only publish good news. In the past month I have been able to find only a very few sketchy articles about Greece and Portugal and nothing about the Spanish situation. It’s that age old trick: ignore it and it will go away. And you know what people want to buy into “Good times are here again”.
Second: remember that as Euro standards go Germany is a free market paradise. Taxes are marginally lower, bureaucracy isn’t as obnoxious and politicians still show a little fear of the urn (though kanzellerin Merkel is a bit different, more “European” in her haughty contempt for the electors). If there’s a country that will pull through in Europe, it will be Germany.
From what I gather, the actions described in that article can only bring ultimate disaster according to AE. I’m not sure about this, but I think it depends on how the stimulus was financed.
The stimulus was financed generally by existing capital, by capital consumption. That is the only way to consume before production.
Keynesianism only seems to work, in the short term, in economies with sufficient capital accumulation. That is why Zimbabwe only has a chance to print money and thus cause hyper inflation and not really follow Keynesianism and stimulate the economy in a fiscal sense.
And yes, capital consumption is a disaster on the long run because although it helps alleviate current pains, it diminishes future productivity. Capital is already being consumed in production and it, at least, have to be maintained. If capital level can be maintained level of productivitywill continue. If it can be made to grow that is even better and tyhe level of productivity would increase. But if it is consumed, and not replenished the future productivity would fall.
Keynes is the guy that advises the farmer to eat his seeds instead of planting them, to alleviate current hardship. He doesn’t care about the day of the harvest.
Anyone have any new thoughts on this subject?
Recently came to my attention, and I was wondering if any Austrians would like offer input on the current market conditions of Germany.
Actually the German government was rather frugal during this financial crisis, compared to other European governments.
And wages were allowed to adjust downward, which is why their economy did better than that of other European economies who attempted to artificially push up wages. That would rather confirm Austrian theory.
To be honest some parts of the article read like a well elaborated satire by an Austrian.
I thought the German “success” was due to their expertise in manufacturing factory machinery and advanced engineering. Whether that is due to education or relaxed government taxes/regulations i do not know. I thought that it was german exports that was responsible for the country doing well compared to other countries in the euro.
I can probably get a 98% correlation coefficient on my econometric model which begins by assuming that keynesianism is wrong.
Total trolling though. As always, the data does not elucidate economic theory.
Interesting enough, along the lines of what Nero said above - it turns out Germany has no minimum wage except in six industries (electrical, construction, letter couriers, and the other three escape me). I figure those six are heavy in government public sector employment.
Definitely a boon to their economy.
Have fun trading anecdotes with lefties who majored in labor relations.
Have fun trading anecdotes with lefties who majored in labor relations.
Judging by your username, you might be somehow related to Germany. Could you comment on this?
http://www.state.gov/g/drl/rls/hrrpt/2008/eur/119081.htm
Specifically:
The country does not have a minimum wage except for construction workers, electrical workers, janitors, roofers, painters, and letter carriers.
Did you mean:
Covering an estimated 60 percent of all wage and salary-earners, the collective bargaining agreements set minimum pay rates and are enforceable by law.
If yes, the other 40% are still more than most of the western countries have.
European press is currently doing a formidable spin work to convince us Germany is a sort of happy land where everything works just fine. A couple of months ago a Tv report aired. Its title, roughly translated, meant “Is Germany really the land of bread and butter?”. The reporters did what any good reporter must do: they shunned the official statistics and went to the ground to find out the truth. What they discovered was, of course, quite different from reality. The main force behind Germany is still, needless to be said, its private sector. From large high tech conglomerates to small cutlery makers in Solingen, that’s the private sector which is still pulling the train. Relatively benign conditions when compared to the rest of Europe and better capitalization are insuring German firms have the upper hand against the EU competitors and as Bagus explained in Tragedy of the Euro, the common currency boasted exports to the EMU zone. Of course this came at a price.
The German people has little sympathy for the euro (nicknamed teuro, a joke on the word teur, meaning expensive, overpriced) and as inflation grows in the EMU this sympathy is quickly eroding. And while other EU countries are going into patently ridiculous “pat on the back” tirades about the soundness of their own debt, Herr Schauble, the stern, wheelchair bound Minister of Finance, is warning Germany about the unsustainability of goverment spending in the middle to long term. This echoes a more widespread sentiment, which grew in scope when Germany was pretty much forced to go out and save the various PIIGS.
One scandal which broke out recently involves the Nurburgring Nordschleife. This is one of the world’s most famous race tracks and always proved profitable until the local government (Rhineland-Palatinate) decided it was not enough to boost local economy and built a huge amusement park around it. This amusement park is in deep red (more than a quarter billion) and is threatening to sink even the profitable race track since they both belong to same private-public joint venture. Since the amusement park hardly sees any visitors the owners are trying to squeeze money out of motoring enthusiasts who are, obviously, quite livid.
Nothing new under the sun, even in the Land of Bread and Butter.
Compared to the UK, Germany has a similar government spending to gdp ratio, roughly 50%. With 20 million more people and 10 million more workers. With exports being a massive 33% (est) of gdp compared to the uk of 5% (est) of gdp. With Germany being the second largest exporting country and most likely the largest exporter per capita on the planet. The 50% government spending is the parasite slowing it down not the reason for its success.
edit: ok i was wrong about the per capita http://en.wikipedia.org/wiki/List_of_countries_by_exports_per_capita but all the countries above germany on that list have less than 10 million population in the country. So they are only on the top due to the low population and only have an average export.
Keynesianism did work in Germany in the 30’s under Hitler, I wonder why they are less eager to point that out. Germany’s position as Europes strongest economy is solely due to it’s liberal economic policies post wwII.
http://www.pbs.org/wgbh/commandingheights/hi/story/ch_f01_09.html
Germany was the leading exporter a few years ago. Then China started to get wise (capitalist) and overtook Germany, and the US had it’s massive currency devaluation which propelled exports. Germany’s government spending is of course a parasite, but much of it is a taxpayer subsidy of big industry, which rather helps exports.