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Europe's Supply-Side Revolution; It's working for Germany
Topic Started: Feb 18 2012, 11:28 PM (3,035 Views)
Banandangees
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Europe's Supply-Side Revolution

Following Germany's lead, euro-zone nations are pursuing pro-growth reforms that Reagan and Thatcher would admire.


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Germany is the largest economy in Europe, and it's been the first to recover and the best-performing developed economy since the start of the Great Recession. Since bottoming in 2009's first quarter, German output has grown at an annual rate of 2.8%, compared with 2.4% for the U.S. since its bottom in 2009's second quarter. Germany's unemployment rate is an astonishingly low 5.5%. German youth unemployment is lower than U.S. overall unemployment.

Skeptics point to Germany's success not as proof that Europe can grow, but as a reason why it can't. They worry about the imbalances of German competitiveness versus the large southern economies of Italy and Spain. They argue that the euro-the common currency of Europe-rules out devaluation by less competitive nations, which they hold out as the surest path to rebalancing.

But this is the blessing of the euro, not its curse. The common currency prevents politicians from fantasizing that they can devalue—and inflate—their way to prosperity. Instead, as Italy's new prime minister, Mario Monti, put it, growth "will have to come from structural reforms or supply-side measures."

That's how Germany became what it is today. A mere decade ago Germany was called "the sick man of Europe." It was still painfully digesting the unification of the former West Germany's relatively free and modern economy with the former Soviet-enslaved East. Ten years ago German unemployment was 8.2%—the same as Europe's overall—while U.S. unemployment was 5.7%. What did Germany do that allowed it to charge ahead and trade unemployment rates with the U.S.?

Starting in 2003, Germany under then-Chancellor Gerhard Schroeder began to implement a program of long-term structural reform called "Agenda 2010." The idea was to transform Germany into an economy where business has an incentive to invest, and where labor has an incentive—and an opportunity—to work. This was pro-growth reform that would be very familiar to Ronald Reagan and Margaret Thatcher.

The centerpiece were labor-market reforms designed by a former human-resources executive at Volkswagen AG. The power of unions and craft guilds was curtailed, making it easier for unskilled youth to enter the job market and easier for employers to hire and fire at will. Germany's lavish unemployment benefits were sharply cut back. An unemployed person in social-democratic Germany today can draw benefits for only about half as long as his counterpart in capitalist America.

The immediate reaction was a brief rise in unemployment, as German business was allowed for the first time to optimize its labor force. And there was a backlash by powerful union and guild interests, costing Mr. Schroeder his bid for re-election. But Germany was transformed.

Today's chancellor, Angela Merkel, who replaced Mr. Schroeder, has praised him for his "courage and determination." She is now spearheading the effort to repeat his Agenda 2010 template throughout Europe. Surely if Germany could start with the wreckage of a communist slave-state and make itself into the most dynamic developed economy in the world, its template could transform sluggish and over-indebted economies like Italy and Spain.
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That is all very nice, but you don't see the brutal actions Thatcher employed in Britain, causing the closing down of entire industries, even profitable ones for political principle, not economic. Whether Reagan did that in the US, I don't know. Thatcher left a huge mess in Britian that it has never recovered from, with lost pensions, a ruined railway system, inflation, etc.
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Chris
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MrsS, isn't this an example of abandoning social democracy and adopting more conservative, free market policies?
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I suspect MrsS will tell you that you can do both & prosper. That is what we do in this country. I suspect like Canadians, Germans are largely social liberals & fiscal conservatives.
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Chris
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Isn't the hated Harper a fiscal conservative?

I'll wait for MrsS' reply if you don't mind.
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Banandangees
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telcoman
Feb 19 2012, 12:00 AM
I suspect MrsS will tell you that you can do both & prosper. That is what we do in this country. I suspect like Canadians, Germans are largely social liberals & fiscal conservatives.
We haven't had a fiscal conservative administration in the U.S. for at least the last 11+ years.

Obviously, Germany's social liberal policies have not reached the level of Greece or Italy. Our fiscal and social policies in the U.S. are tilted toward that of Italy and Greece (the more southern nations of the EU) and getting closer to that. In reality, and unfortunately, Obama's administration is going toward very liberal fiscal policies and very liberal social policies. I don't see how that can be denied. It hasn't worked in Greece and Italy and it's not going to work here.

Social and fiscal policies can't be such that the one brings the other down. The balance is the key.... like a titter-totter.
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Isn't the hated Harper a fiscal conservative?


Yes he is. He is not hated, few have issues with his handling of the economy.
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Chris
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Where's that thread where that hatred for Harper was expressed?
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Chris
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jackd
 
Why I Will Not Vote for Harper in Spite of his Excellent Economic Record:
* His pulling out the Kyoto protocol, in spite of Canada's signature
* His recent axing of the long-gun registry,
* His newly found religion reinstating monarchist symbols across the country and expecially in Quebec and the Maritime provinces,
* His stupid and costly crime bill in times when crimes have been at its lowest in history,
* Having won at the last election does not give him the green light to do and impose his religious views to the world.

...and his economic record (if there is really one) would have been a total fiasco if the previous liberal government had not left him with relatively strong economic situation, budget surplusses ($13billion when the Liberal took a dive) a well regulated financial and banking system when Harper took the throne
He will certainly be recognized by history as having been the worst PM Canada in the last century, the one that has tried to chage some of the basic values of Canadians to fullfill his religious and right wing aspirations.

Oh, I see, jack loves the man.
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Brewster
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I know of very few in Canada who have issues with Harper's economics - even in Quebec and some parts of the Eastern provinces where he's disliked by many. They would diss him any way they can, but they say little negative about his fiscal policies.
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