The German example

Conservatives often tout Germany as an example for the U.S. to follow.  The German government is said to practice austerity, and this policy resulted in a strong German economy and lower unemployment.  

Today the New York Times business columnist David Leonhardt examined Germany’s policies and found the reality complicated.  He notes that the Germans have done better in the latest recession partly because their growth has been spread across the population, not just concentrated at the top like in the U.S. The German average hourly pay has risen almost 30% since 1985.  In the U.S. the increase for the same period was 6%.  

Leonhardt points out that the German government did enforce certain efficiencies, changing unemployment benefits to encourage employment and reducing incentives to retire early.  Leonhardt suggests two areas for the U.S. to consider are changes in the Social Security disability program and public sector pensions that encourage people to retire at 55 or 60.

Germany has other policies that we could also emulate.  It has improved its educational system; its math scores are higher than those of our highest state (Massachusetts).  It regulates the financial sector more closely; as a consequence Germany had no housing bubble. According to Leonhardt, Germany also has strong labor unions.  To quote:  “The clout of German unions, at individual companies and in the political system, is one reason the middle class there has fared decently in recent decades.”

Germany is the original welfare state.  So why does it have a proportionately smaller deficit?  A big reason is that Germany is not afraid to tax.  

I believe that Democrats in Congress are willing to make certain cuts or changes to reduce spending.  President Obama has proposed a number of reforms in Medicare, for example.  What the Republicans in Congress are not willing to consider, however, is any increase in taxes.  If we are going to tout the German example, let’s look at the entire picture.