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The irony of the unemployment rate was that Bush was regarded as a complete failure by many on the Left when umemployment ticked briefly above six percent. One wonders what Germans will do to Schroeder and his "red-green" buds? Hopefully they'll turf them and elect a "liberal" (in the European sense) government that will flush "social Europe" down the toilet and start rebuilding Germany's economic base.

OTOH, the "social Europe" free-lunchers will die hard. Few things make humans more passionate than thinking they're getting something for nothing, and discovering that the something may be going away because it can't be afforded anymore. (Just look at the US and the "social security" debate)

Please Ray, I didn't read the entire story, but comparing the US and German unemployment rate is like comparing apples and oranges. There's however a standardized unemployment rate done by the OECD. The February 2005 figures show an unemployment rate of 5.4% for the US and 9.7% for Germany - and that is including the east and not three times or two times that of the US. (-> http://de.biz.yahoo.com/050408/341/4hj4z.html)

@ Michael,

Currently, US unemployment is at 5.2%. Even assuming the OECD numbers are the most fair and accurate statistics for comparison, the German unemployment level is still nearly twice that of the US. The fact remains: There is an enormous difference between the two countries no matter what numbers you use or how you slice it.

I have also seen estimates that put German unemployment much higher than 12% and far above the 5 million level.

---Ray D.

Berliner Zeitung reported that the American Chamber of Commerce believes that U.S. firms might turn their back on Germany due to SPD leader Müntefering's anti-capitalist statements. AmCham board member Lutz Raettig said every multinational company has many options when investing its money. "Mr. Müntefering has not exactly made the German option more attractive," the paper cited Raettig. "The statements are unacceptable. They distress investors," he added.

Expect Germans to make the following connection: "capitalists" + "Jews." Where have I heard that before?

I do not see why the Germans will try to do 2 contradictory things at once: 1) elect socialists, and 2) expect economic prosperity.

They never go together.

The Guardian had an interesting article on how Germans are, like Turks in the days of yore, going abroad as gastarbeiter to scrub lavatories, simply to have work.

Ohne Fleiss kein Preis.


@ Kosmopolit

What goes around, comes around!!!

But I wonder how many Germans are working the Spargel fields....

I really like that picture of Müntefering along side Marx and Engels!!

Maybe the Iron Curtain will be going back up - this time to prevent people from moving from west to east.

Germany's productivity has been growing faster than the US's for the last five years. This is no surprise since our businesses have to be ultracompetitive to survive in the environment that our current government provides. Also our savings rate is around 10 or 11% meaning that there is potential for consumers to spend a lot of money. The US savings rate is around 1%.
So Germany has the potential to do very well economically but not as long as we refuse to deregulate our labour market and change our tax system.

Phil wrote: "Germany's productivity has been growing faster than the US's for the last five years. This is no surprise since our businesses have to be ultracompetitive to survive in the environment that our current government provides. "

Another factor is your high unemployment, which tends to remove the least-productive segments of the populace from the labor force. The young, the old, and the unskilled.

Unfortunately this isn't an value-free trade-off - more productive labor at the cost of high unamployment. The unemployed don't develop job skills and may lose the ability to become highly-productive workers after a long time without work. By excluding Germany's young from challenges which will make them learn and grow you may be permanently lowering Germany's national capacities and long-term wealth.

"Also our savings rate is around 10 or 11% meaning that there is potential for consumers to spend a lot of money. The US savings rate is around 1%.

So Germany has the potential to do very well economically but not as long as we refuse to deregulate our labour market and change our tax system"

Agreed. The current state in Germany (and indeed in France, Italy, Belgium also) is the result of slack demand. Reading some of the economic statistics it reminds me of what happens to factory capacity usage during a recession. A capacity figure in the high 90's is a dangerous sign of overheating while a figure in the low 70's means much hardship. There is no reason in the world why Germany should have an average per-capita income $10,000 below that in the US, nor a PPP (actual consumption) per-capita of about 70% US levels.

Despite the too-low savings in the US I would argue that we're seeing symptoms of a gloabl savings glut - everywhere but in the US. Germany should be consuming more and saving less, as should France, Italy, and other slow-go European economies. High German saving enable low US saving - and conversely. The only thing keeping German interest rates at decent levels is high demand from the US and the developing nations. I think Germany & the EU needs lower taxes particularly on consumption. Keep the VAT (it's a good tax on balance) but cut the rate by half or 2/3rds. Compensate by cutting spending on social benefits and force people into work.

In the short term this may force higher spending on low-cost housing to help people to move to the jobs - but the society will benefit from the increase in skilled workers in the longer term.

Giving free money to people isn't 'social investment'. It's 'social consumption'. Investing in getting people working in productive jobs is 'social investment'.


"Germany's productivity has been growing faster than the US's for the last five years. "


"Also our savings rate is around 10 or 11% meaning that there is potential for consumers to spend a lot of money. The US savings rate is around 1%. "

Germany's stock market is about 14 times smaller than the USA's and Americans invest alot more savings into the market than Germans do. Abeit, why does the rest of the world continue to convert their savings into loans for american consumers? Because, there is still a greater return in america instead of their own country.

"So Germany has the potential to do very well economically but not as long as we refuse to deregulate our labour market and change our tax system."

Agreed. Germany has many many capable, skilled labor. It's the labor laws that are causing many problems as well as the social un-security system that needs to be fixed. But Schröder hasn't the political power or onus to do so...

I think I've finally put my finger on what raises my blood pressure when I browse this site. I don't disagree with the basic premise (that German media puts out an inordinate share of anti-American pap), but you do yourself a disservice (IMHO) by exaggerating and cherry picking.

For example, as you note, US growth in 1Q05 (annualized) is 3.1%. Robust when compared to German rates and even pretty good on a historical basis in the US context. However, your comments omit several key points.

First, the US remains the growth engine for the world economy. (Be proud, gnash your teeth, whatever, but that's the way it is.) As such, movements in the US economy drive significant parts of the economic context elsewhere. That's why it's a valid point of comment for the German press. That's why the Economist comments on it weekly (and I don't think we'd take them to task).

Second, annualized growth for the last seven quarters shows a marked negative trend. Even removing the first of those seven quarters (an outlier of 7+% annualized growth) doesn't offset the trend. (WSJE has a very nice graph on its editorial page today that I'm too much of a techno-klutz to link to.)

Therefore, the trend certainly bears watching. We know, of course, that the economy moves in cycles, but the whole point of monitoring such movement is to determine whether there's cause for concern. If so, what explains the movement and, most importantly, what can be done about it). But fixating on 3.1% to score political points simply ignores the relevant context.

Quite interesting is Münteferings list of "locust"-capitalists that was published in the Berliner Zeitung today:

- Deutsche Bank (GER)
- The Carlyle Group (US)
- Saban Capital Group (US)
- Goldman Sachs (US)
- Apax Partners (US ?)
- Kohlberg Kravis Roberts (US)
- Advent International (US)
- BC Partners (UK)
- WCM Beiteiligungs- und Grundbesitz AG (GER)
- The Blackstone Group (US)
- Permira (UK)
- CVC Capital Partners (UK)

Speaks pretty much for itself, I guess.

Gee, what does one make of the positions being taken by the leadership of the Germany government?

One could say as they are socialists and live in a social welfare state, therefore they have no individual responsibility for what is now occurring. Like most things in this environment responsibility is one of the first things to be transferred. This attitude is reflected in all aspects and by all segments of the German population.

As the economy is bad, but it might just be that this is a good as it gets, someone must be at fault, as the political class is not. It has to be the people who create jobs. They are failing to create jobs. It is simple as that. They are capitalist who look to make a return on the money they put at risk. These people lack the basic understanding of what Germany stands for and what the people want. They fail to see what Berlin wants which is something for nothing.

These same capitalists fail to understand that the purpose of a corporation or a business is not to make money for the owners. The purpose is to (in order) pay taxes, employ people, buy things from other businesses, and at the end of the accounting period make a profit. If the profit is too great, then there is not sufficient regulation or the taxes are too low. These last two things socialists are good at fixing.

I will not go into if your ecomoic policy is centered on what the US economy is doing then you have no economic policy. That is just too hard of a comment to level at the spd.

There was a short story in the FT today. I am it was downplayed in the German M$M.

“The main butt of Mr. Münterfering's leaked document was KKR, estimated to have pumped €8.5bn ($11bn, £5.7bn) of capital into German companies during the past decade, making it the country's biggest private-equity investor. In particular, the document attacked the way it and Goldman Sachs made €225m from buying out and floating Wincor Nixdorf, the cash machine maker.

But people close to that deal yesterday stressed 3,300 jobs had been created and the company's listed shares had risen 50 per cent since flotation a year ago.”

So with luck the spd will pull this victory out. Six more years of spd leadership is just what Germany needs. With luck the french will come to their senses and vote for that wonderful document called the EU constitution. This will make people like Phil very happy.

Of course, all of this should make everyone think about Germany as a member of the UNSC. But then again they could just vote against the US on all issues and then continue to blame the US for all the evils in the world. Consider this to be the new German way.

Germans do live in a fairytale land.

Rofe's right.
The post is one of the better ones of late, so kudos. But it's ridiculous to expect Speigel Online to compare the German and american economies everytime they mention us. The downward trend has been reported by other sources and is relevent to the world economy, that point is spurious. In case I seem like a carper though, it was, again, a good post.

You guys will grow like gang busters if you can get those structural problems out of the way. It's be a huge boon for the world economy, too. Alas, Agenda 2010 and Hartz IV are small steps in this direction.

I echo what Frank said about the post generally. It is a good post, and I'm sure it took quite some work to pull it together.

Regarding joaninho's comment, I'm not sure that the list speaks for itself. Pretty much private equity houses all, but their operations have been subject to much discussion historically. While I take issue with Comrade Muentefering's characterization, it's no surprise that most of list comes from the US/UK. That's where the private equity capital is !

So, while one can discuss the relative merits of how the private equity universe operates (which the esteemed comrade may be counterproductively trying to do), the list seems to me to be the completely logical consequence of 'show me the money' and not America bashing.


@Don: I agree with your conclusions, but I might suggest another factor: lack of good investment opportunities in Germany. People are putting that money into savings accounts because there just isn't any better option.

(I'm assuming here that the aforementioned savings numbers, like a lot of studies that claim a U.S. savings "crisis", are only measuring traditional individual-investor vehicles like passbook savings and bank certificates of deposit. The U.S. economy has pretty moved past these; the growth areas now for individual investors are 401k's, IRAs, mutual funds, index funds, individual stocks, and (to an extent) government bonds. No wise investor in the U.S concentrates his/her money in passbook savings anymore.)

The problem in Germany is that people see the market economy as a danger. It's dangerous for the community. Capitalism is cold. Because it sets free individual interests. Invididual interests are dangerous for the society. Egoism is a negative power.
The market is essentially bad, but unfortunately we have nothing else. So we need at least a strong state to guarantee peace and justice in the society.
This kind of thinking - moral economy - did work fine in the environment of a Fordist capitalism. But it doesn't work anymore in the kind of new global economy we have today, which is much more individualist and flexible and much faster.
German politics did not succeed in adapting Germany to this kind of economy. Schröder tried to follow the British way when he came to power (Schröder-Blair-Papier), but he gave up very fast when he was attacked by powerful traditional institutions. What Schröder is doing now is following the French path - using political influence for selling German products worldwide. He always travels with the guys from Siemens, VW and so on to sell their products.
So we have some economic centers who work very well. But we have regions who depend entirely from state subsidies.
The problem is that this cannot last. The costs for paying those who are not integrated in the (global) economy get higher and higher.
What the Social democrats are doing now is strengthening the illusions people have. They tell people that the market is the problem, not the state (i.e. the governing social democrats).


You say comparing US and German unemployment rates is like comparing apples and oranges. I don't blame you for this misconception, since it is heard frequently. However, I did some research into this:


Comparing US and German unemployment rates is more like comparing a Granny Smith apple with a Red Delicious apple. The methods used to calculate the rates are very similar.

Regarding the unemployment rates, I think it addresses only part of the issue to focus on a number. For example, can we compare German and US unemployment benefits ? Can we compare workforce mobility in the US and Germany, including the ability / willingness of companies to hire / fire ?

Sure, we can compare these things, but even a cursory examination shows that the situations are vastly different between the two countries. I'm not defending the German model (I agree that German labor mobility - or lack of it - is a systemic obstacle to real economic reform), but the mentality and the specifics are simply quite different.

Therefore, maybe 10% unemployment in Germany generates less angst than 5% unemployment in the US. I'm not saying one's good and the other's bad, but the rates have to be viewed in the larger context.

Somebody needs economics lessons on this board.

Productivity goes up faster when nobody is being hired! You get more work out of the same number of people.

Its harder to increase in the US because we have a better employment situation!

In addition, the unemployment situation in Germany is actually a lot worse than in the US!

The percentage of LONG TERM unemployed makes up a larger percent of the overall employment scenario in Germany. These are the people who will never find a job again, and are left to rot.

Face it, Germanby is in permanent decline.

I disagree. Unemployment is comparable. However I agree with you that it's a symptom but why is comparing the symtoms irrelevant in comparing the ailments of the two economies? Also measuring it in terms of "angst" I find a bit weird. That money's got to come from somewhere and maybe it's built in to the sysstem but the begs the question, - Is the current system sustainable?

Unemployed Germans may take a smaller finanacial hit but the benefits are still fintite and the vast majority of unemployed want to work. Even if your measuring in terms of angst, germany has a big problem.

As far as the economy, the unemployment benefits is either a wash or a net negative compared to the US system. Every unemployed person has to be paid for by taxes (current or future), that's a burden on someone who does have a job and their employer, forcing them to spend less, creating less jobs.

One is good and the other is bad, because one is working and the other is not, just ask the unemployed.

@ Rofe and Frank,

Thanks guys, I think you both make a valid point. The US economy IS the largest in the world and people DO get more concerned when it slows down because it DOES have a larger impact on things on an international scale. No argument there.

However: I think the fundamental point I make is still entirely valid. German GDP growth is now projected to be more than 3 times slower than in the US and yet the SPIEGEL ONLINE article I mention is very neutral about the entire thing just one day after being so alarmist about the US situation. I believe that represents a lack of balance and consistency in reporting. I believe that SPIEGEL ONLINE should have been critical and alarmed about lower GDP growth forecasts in Germany just as they were critical and alarmed about slower growth in the US.

---Ray D.

Greg, I disagree that Germany's decline is permanent. It may seem that way to those inside Germany, but it doesn't have to be this way. Things looked equally bleak in the UK until Thatcher pulled that country kicking and screaming into the modern business world. It can be done in Germany as well.

I suspect that what will happen is the situation will continue to deteriorate and the people will finally be fed up enough with it to vote for a Thatcher-type leader to force the tough changes. The question is there a German politician waiting in the background to do this?

Lou - this is my main reason for writing Germany off. It doesn't matter who they have in government, if they fail to procreate! No people means no future! Their fertility rate is much less than necessary to simply maintain their current population total. And it is getting worse. Just from today's Deutsche Welle:


According to a study by the Federal Institute of Population Research (BiB), more and more Germans do not want to have children. The study found that 14.6 percent of all women and 26.3 percent of men between 20 and 39 said they did not want offspring. At the same time, a large majority of those questioned said they did not want increased immigration to Germany. In 1992, only 9.9 percent of women and 11.8 percent of men in the same age range rejected the idea of having children, and the number of young men without kids has more than doubled in the past 13 years. The study results have worried Interior Minister Otto Schily, who said: "We must strengthen the value of children, of families, and of more cooperation between the generation in Germany." Otherwise, he added, the country runs the danger of strengthening the society's egotistical tendencies. The study also found that 42.5 percent of those living in rural areas did not support further immigration to Germany. Among city dwellers, that number was 26.8 percent.

I think this comment will address both Frank and Ray D. My position is that the two economies have fundamental differences that make valid comparisons difficult. Not impossible, but one has to be careful with his conclusions.

For example, I think Germans / Germany have made fundamental choices about the economy that result in slower growth and higher unemployment on average. They're copacetic with those choices, to a point of course (which is what I referred to with 'less angst'). For that matter, one could probably substitute any European country for Germany and make the same statement.

Also, don't forget that Germany has quite different economic touchstones than the US. Hyperinflation, for example. Even though fewer and fewer Germans, let alone any decision makers, are alive who lived through those days, the post-war architects of Germany's economy did live through it. Could they cobble together an economic system without having that experience influence them ? I don't think so. And that system served Germany well for quite a number of decades.

Whether that system is now sustainable is a different question. I think the answer is no. But I don't think you can separate previous experience from current thinking.

Where one ventures onto thin ice is in believing that the US model can be overlaid onto the German economy and work just as well. The US economy isn't without it flaws, and some of it's characteristics haven't taken root here and maybe never will (stock ownership, for example). Heck, it hasn't been that long since average Americans have gotten into stock ownership.

Bottom line, different flavors of the capitalist system, different values, different strengths, different weaknesses. There is no one size fits all.

Regarding Spiegel, I'll have to read the article to see how alarmist they are. But they're aren't the only ones (I cite the Economist again, and if not a direct hit on unemployment, then certainly plenty of sirens regarding the US budget deficit). Maybe Spiegel has some Schadenfreude going vis-a-vis US unemployment, but I don't think the German press has been mild in its criticism of the German economy.


@ Rofe,

I agree on some of your points. For example, one size does not fit all. What works for one country may not be right for another. Not all of these numbers are comparable one to one. However, I think that the differences in these major categories (that I have brought up) are so large that it is significant and worth noting.

But let me ask you something, if George W. Bush had the same sort of dismal economic track-record that the SPD has, don't you think the press in both the US and Europe would be all over him and make a massive scandal out of it? I think he would have been impeached by now. Yes, the German media is sometimes critical of the SPD on the economy, but not nearly critical enough. They are often times more critical of the US economy despite the fact that it is outperforming the German economy in a number of ways. Again, the two GDP growth articles that appeared one day apart on SPIEGEL ONLINE are a good demonstration of this.

Additionally, I also think that you may be off base with your inference that there is less "angst" in Germany and Europe when it comes to unemployment. A major problem in Germany is the permanent, long-term unemployment.

---Ray D.

Ray D.,

I could argue my point re angst (based on my assumptions about relatively cushy unemployment benefits and the fact that the stories I've seen seem to show a remarkable reluctance of the long-term unemployed to broaden their searches). However, if I did, I fear I'd be merely a boorish guest. Your evidence more than trumps my assumptions ! Interesting article; thanks for the link.

I think if George W. Bush (or H.W. Bush, WJC, LBJ, JFK, et al) had such a dismal track record, the press wouldn't have him around to beat on. One-termer would have been his epitaph, as well it should for any president who'd get us into such a mess.

I guess I just don't see the directed glee in the German media that you do. I hate to keep going back to the Economist (though it is something of the gold standard), but it regularly takes the US to the woodshed regarding economic matters. I don't detect any glee on their part, either. Sometimes the news is just news.


@ James

Thanks for the table. I was very sloppy and just cited an article from the Economist from memory. Here is what it actually said (Feb. 17th, 2005):

"Commentators marvel at the gains in productivity and profits in America in recent years, thanks to firms' aggressive cost-cutting. Yet corporate Germany has made even greater strides to cut costs and improve its competitiveness. A study by Deutsche Bank suggests that Germany's productivity growth has been just as fast as America's since 1995 if both are measured on the same basis. Wages in Germany, however, have grown more slowly, so unit labour costs have fallen. Partly thanks to such pruning, Germany's real trade-weighted exchange rate with the rest of the world (based on relative labour costs) has risen by only 4% since early 2002 despite the surge in the euro against the dollar."

and it goes on...

"Against the 11% of their income put aside by Germans, American households save less than 1%. America's government is also far more spendthrift: adjusted for the economic cycle, its budget deficit is twice as large as Germany's. As a result of inadequate saving, America has a current-account deficit of 6% of GDP. By contrast, Germany has a surplus of 3%. It is true that less saving and more borrowing has propped up consumer spending in America, but one wonders how long that can last. Without higher saving, American investment and hence future living standards will eventually be constrained."

The main point I think remains that Germany has the potential to become an economic powerhouse again. But we need proper structural reforms because, as people have argued above, long-term unemployment is probably our biggest problem. Not only does it create a bad atmosphere but it is also very costly to our welfare state.

As for the article on the US economy, since our exports are so important for our current economic performance, the US economy is of major interest to us.

"Recession is when your neighbor loses his job - depression is when you lose your job - and recovery is when Gerhard loses his job"

Thanks again RR :)

It's the economy, Stupid.

Bubba won w/that.

Ray Fair's Fairmodel has been updated, via Econopundit:

Here are the basic numbers from the forecast memo:

Real Growth and the Unemployment Rate: The predicted growth rates for the next four quarters are 1.9, 2.3, 2.6, and 2.4 percent, respectively. These growth rates are enough to keep the unemployment rate unchanged at 5.3 percent. The jobs variable, JF, is predicted to increase in the four quarters by 1.6, 1.8, 1.9, and 1.8 percent, respectively.

Inflation: Inflation as measured by the growth of the GDP deflator (GDPD) is predicted to be between 3.5 and 3.7 percent in 2005 and 2006. These values are higher than those in the past few years, and so inflation is predicted to increase.

Monetary Policy: The estimated interest rate rule (equation 30) is predicting that the three month bill rate (RS) will rise to 2.9 percent by the end of 2005. It then rises to 3.4 percent by the end of 2006.

Other Variables: The federal government budget deficit is predicted to be around $440 billion in the next four quarters (on a NIPA basis). (See the predicted values for SGP.) By the end of 2008 it is predicted to be $592 billion.

The U.S. current account deficit (variable -SR in the model) is forecast to be around $780 billion in the next four quarters (on a NIPA basis). By the end of 2008 it is predicted to be down to about $700 billion.

--The US savings rate is around 1%. --

Do tell, Phil. And What items make up that savings rate???

Actually I was interested in that as well Sandy

What is this 1%?

What makes up the German 11%?

Here's an article from last week's Businessweek on retirement, for those who are interested:

The Debate Over Nest Egg Math
Economists who closely study retirement savings widely disagree when it comes to even the most basic assumptions

Are American workers saving enough for retirement? For years, the conventional wisdom has been no. But now, just as companies finally are trying to get people to save more, a provocative study is questioning just how bad the problem is.


I completly agree that the solution to German economic stagnation isn't to export the American economic model wholesale but, as we have in the past, we can learn from eachother, and I think you agree. The reforms Germany needs are essentially American ones. For example, ability to hire/fire are often cited by your much heralded gold standard as one of the obstacles to an efficient German economy.
That said, I concede that a 'perfect' German economy might have more unemployment than the US. It may be apples and oranges, but it's not a huge stretch to say 100 apples is more than one orange.

You may be right, but your argument on this one (like I said above, otherwise good post) is now a matter of tone, which is less than inspiring, particularly without examples from the actual text.

Last, missing the ususal partisan bloodletting that comments brings I have to pick on this:
"[I]f George W. Bush had the same sort of dismal economic track-record .... he would have been impeached by now."
This is silly. Impeached? Over poor economic record? Huh?


@ Sandy

One should not forget that corporate/private accounts in the US have been a very strong part of most Americans portfolio (401K, Defined Benefit Plans, Ira, Roth Ira, Seps) and are much greater and offer more flexibility than in Germany.
These numbers do not typically show up as a savings rate since they are Retirement portfolios and can only be touched under certain circumstances without penalty. (College cost, disability Retirement)

Equating our retirement systems with the savings rate of German's 11% vs Us 1% is a little silly.
I retired at age 55 (now 62) and would not have traded our system for that of Germany.
You have to remember that in a socialist mindset Retirement is suppose to be the governments responsibility, not your own. ( I am talking about averages)
Most Americans and their Employers have embraced a strong retirement plan for decades.

By jumping on the quote about the savings rate mentioned in the 'Economist' article you missed my point. Of course comparing the savings rate of the US (with its sophisticated financial market) and Germany is not straightforward.

The whole point I was trying to make is not that the US is doing badly economically but that Germany has the potential to do a lot better with a different government and the structural reforms such as the liberalisation of labour markets.


I have wondered that as well. Here's the truth:

"Capital gains on equities, 401(k) plans, and home values are excluded from measurements of personal saving; when they are added, total U.S. domestic saving is around 20 percent of GDP--about the same rate as in other developed economies."


@ phil

Of course, I agree with you on that point. However, there are many more problems assessing the future of Germany's economic system.
Try adding low productivity, decreasing population,high production costs, too many regulations,etc. which lead increasing financial problems with Rentenversicherung, healthcare, Pflegeversicherung, etc. even though the contributions are much higher from both the Employee as well as the Employer. Then you have the socialist mindset that has been pushed down the populations throat for decades.
I always say the worst thing that happened to Germany was the Wirtschaftswunder. It didn't come with instructions.
La Dolce Vita has taken hold and it is very hard to change it.

It is a very complex situation and one simple solution doesn't fix it.

I know, Phil, but you don't know how many people bring that up, a little nuance is called for, even the vaunted Economist needs to explain to others what is included in that calculation

--different government and the structural reforms such as the liberalisation of labour markets.---

Ain't gonna happen, that means we Yankees might have been right and we can't have that.

Oddly enough, the same conversation has been going on over at Bjorn Staerk's blog after Bruce Bawer wrote this about Norway:

We're Rich, You're Not. End of Story.

(OT) Spiegel interviews Steve Spielberg and Scientology cult member Tom Cruise. They really wail into Cruise. But before that interchange they bring up this:


SPIEGEL: Aren't you afraid that audiences in some parts of the world may even applaud when they see Americans lying on the ground?

Spielberg: I wouldn't want to speculate about that. We aren't responsible if people perceive the film differently because of their ideology and their aversion to our country.

Cruise: As film-makers we are specifically working against this narrowing of the view, which can lead to the hatred of an entire country, against this xenophobic paranoia. We are concerned mainly with individuals and their actions. For instance, I think one shouldn't always talk about "the government" but about the people who are in the government. One shouldn't always generalize. But if someone hates us from the bottom of their heart, they will see exactly what they want to see in our film.

(no economist am I) but Rofe, if the German folk don't get too perturbed by 10%+ unemployment, isn't that the real problem? Maybe you guys need a little angst in your life.

As for the downward trend (yet still positive) GDP figures, isn't that exactly what Greenspan was trying to do?

Lou Minatti,

Thanks, I was wondering how or if real estate equity and other investment vehicles played into the savings rate.


As for Germany's potential? Germany's ageing electorate is dependant upon the generational transfer of wealth. Even if Germany's youth wakes up to the fact that their future has already been pawned by the welfare state, they will be fewer and out voted by their numericaly superior elders.

ooops, forgot name on the above post.


Basically, I think we agree on both points, but maybe some clarifications are in order.

Non-economist to non-economist, I'd beg ignorance on what Greenspan was trying to do. If you mean avoiding an overheated economy (and the associated bugaboo of increased inflation), then the downward trend certainly could indicate meeting his goal, particularly since we're still talking healthy annualized growth in the 3-4% range. My point, however, was that a downward trend raises questions that a single point doesn't. I can't say at what point a downward trend shifts from being a healty correction to something worrisome, but if the trend continues it would become worrisome eventually, and this month's 3.1% would be a link in the worrisome trend.

Regarding unemployment rates, I think Germans are plenty perturbed. It seems to me that they're more perturbed by absolute numbers than percentages. For example, topping 5+ million unemployed generated lots of hand wringing the first month and plenty of print each time the new statistic has been announced in the months since then. But there's plenty of discussion on the topic in the media, pretty much acknowledging that the current level is a serious problem.

However, my point wasn't that 10% (or 8% or 12%) doesn't upset Germans. I was speculating that, given the cushier unemployment safety net in Germany and a different set of reference points, maybe Germans are less agitated about any particular level of unemployment than Americans would be.

Finally, as Ray D. thoughtfully pointed out, it seems that there's more angst in Germany / Europe than my seat-of-the-pants analysis acknowledged.



You know what the funny thing is that the Chinese are far more capitalist than anywhere that I've ever been (but I thought they were a communist country). They'd step over your mother's dead body to try and sell you something. All I heard there was: hello, hello, hello, hello!! And they weren't being friendly like those superficial Americans...

All having been said, Müntefering can add my American name to the list of locust capitalists. He's either naive or too stupid to understand or accept that this is the best way the world can function...

Two excellent opinions. Wall Street Journal and Financial Times:
(Sorry for the full quote.)

Locust Eaters
May 3, 2005

On taking power in 1998, Germany's Social Democrats went out of their way to court business, emulating other center-left parties in Europe that warmed to market policies. The romance is now over in Germany and on the rocks elsewhere on the Continent.

The government of Gerhard Schröder, its standing weakened by bad economic news, has taken to blaming "short-term profit-seeking" for stubbornly low growth -- 0.7% this year -- and 12% unemployment, a postwar high. After Deutsche Bank announced job cuts and a steep rise in profits on the same day, it became a favorite government target.

The fight escalated when party chairman Franz Münterfering went hunting for the proverbial "capitalist pig," although he seems to prefer an entomological metaphor. In an interview two weeks ago with Germany's largest circulation daily, Bild, Mr. Münterfering charged that private-equity investors "behave as if no rules apply to them" and "waste no thought for the people whose jobs they destroy." "They stay anonymous, have no face, fall upon companies like locusts, devour them and move on," he added.

To support his case against the "locusts," party headquarters was told to identify the most rapacious of the species. The ensuing list of companies found its way into German media this weekend. Presumably that wasn't by accident, since the Social Democrats stand to gain from stirring up anti-business feeling ahead of a critical regional election in North-Rhine Westphalia later this month. Mr. Münterfering was brought in last year to shore up the ruling party's left flank, and this document will help.

Most of the 11 offenders on the party list are, lo and behold, American. They include Goldman Sachs, Kohlberg Kravis Roberts and Carlyle -- a veritable who's who of the global conspiracy. It's déjà vu all over again. Mr. Schröder, one might recall, pulled out a victory in the 2002 national campaign with a last-minute appeal to anti-Americanism. And the American/capitalist bogeyman has been a regular in Western European politics since World War II.

His return to the scene tells plenty -- none of it good -- about the current state of Germany. The Schröder government, looking for a scapegoat, brings back out the "anti-social radicals" and "profiteers," as the locust swarms are alternatively described in the party document. From the Social Democrats' perspective, the alternative explanation for Germany's troubles isn't a good sell: The Schröder government lowered taxes and loosened labor codes, but not nearly enough and, in former case, too late.

It may help the defenders of the market that the party misfired badly in its choice of examples of "unethical" investment. Yes, KKR and Goldman Sachs pocketed a nice profit when Wincor Nixdorf went public last year, five years after the bank machine maker came into American hands. But it apparently slipped the attention of the list-makers in party headquarters that local party leaders widely praised the investment for creating several thousand jobs. Wincor's share price has made strong gains since its IPO, too. Sounds like Germany could use more locusts.

The anti-capitalist rhetoric reflects a short-term political calculation on the part of the Social Democrats. Many Germany voters will see it that way, too. But something else is happening here as well. Old leftist slogans and policies are coming back after a period of sensible if limited reform failed to produce expected results. They tap into real anxiety in Germany about the future, as well as in other once prosperous but ailing European economies. In France, the campaign against the EU constitution is banking on this sentiment, too -- it's a rejection, to cite but one leaflet, of a Europe "of markets and multi-nationals." As in Germany, the mainstream French parties are bending to the popular wind.

It's ironic that the physical Berlin Wall fell in Germany, since the mental wall remains very much in place. At heart, much of Germany and Western Europe know that globalization puts pressure on their welfare states, and are now fighting back.

One notable exception is Britain, where a Labour leader, Tony Blair, looks to be headed for a third straight electoral victory this week. He has managed largely to reconcile his once orthodox socialist party to capitalism. The difference between Britain and much of the Continent is that market reforms were vigorously implemented, thanks to Margaret Thatcher, and paid off big. Nothing similar was ever tried in France or Germany. So we're back to the old politics of resentment.


Wolfgang Munchau: The politics of envy
By Wolfgang Munchau
Published: May 1 2005 18:15 | Last updated: May 1 2005 18:15

"Financial investors remain anonymous. They have no face, they descend upon companies like locusts, destroy everything and move on." Franz Müntefering, chairman of Germany's Social Democratic Party

Politicians occasionally trip up on their language when they get excited. But what has been coming out of Germany lately is something else. Mr Müntefering has been running a hate campaign against the free market economy, culminating in this now infamous locust comparison. Last week he said that nobody should earn more than 10 times the salary of a supermarket cashier. He criticised the "exorbitant profits" of Deutsche Bank and other financial institutions whose profit-maximising strategies would "endanger our democracy".

In fact, what really endangers Germany's democracy is a language that compares human beings to locusts. It is a language reminiscent of that used to compare Jews to insects. It is not a language worthy of a democratic politician. Mr Müntefering is not a minor politician. He is the man on whom Gerhard Schröder, Germany's chancellor, relies more than anyone else. The locust comparison was no slip of the tongue. It was a calculated effort to mobilise the SPD's party base ahead of the regional elections in North Rhine-Westphalia, Germany's largest state, where the SPD trails the opposition by some 10 points. Just as Mr Schröder himself won the 2002 national elections by exploiting overwhelmingly anti-American sentiments in the run-up to the invasion of Iraq, Mr Müntefering has now identified "capitalism" as the issue that most agitates the average German.

Most irritating, perhaps, is that this strategy is working. According to a recent opinion poll on ARD television, about two-thirds of Germans support Mr Müntefering. He has also managed to mobilise the anti-capitalist lynch mob that sends regular death threats to top executives including Josef Ackermann, chairman of Deutsche Bank, who has emerged as the left's symbolic hate figure.

Mr Müntefering is not a lone leftwing voice in his party. Ute Vogt, one of his deputies, even urged her party to boycott companies that have recently dismissed employees. Threatening domestic and international investors amid falling private sector investment is reckless and foolish. Who would want to invest in a country with such a poisonous political climate, especially considering the range of alternatives in the European Union.

Why is Germany turning sour? All else being equal, Germany should be on the brink of economic recovery by now. The Hartz IV welfare reform programme has been a serious effort to reduce welfare dependency. The country's corporate sector has restructured faster than elsewhere in the EU. Germany's improving economic prospects stem from the depressing fact that real wages have been falling and are likely to fall further. Germany could have chosen to generate growth through economic reforms in labour, product and financial markets, or through developing a vibrant service economy. But instead, Germany has chosen the hard route through real devaluation, running a lower rate of inflation and thereby improving competitiveness. This process is likely to continue for several years. It is a beggar-thy-neighbour policy, possibly leading to conflict within the eurozone and within Germany itself.

As people expect real wages to fall in the long run, they consume less and save more. This is a rational response, but one that also makes politics nastier. There may be some superficial parallels with France, where opposition to Anglo-Saxon capitalism has been playing to the French No campaign for the referendum on the European constitution. But the French debate is far more focused, and more sophisticated. It is a discussion about whether the French social model is still compatible with globalisation and EU enlargement. However you might answer this question, you cannot deny it is a legitimate question. The German debate, by contrast, is about envy. Your average Social Democrat hates Mr Ackermann because his salary has been rising while theirs has fallen. This is not a debate about regulation or taxation but about the free market as such. This is not a good time to be in Germany.


Wow - great articles there I would like to see the US news media pick up on this sort of thing

If our companies are now taking the place of "national scapegoat" once reserved for the Jews I think it should be broadcast loud and clear

I for one would like to see some deserted BMW dealerships

Here's another one at SPON making one important - and in my opinion valid - remark: Many of the most important capitalism critics were jewish: Karl Marx, Ferdinand Lassalle, Rosa Luxemburg etc. And they have always used a powerful, "biblical" language.

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