Don't Lecture Germans
About Dependence on the State!
"It's
hard to believe. In both the U.K. and U.S., a higher percentage of the
population is employed by the state than in Germany. Meanwhile, George W. Bush
contributed to this with his reform of health insurance for seniors."
What haven't we
had to listen to from our friends on the other side of the channel and great
pond about how we in Germany adhere to the terrible belief that the government
might be able to help? What haven't we heard about how we should watch Americans
and British shine with much lower public
sector shares of gross domestic product (GDP), as well as much lower debt?
That's all in the
past now. Since the mega-financial crisis broke out, more than a few doubts
about the healing powers of the market have been circulating among our friends.
Upon closer inspection, the entire stereotype of Americans and British being
less dependent on government and calling out for it less often than we do is
gradually showing need of revision. Perhaps they just have a different way of
calling out? The question then is who hollers best? At any rate, some of our government
spending to GDP ratios are now lower, not higher, than some of theirs.
The call to ban commercial
banks from conducting certain transactions comes from the president of the
United States - and a former U.S. Federal Reserve chairman [Paul Volker]. The power
of the American state has become involved with banks, placed quasi-public
mortgage lenders [Fannie Mae and Freddie Mac] under government conservatorship,
become the majority stakeholder of AIG, the world's largest insurer, and summoned
auto-manufacturing CEO's to tell them what to do. It has
also distributed more money to the unemployed and launched economic stimulus
packages that make Angela Merkel look like a Swabian housewife.
Now, one could say
that this was self-defense - a crisis of the century. But that doesn't change the end
result. And it may just mean that it's been a long time since the U.S. had that
much reason to cry for help. That can change. When the U.K. was on the verge of
disaster in 1992, the government intervened, and the structural budget
deficit was increased to almost seven percent of GDP. That's never happened in
Germany - even after reunification. Similarly, after every recession, there have
been similar situations.
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by WORLDMEETS.US
Added to this is
a deep-seated tendency to return to the state - and this isn't only to do with
the occasional military adventure. While there are fewer government employees
in Germany today than there were in West Germany alone before the Wall fell, the
number has grown by the millions among the once greatly undersupplied British. Meanwhile,
public sector employees on the island on average earn more than those in the
private sector. It's hard to believe. In both the U.K. and the U.S., a higher percentage
of the population is employed by the state than in Germany. Meanwhile, George
W. Bush contributed to this, with his reform of health insurance for seniors,
so that now, this item alone takes up more than 1.5 percent U.S. GDP than in 2000.
This trend has been dramatically accelerated by the crisis. Since the U.S. unemployment rate has doubled, government
transfer payments have soared - from less than 10 percent in 2000 to what is
now nearly 15 percent of GDP. That's a third higher than during the days when
Ronald Reagan launched the battle against the allegedly rampant growth of the
state. In Britain, an unbelievable 53 percent of economic output is derived
from state institutions - as opposed to 48 percent in Germany. In the U.S. at
the moment, the ratio of public spending to GDP remains lower. Ten years ago,
the gap between our two countries [the U.S. and Germany] was still almost 15
percentage points. Now it's only half that. According to estimates by the Organisation
for Economic Cooperation and Development, American state institutions
require more money than all 16 European nations combined.
Some
relationships are now reversing. Budget deficits in the U.K. and U.S. are now
twice as high as ours. It's a historic turning point: Following the U.S., the
UK has now surpassed Germany in total national debt. The U.S. confronts much bigger
problems than we do, according to Klaus Deutsch, a U.S. expert with Deutsche
Bank Research.According to the Brussels
Commission, public finances in Britain are much more unsustainable than in any
other E.U. country. To close the gap, the British government will have to come
up with 12 percent of GDP - three times as much as Germany.
Faith in
government, my eye! Just before the Bundestag elections, German politicians are
hunting for votes with promises to cut public debt, urging that the brakes be
put on government spending [the Bundestag is Germany's national legislature].
In the U.S., according to OECD findings, there has so far been a complete lack of
specific, deficit reduction targets - although there's a question about whether
this is due to a realization that forcibly-mandated debt ceilings have been
empirically shown to be of limited use. In Germany, the ratio of public debt to
GDP could begin to fall again within a few years; for the U.S., official estimates
see them rising until 2019. And while we're on the subject: in the U.S.,
criticism of an overly naive belief in the market is alive and well. In Germany,
meanwhile, supposed economic experts would rather get excited about everything
the state is doing wrong than about a historic market crisis.
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Let's do away
with this stereotype. The question is what works better in the end - and that's
not at all clear. For years, Denmark and Sweden have shown us that it's
possible to be successful with high government spending, if the money is spent properly.
It's quite possible that the U.S. used the state to create growth - but only
after the crisis, and with the intention of dismantling the government apparatus
again later. Until then however, you have our permission to ask our friends to slow
down next time they start complaining about our terrible state tendencies.
*Thomas Fricke is Chief
Economics Editor at the Financial Times Deutschland
