Germany's Economic Recovery Despite Lack of Stimulus

[CAC1001]

Some interesting articles on this subject (they also point out that Germany's economy may in fact have recovered some from stimulus, but of a different kind (dealing with Germany's welfare state)):

http://www.weeklystandard.com/articles/germany-said-no_513319.html

http://economics21.org/commentary/lessons-german-economic-recovery

 

[WhoWee]

While Germany has a comprehensive social safety net - it differs from the US model.
http://countrystudies.us/germany/111.htm

"The system's benefits are so extensive that by the 1990s annual total spending by the state, employers, and private households on health care, pensions, and other aspects of what Germans call the social safety net amounted to roughly DM1 trillion (for value of the deutsche mark--see Glossary) and accounted for about one-third of the country's gross national product (GNP--see Glossary). Unlike many of the world's advanced countries, however, Germany does not provide its citizens with health care, pensions, and other social welfare benefits through a centralized state-run system."

" Over time, these programs came to provide a wide net of entitlements to those individuals having a steady work history."

So far, Obama's Stimulus Plan has reduced tax collections (left a few dollars each week in everyones paycheck - the 95% of taxpayers) approximating $243 Billion, paid another $171 Billion (approx) in Entitlements, and "shovel ready" focused spending on "Contracts, Grants, and Loans" of $161.9 Billion - and the result(?) - the unemployment rate went up to 9.8% recently.
http://www.recovery.gov/Pages/default.aspx

Now, US Democrats want to engage in class warfare - raising taxes only on the people who pay the majority of the taxes - and couple this with additional social spending (Medicaid expansion).

IMO - the US has an entitlement mentality - based upon need and/or qualification - with politicians constantly expanding the group to win favor - coupled with a class warfare - a shrinking taxpayer base.

It's my opinion the US system has evolved into - let the rich pay for everyone and in Germany - everyone is expected to contribute.

 

[Mech_Engineer]

Germany's most important difference IMO- all exported products by companies in Germany are tax-free. This has made Germany an export powerhouse.

The US should follow suit!

 

[Gokul43201]

So far, Obama's Stimulus Plan has reduced tax collections (left a few dollars each week in everyones paycheck - the 95% of taxpayers) approximating $243 Billion...

To clarify, you're blaming Obama for enacting hundreds of billions of dollars worth of tax cuts?

 

[WhoWee]

To clarify, you're blaming Obama for enacting hundreds of billions of dollars worth of tax cuts?

Did you visit the link? Obama spent $243 BBillion on his tax break for 95% of Americans.
http://www.huffingtonpost.com/2010/04/15/tax-day-2010-protesters-i_n_538556.html

"A report from the White House Council of Economic Advisers, meanwhile, asserts that the president's economic stimulus package has sent more than $200 billion in tax relief and other benefits to mainly middle- and lower-income families since its passage."

Do you think Obama didn't give away $243 Billion in the name of a tax cut?

 

[Gokul43201]

Did you visit the link? Obama spent $243 BBillion on his tax break for 95% of Americans.
http://www.huffingtonpost.com/2010/04/15/tax-day-2010-protesters-i_n_538556.html

"A report from the White House Council of Economic Advisers, meanwhile, asserts that the president's economic stimulus package has sent more than $200 billion in tax relief and other benefits to mainly middle- and lower-income families since its passage."

Do you think Obama didn't give away $243 Billion in the name of a tax cut?

Don't you understand my question? I do not deny the fact that Obama has enacted close to $300 billion in tax cuts over the past 2 years.

My question is if you think he deserves blame for this?

 

[WhoWee]

Don't you understand my question? I do not deny the fact that Obama has enacted close to $300 billion in tax cuts over the past 2 years.

My question is if you think he deserves blame for this?

Pelosi and Reid are only capable of putting legislation on his desk - he has to sign the paper.
http://www.msnbc.msn.com/id/29231790/ns/politics-white_house/

"Obama focused on the $787 billion stimulus plan, an ambitious package of federal spending and tax cuts designed to revive the economy and save millions of jobs. Most wage-earners will soon see the first paycheck evidence of tax breaks that will total $400 for individuals and $800 for couples. "

Is Obama NOT responsible for the Stimulus now?

 

[Gokul43201]

Pelosi and Reid are only capable of putting legislation on his desk - he has to sign the paper.
http://www.msnbc.msn.com/id/29231790/ns/politics-white_house/

"Obama focused on the $787 billion stimulus plan, an ambitious package of federal spending and tax cuts designed to revive the economy and save millions of jobs. Most wage-earners will soon see the first paycheck evidence of tax breaks that will total $400 for individuals and $800 for couples. "

Is Obama NOT responsible for the Stimulus now?

I can no longer figure out if you really do not understand my question!

Again (and hopefully for the last time), I'm NOT saying that Obama isn't responsible for the Stimulus Bill. I'm specifically asking you if you think it was a bad thing that he enacted the $240-odd billion worth of tax cuts, since that's what your earlier post suggests.

 

[WhoWee]

I can no longer figure out if you really do not understand my question!

Again (and hopefully for the last time), I'm NOT saying that Obama isn't responsible for the Stimulus Bill. I'm specifically asking you if you think it was a bad thing that he enacted the $240-odd billion worth of tax cuts, since that's what your earlier post suggests.

I'm not sure what you mean by "bad"? Do I think it was a waste of $240,000,000,000 - yes...$400 spread out over 52 weeks/365 days (you get the idea) - it's hard to say if any jobs resulted? If they were going to spend that kind of money, I would've preferred a micro-business program - perhaps a $24,000 cap per business (easier for the example) - this would've funded 10,000,000 small business ventures with $24,000 each - is that correct(?) - I guess the cap could've been $50,000 per business - talk about job creation!

 

[Gokul43201]

I'm not sure what you mean by "bad"?

What does one normally mean? Do you think it was a good move or not? Are you glad it happened or not? Did you support it or oppose it?

Do I think it was a waste of $240,000,000,000 - yes

I would think that answers my question. Or do you not consider wasting $240B a bad thing?

...$400 spread out over 52 weeks/365 days (you get the idea)

Where does the $400 number come from? And do you think that's too little or too much?

- it's hard to say if any jobs resulted?

Most estimates I've seen say that the Stimulus Bill saved/created on the order of a million or so jobs as of several months. I don't know how many of those were specifically attributed to the tax cuts.

If they were going to spend that kind of money, I would've preferred a micro-business program - perhaps a $24,000 cap per business (easier for the example) - this would've funded 10,000,000 small business ventures with $24,000 each - is that correct(?) - I guess the cap could've been $50,000 per business - talk about job creation!

You are saying now that you want a giant, broad tax credit to small business worth hundreds of billions of dollars, when you've repeatedly opposed just that, in favor of very specifically and carefully targeted measures. (Of course, that's roughly what Obama has already done - http://www.whitehouse.gov/the-press...has-signed-eight-small-business-tax-cuts-law- )

 

[WhoWee]

Where does the $400 number come from? And do you think that's too little or too much?

Most estimates I've seen say that the Stimulus Bill saved/created on the order of a million or so jobs as of several months. I don't know how many of those were specifically attributed to the tax cuts.

Please see post 8 above - the $400 figure is for a single person and $800 for a couple.

As for the job estimates - as I said - it's hard to say if any jobs resulted from keeping an extra ($400/52) $7.69 per week in pocket?

To answer your question as I now understand it - No, the Stimulus was a giant mistake undertaken by a young and inexperienced President, eager to keep his base happy.

 

[Gokul43201]

Please see post 8 above - the $400 figure is for a single person and $800 for a couple.

Obviously that can not account for the entire $240B. There are roughly 100 million households in the US. $240B spread out over them gives an average of about $2400 per household.

 

[Mathnomalous]

Perhaps the personal habits of everyday Germans played a role in Germany's economic recovery; this article suggest Germans generally dislike debt.

http://www.prospect.org/cs/articles?article=germanys_economic_engine

The idiosyncrasies of the German economic model are striking and in many ways, make it seem behind the times. Few Germans own credit cards, and cash is still king. Then there is the somber German Sabbath. Thanks to a powerful alliance of labor unions and religious conservatives, most stores remain closed on Sunday.

The same article claims Germany offers better job security to German citizens than the US does to US citizens. Also, Germany implemented some kind of "shorter workweek" system to aid soften the blow of the recession on the German workforce.

Then there is Germany's notably labor-friendly employment system. Despite some regulatory relaxation in recent years, German workers enjoy much greater job security than do their American counterparts. As Herrigel points out, even in the midst of the current downturn, which has proved temporarily devastating for many manufacturing companies, there have been remarkably few layoffs. Instead, Germans have moved toward work-sharing via the kurzarbeit (literally, "short work") system.

And apparently Germans like to save their money, at least according to this Forbes.com article:

http://www.forbes.com/feeds/afx/2009/08/25/afx6812715.html

BERLIN, Aug 25 (Reuters) - The average German savings rate rose to 12.8 percent of disposable income in the first half of 2009, hitting a 16-year high, official data showed on Tuesday.

'That is the highest level in a first half-year since 1993,' a spokeswoman for the Federal Statistics Office said.

Here is the CIA's World Factbook with lots of information on Germany; US link provided for comparison:

https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html

https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

Just comparing budgets; Germany lives within its means:

USA's Budget:

revenues: $2.104 trillion
expenditures: $3.52 trillion (2009 est.)

Germany's Budget:

revenues: $1.479 trillion
expenditures: $1.589 trillion (2009 est.)

 

[Gokul43201]

Perhaps the personal habits of everyday Germans played a role in Germany's economic recovery; this article suggest Germans generally dislike debt.

As Monique suggested in an earlier thread, going through a period of crushing hyperinflation can have that kind of effect on the national psyche.

 

[WhoWee]

Obviously that can not account for the entire $240B. There are roughly 100 million households in the US. $240B spread out over them gives an average of about $2400 per household.

I'm still trying to figure it out - maybe "cash for clunkers" was included - I really don't know?

 

[edward]

Actually Germany had two stimulous packages.

A second stimulus package
On 12 January, the ruling coalition in Germany agreed on a second stimulus package worth €50bn, to be implemented in 2009 and 2010, about two months after announcing a first set of economic support measures worth €32bn over two years. The emphasis had been on support for corporate treasury, with the reintroduction of declining balance depreciation (€7bn), specific depreciation regulations for SMEs (€0.5bn) and the establishment of €15bn of credit lines for SMEs by KfW. The government had also announced the temporary rescinding of road tax for new low-emission cars (€0.5bn) and tax deductions for work on housing.
The German government was severely criticised, even though the plan amounted to about 1.3% of GDP (€32bn) and was therefore in line with the Commission’s recommendations. However, this was considered inadequate by many given Germany’s status as the largest economy in the euro zone and its room for manoeuvre thanks to a budget which, at the time, was expected to be virtually in balance at the end of the 2008 fiscal year2. The plan’s real impact on the economy was also questioned. In particular, it seemed unlikely that all of the KfW loans available would be used given the poor outlook for demand anticipated by business leaders. Net economic support from the first package was generally estimated at less than 0.5 point of GDP.
The second stimulus package looks more balanced between support for investment and support for household income.

Edit:

The main strands of the package are as follows:

1) An €18bn increase in public spending on infrastructure, to focus on schools, universities, the road and rail networks, and new technology.

2) Measures to support household purchasing power. The tax burden will be eased by €9bn from 1 July (amounting to €3bn in 2009 and €6bn in 2010 as the threshold for paying income tax is raised by €340 – €170 on 1 July and another €170 on 1 January 2010 – to €8,004 from the current €7,664. The lowest tax rate will also be cut from 15% to 14%, amounting to a €400 cut in the tranche on 1 July and an additional €330 cut in January 2010). An exceptional €100 bonus will also be awarded per child (estimated amount: nearly €2bn) while parenting assistance for families with children aged 6 to 13 receiving long-term unemployment benefit under the Hartz IV law will be raised by 10 pp (about €1bn).

3) Reduced healthcare contributions. The contribution rate is to fall from 15.5% to 14.9%, a reduction of 0.3 pp for employees and employers, giving an estimated total amount of €9bn. Here too, the measure will take effect at the start of the second half of 2009. This will partly offset the scheduled 0.9 pp rise as part of insurance reforms from 1 January.

4) Assistance for the car market. This will take the form of a €2,500 scrap premium for nine-year old cars bought more than a year ago (cost: €1bn). This support for the car market is welcome (it is a oneoff measure, but the results seem to have been substantial in France at the turn of the year).

5) Support for the labour market. Fixed-term contracts will be made more attractive for companies to limit lay-offs as much as possible in this part of the labour market. The principle is to exempt employers from some payroll charges on such contracts. The estimated cost of the measure is nearly €6bn and it is expected to be financed by the Federal Employment Agency.

6) Last but not least, €100bn of guarantees could be provided to large companies through the KfW (along the lines of the banking sector support package), though without the government taking equity stakes in the companies in return. This should make a major contribution to reducing the risk of a credit crunch.

http://cib.bnpparibas.com/germany-economic-recession

Their biggest come back was in industry, and not the service industry.

For instance, the Sears Kennmore top of the line washing machine is now made in Germany

 

[talk2glenn]

Most estimates I've seen say that the Stimulus Bill saved/created on the order of a million or so jobs as of several months. I don't know how many of those were specifically attributed to the tax cuts.

According to an exhaustive report by the SF Fed, the effect of the stimulus bill on the job market was negligible.

To sum up the baseline results, there is little evidence that total ARRA spending has had a statistically significant impact on employment, through August 2010, in the total nonfarm or private nonfarm sectors.

The jobs multiplier of −0.5 then implies that there were about 140,000 fewer jobs in the economy in August 2010 than - 32 - there would have been without the ARRA’s spending. That number represents just a −0.1% decrease (relative to the level in February 2009), suggesting employment as of August was nearly the same as would have been without the ARRA’s spending.

http://www.frbsf.org/publications/economics/papers/2010/wp10-17bk.pdf

The Fed study is unique because it is comprehensive, independent, and does not rely on self-reported numbers by recipients of stimulus contracts to the White House (numbers which have been broadly shown to be unreliable). The results are also in line with predictions from academic models that examine output (employment market prediction is notoriously difficult, while output modeling is well understood), suggesting a generally accurate methodology.

Note also that the Fed paper specifically excludes tax cuts. It attempts to measure the stimulative effects of increasing government outlays only. It also finds, most damningly, that the multiplier effect peaked in March '10, before turning sharply negative, a fact the Fed attributes to the transitory nature of contract jobs. In the long run, the removal of government-funded jobs from the economy coupled with the crowding out effect of the maturation of new government debt issued to finance the stimulus will have a two-fold negative impact on both employment and output.

The CBO already predicted a long-run decline in GDP of 0.3% due to the crowding-out effect. This model assumed consistent and permanent job gains over the life of the stimulus, and no net job losses, meaning it, like most every CBO estimate, was too conservative. I would like to see the agency ordered by Congress to re-asses the long-run GDP effects using the data in this paper, but there's no chance of that happening in this congress, and little chance during the next congress.

In light of this report, in my opinion, the stimulus bill should not have been passed. And I am generally warm to the principle of deficit public spending during periods of lower private consumption and higher saving. Clearly, the government is wholly incapable of allocating funds efficiently, even in the most favorable of macroeconomic times.

 

[CRGreathouse]

Thanks for the link and the analysis, talk2glenn; those are very surprising (IMO) numbers. I expected significant crowding out, but not this near-total amount.

 

[mugaliens]

Amazing how that works, simply given some time for a free market to work itself out.

The only thing is, if a government does nothing, it can't later claim any success for the natural swing of the tide.

 

[CAC1001]

As Monique suggested in an earlier thread, going through a period of crushing hyperinflation can have that kind of effect on the national psyche.

I think one of the articles mentions this. Basically the Germans fear inflation, whereas America, due to the Great Depression, fears deflation.

 

[WhoWee]

I think one of the articles mentions this. Basically the Germans fear inflation, whereas America, due to the Great Depression, fears deflation.

I'm not sure of that - my guess is that most people blame the Great Depression on the 1929 Stock Market Crash and lack of a safety net. Now with the FDIC, Social Security, Unemployment, and welfare - there is a false sense of security.

 

[CAC1001]

I'm not sure of that - my guess is that most people blame the Great Depression on the 1929 Stock Market Crash and lack of a safety net. Now with the FDIC, Social Security, Unemployment, and welfare - there is a false sense of security.

Most people do, but I meant the American economics establishment, many of whom view allowing massive deflation to occur at the time created the depression. Part of this for example was the Federal Reserve made the mistake of cutting the money supply and allowing the banking system to fail. So now we see the Fed floods the economy with liquidity to counter the deflation, but it might end up creating inflation at some point.

 

[WhoWee]

Most people do, but I meant the American economics establishment, many of whom view allowing massive deflation to occur at the time created the depression. Part of this for example was the Federal Reserve made the mistake of cutting the money supply and allowing the banking system to fail. So now we see the Fed floods the economy with liquidity to counter the deflation, but it might end up creating inflation at some point.

Especially if they continue to print money.

On the heels of the TARP bailout, I thought it would be a good idea to put incentives in place for saving money - tough to do when interest rates are hovering at 0% though.

 

[CRGreathouse]

I thought it would be a good idea to put incentives in place for saving money - tough to do when interest rates are hovering at 0% though.

Do you know if real (savings) interest rates are low, or just nominal? That is, our inflation rate is so low at the moment that it wouldn't surprise me if interest was just as high in real terms as (say) a decade ago.

 

[WhoWee]

Do you know if real (savings) interest rates are low, or just nominal? That is, our inflation rate is so low at the moment that it wouldn't surprise me if interest was just as high in real terms as (say) a decade ago.

This is something that concerns me. We are truly in uncharted waters with respect to suppressed interest rates coupled with tight credit, and a Federal printing press running 24/7. We also have a reduced manufacturing output, a potential sell-off in the stock market, a very weak real estate market, unresolved derivatives issues, $Trillions in cash parked off-shore, a Chinese economic resurgance, great uncertainty with respect to cap and trade and other other potential "green" legistlation, and uncertainty over health care reform costs and requirements. Last, couple this with an inexperienced President and a disfunctional Congress and I don't know if anyone can model all (or any) potential outcomes with any degree of certainty?

 

[CRGreathouse]

Fair enough.

 

[Gokul43201]

Does the modeling become easier if you have a more experienced President?

 

[WhoWee]

Does the modeling become easier if you have a more experienced President?

The only predictability with this President is his penchant to outspend everyone that governed before him - with hope over his change - outcomes are uncertain at best. How does this help with modeling?

 

[Gokul43201]

My previous post was rhetorical. As is this one. But since you didn't answer the question in my previous post, I foresee no danger of you mistakenly deciding to answer the question in this one either.

I suppose a penchant to outspend everyone introduces greater uncertainty in your models than a penchant to be a maverick, or to suddenly reverse many of your previous positions on important issues?

 

[WhoWee]

My previous post was rhetorical. As is this one. But since you didn't answer the question in my previous post, I foresee no danger of you mistakenly deciding to answer the question in this one either.

I suppose a penchant to outspend everyone introduces greater uncertainty in your models than a penchant to be a maverick, or to suddenly reverse many of your previous positions on important issues?

I am being honest about the current conditions and my observations of this Presidents actions.