Let's start out with how wildly Germany's recent good economic numbers are being misinterpreted.
Why Fiscal Tightening Will Hurt Spain's Economy
Drawing the Wrong Lessons From Germany's Recovery
By MARK WEISBROT
Germany’s economic recovery has gathered steam lately and is being used – in both the European and the U.S. press – to promote the view that Germany “had the formula right all along” and “made the short-term sacrifices necessary for long-term success.” The formula, it is argued, is one that includes the austerity policies now being shoved down the throats of countries such as Spain and Greece.
Germany certainly has gotten some things right, but their formula has not included pro-cyclical policies – fiscal tightening when the economy is contracting or barely growing – as the European authorities and IMF are requiring of Spain. In fact, the latest budget figures released this week show that Germany’s budget deficit for the first half of this year has doubled as compared to one year ago. At 3.5 percent of GDP, it is still lower than that of many other European countries. But the Germans certainly did not cut their budget deficit during recession, as Spain is doing.
The policy that Germany has gotten most right is the one that has kept its unemployment rate (currently 7.0 percent) at or below pre-recession levels despite a steeper decline in output (4.6 percent) for 2009 than the U.S. experienced. This is the policy of subsidizing employers to keep workers on the job at reduced hours, instead of laying them off. This has saved hundreds of thousands of jobs in Germany and could save millions in the United States, if only we had some political leadership with the courage to take these modest but obvious steps.
Ironically, however, the reforms that Spain is being pressured to adopt are in the opposite direction – the European authorities want Spain to make it easier for employers to get rid of workers. moreAnd then there is China which is still working on its definitions of what should be public and what private. Actually, I believe we are in a piss-poor position to be handing out economic advice to anyone, but then, I don't work for the New York Times. An example of how we still patronize the "other" follows.
China Has Picked The Wrong Time To End Its Love Affair With Capitalism
Patrick Chovanec | Aug. 30, 2010, 12:36 PM
Michael Wines has an excellent report in today’s New York Times, about the rising dominance of China’s state-owned enterprises, at the expense of the once-vibrant private sector. Although partly an unanticipated consequence of China’s big stimulus push, he notes, the trend may — to some degree — reflect a more profound shift in philosophy:
Once eager to learn from the United States, China’s leaders during the financial crisis have reaffirmed their faith in their own more statist approach to economic management, in which private capitalism plays only a supporting role.
“The socialist system’s advantages,” Prime Minister Wen Jiabao said in a March address, “enable us to make decisions efficiently, organize effectively and concentrate resources to accomplish large undertakings.”
The trend has given rise to a catch-phrase among Chinese entrepreneurs: “guo jin, min tui,” or “the state advances, the private sector retreats.” (The rough ambiguity of the characters could also suggest “the nation advances, but the people fall behind”). Or as one official quoted in the article colorfully puts it, the new policy amounts to “leaving the private sector drinking the soup while the state enterprises are eating the meat.” more