Learning Lessons


In today’s column, Paul Krugman doubles down on his support for Depression policies. He points out that Germany has had a much milder recession than the U.S., especially with regards to employment. And he suggests that we have something to learn from the Germans.

Smart - though he's three months behind Global Review, which suggested the same thing in August. But he wants to imitate the wrong things. Here's his logic:
Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis. Don't you think Country A might have something to learn from Country B?
He also points out that Germany came into the Great Recession with strong employment protection legislation, which has been amped up even more. He attributes Germany's low unemployment rate to this legislation.

But he leaves out three key facts:
  • the entire recession has been more mild in Germany than in the U.S., not only the jobs picture
  • Germany refused to do a big stimulus package, which Krugman eviscerated them for here and here
  • despite the recession, Americans earn 34% more than Germans
Thus, who should be imitating whom? The data suggests that America is doing things right in the long run, hence our big advantage in earnings. But Germany is doing things right in the short run, hence their relatively mild losses during the recession.

That logic leads one to the following conclusions:
  • Germany should imitate the U.S.'s more free, less protective labor laws
  • the U.S. should imitate Germany's response to the recession: no stimulus package, just a boost to assistance for marginal workers
And as far as implementing that assistance for marginal workers, wouldn't it have been easier to find the money for that if we hadn't spent it on a trillion dollar stimulus package that hasn't worked at all? Krugman even admits that the trillion dollar stimulus hasn't worked, and wishes for a bigger one. After all, it can't be that his 1930's economic theory is wrong.

Posted by Chops at November 13, 2009 7:38 PM
Comments
Comment #290750
Thus, who should be imitating whom?

Maybe both we and the Germans have plenty to learn from each other instead of the black/white thinking that either the USA should learn from Germany or Germany should learn from the USA.

Posted by: Warped Reality at November 13, 2009 8:21 PM
Comment #290751

Warped,

I’m all for using our brains to solve problems instead of just looking to other countries and doing what they do.

Except it’s the left that won’t let that go. It’s almost the entire basis of changing healthcare, cap and trade, etc.

“They do it in Europe…” is the often used phrase I hear about when I suggest the US shouldn’t be doing something like forcing people to have health insurance against their will.

Posted by: Rhinehold at November 13, 2009 9:03 PM
Comment #290757

Chops
Thanks for a post that shows some thought from the right for a change. What you have not taken into account is that the basis for your contention is in error.From the same source you note:

http://krugman.blogs.nytimes.com/2009/08/16/a-quick-note-on-germany-and-france/

The jist is that although Germany talked about limiting stimulus,in reality they did no such thing. Also it should be noted ,they were hit just as hard or harder than we were in the Great Recession but have not suffered the employment losses. Long term unemployment will do serious damage to the US,economicly and spiritually, unless we find a way to reverse it. Krugman made some proposals that might help.Are there any more?

RH
So just because it works in another country we should not do it? Libertarian logic amazes me.

Posted by: bills at November 14, 2009 2:11 AM
Comment #290761

Chops, a European Country like Germany has

a) Higher taxes, which fund
b) A welfare state that
c) includes universal healthcare coverage
d) and a dole for those without jobs.

Their economies are also much more highly regulated than ours are, so many things that could happen here, did not happen there.

They didn’t need so much of a stimulus, since their country already lacks for certain costs, and has certain protections already in place for the average person.

Krugman’s point is that by letting all the jobs disappear so easily, we set up the conditions that naturally come with people losing their jobs: a slowed economy, where people are afraid to spend. Folks in Germany, with their social safety net, and stricter employment regulations are not so vulnerable to this hazard.

Posted by: Stephen Daugherty at November 14, 2009 7:15 AM
Comment #290762

Germany’s unemployment has been running high for years: in 2001 it was over 9% and climbed to over 12% in the following years. Our unemployment was never that high. When we were at 4+% two years ago, the media was trying to set the stage for a recession, simply because Bush was president. I might also add, there were daily stories of “hurting Americans” on the MSM, and yet as we are now over 10%, why do we see no stories on the MSM about “hurting American” families?

I guess my question is, how can we compare the American economy with that of Germany, since the events leading up to our current situation is so different? In Germany, there was the same debate about how to handle the recession, to lower taxes or to spend stimulus money. To which is the credit given?

Posted by: propitiation at November 14, 2009 7:41 AM
Comment #290765
So just because it works in another country we should not do it? Libertarian logic amazes me.

No where in what I wrote did I say any such thing, and you know it.

Posted by: Rhinehold at November 14, 2009 10:04 AM
Comment #290771

bills -

Thanks for the links. I obviously didn’t make this an exhaustive research question.

Another issue I didn’t address is underemployment. Presumably if Germany’s government is paying companies to reduce hours instead of laying people off, their underemployment level will have grown much more than ours, even though their unemployment rate grew less.

Also, Krugman bewails the rising “long-term unemployment” in the US. I’m skeptical that this is really true; I’m guessing that’s just an artifact of the recession. What’s certainly true is that European economies with their highly regulated labor markets have about twice as much unemployment as we do in good times.

As bad as the U.S. economy is right now (and it’s *bad*), our unemployment rate is still in line with the long-term averages in France and Germany.

Posted by: Chops at November 14, 2009 3:43 PM
Comment #290774

Chops-
That depends on how you define unemployment. US unemployment figures are well known to be selective in their focus, such that people who have run out of unemployment benefits disappear from the rolls. They may not be employed, but the numbers don’t count them among the unemployed anymore.

Posted by: Stephen Daugherty at November 14, 2009 5:03 PM
Comment #290806

Chops and Stephen,
Why I understand Labor and Management may be concerned about unemployment among their ranks, shouldn’t the political question be moving forward is how do We keep the American Consumer economically viable as Corporations readjust to the demands of Government and Society? LOL

Posted by: Henry Schlatman at November 15, 2009 8:12 AM
Comment #290808

The figure I’ve heard is somewhere around sixteen. But what gets me is that people are blaming Obama for what is essentially the result of the market collapse.

It all seems to be a game of political gotcha, rather than a cue towards more constructive efforts at resolving the economic issues.

Some of the worst mistakes in this whole thing have been made by Republicans trying reaffirm populist and conservative credibility by opposing bailouts that were need.

Worse yet, though, the Republicans, when bailouts were needed, insisted on there being fewer strings attached, less limits on what those folks could do with the money. Then they resisted efforts to put an end to the “too big to fail” phenomenon.

You can’t simply theorize outcomes from ideological stances.

Posted by: Stephen Daugherty at November 15, 2009 9:35 AM
Comment #290819

Guesswho,
In Oregon, the unemployment rate dropped almost a full percentage point two months ago. Remarkably, almost no one was hired. The economy is still a disaster. However, a lot of people had been unemployed too long, therefore they no longer count as being unemployed. They are not part of the unemployment rate, although they are still unemployed. I guess they’re permanently unemloyed, or they’re just homeless, or something…

Chops,
It seems odd that your economic philosophies remain in place, despite the disaster that resulted from the implementation of such conservative philosophies. Really, it couldn’t be much worse. Yet your economic prescriptions seem to remain the same.

Until conservatives come up with a way of supporting working people, and opposing the corporate control of the government and its politicians, I guess we will all be cursed by conservative policies- “free trade,” which means outsourcing of jobs; rising productivity and stagnant to falling wages; the undermining of rights of working people and environmental laws through outsourcing; and the utter destruction of the middle class through such policies.

It’s class warfare at its worse, and the corporate controlled conservatives continue to keep the government of “We the people” in a state of paralysis.

Posted by: phx8 at November 15, 2009 12:43 PM
Comment #290845

Chops
“Long term unemployment”,”under employment” etc. hurt everybody and strengthen the underground economy.Of significant import when comparing Europe and the US in that regard is the fact that in the US health insurrance is often tied to employment. Lose your job,lose your health care access.Another big difference between Germany and the US is that the German economy is dependant on exports. They are neck and neck with China on volume. Our problem was the housing bubble. Their’s was a drop in export demand.
The immigration reforms that will be on the table early next year will help. There ought to be other steps we can take that will effect things sooner. I am curious about the German work share stuff.If the pay remains mostly the same because of government subsidy or tax incentives but the hours are less,under employment is not a problem.
The stimulus package does contain a measure of infrastructure building that is similer to the WPA projects of the 30’s,small bridges and the like.Its a help, but as Krugman pointed out from the beginning,the BHO package was just not big enough and the political will to add a second stimulus is unlikely. I liked his anology of driving a car up an icy hill. You’re likely to get one shot at it so you need enough speed to gain the momentum.To late now. So what to do about unemployment?
PK’s default approach after giving up the easier approaches as politically unrealizable is public works. If done correctly we can get real long term value from a WPA style program. My kid’s school in CA. was being held up by a retainning wall built by the WPA. Almost everyone drives to work over bridges built by the WPA and still in use 50 years later. There is plenty to do.
I am a labor guy. I would like to see a reduction in the work week to create more jobs,say to a 32 hour week.Fat chance.
Thing is long term under employment is a serious problem. It will slow any recovery and weaken the social fabric. How do we address it without blowing the budget?
PS. We know that tax cuts for rich people does not help.

Posted by: bills at November 15, 2009 10:45 PM
Comment #290858

Chops et al
Here some more stuff from Professor Krugman in regards to unemplyment. Lots of graphs etc. He still submits that he is suggesting what is the third best option,the best two not being politically possible.

http://www.princeton.edu/~pkrugman/The%20stupidity%20economy.pdf

The optimist in me wants to suggest major investment in alternate energy reseach and production to increase employment and maybe give us something to sell again.Then again,the political implications of threatening Big Oil and Coal mean that it is likely to take a long time to make much real headway. Seems to me we need something faster.

Posted by: bills at November 16, 2009 6:40 AM
Comment #290937

Chops, you were making a very cogent argument in your article UNTIL: “…wouldn’t it have been easier to find the money for that if we hadn’t spent it on a trillion dollar stimulus package that hasn’t worked at all?”

Hasn’t worked at all? Nonsense. A 10 million dollar road widening project employing dozens of Texans for months and months is taking place at the entrance to my 5 acre homestead. That project was funded by the Recovery and Reinvestment Act, the Stimulus Bill. Texas, being a Republican run state for the most part, REFUSES to install signs on these projects notifying the public that these are STIMULUS BILL projects.

You know how I found out it was a Stimulus Bill project? I asked two of the crew persons working out front my property, about he project. They volunteered happily that this was a Stimulus Bill project paying their wages. I confirmed this on the State’s highway contract project web page, which few others even know exists.

And this is but one of many Stimulus projects employing Republicans in the State of Texas, though Republican politicians do NOT want their constitutents to know about it. Multiply these 50 or so workers on this project by hundreds of such projects underway and hundreds more to commence in the next 5 months, and that is thousands of jobs saved by the Stimulus Bill, and thousands of local businesses still in business because the workers on these projects can still afford to shop at those small businesses.

Next time, you might want your article to leave the partisan rhetoric, lies, and misinformation in a drawer somewhere, so that reasonable and objective persons can commend the rest of the article.

Posted by: David R. Remer at November 17, 2009 12:30 PM
Comment #290939

Oh, and btw Chops, my 401K is up 19.2 percent this calendar year, and my family is still employed, and our County economy is picking up quite nicely.

Krugman is right, investing in a recessionary economy is what BOTH Republicans and Democrats have done since the 1930’s. The reason is, it works. Plain and simple. Had the financial industry and economy not been rescued by the Bush and Obama administrations and Congresses, a repeat of the Great Depression would very likely have occurred with more than double today’s unemployment rate.

Republican talking heads are so transparent. They truly are angry this economy was not allowed to fail and massive suffering did not take place. That would have been their ticket to blame Obama for having done nothing to help Americans. But, since that did not happen, Republicans and conservatives have to settle for obvious lies and misinformation which the majority of Americans refuse to swallow. You know, lies like the “…stimulus package that hasn’t worked at all.”

The GOP has become pathetic in their obstructionism, retarding behaviors, and propaganda war which, looks and sounds like a temper tantrum my daughter would throw when she was 5 if we didn’t buy her what she wanted in the store.

It is a shame that the Democrats don’t have an adult and objective conservative party to work with, who can negotiate and barter improvements in the legislation and actions which our nation MUST act on in order to save its future. A very big damned shame, since, the Democrat’s legislation would have been much improved for us all had conservative input and barter been part of the process, instead of obstructionism and Do Nothing Delays.

Posted by: David R. Remer at November 17, 2009 12:44 PM
Comment #290945

Your minor point that perhaps Krugman has been inconsistent pales in comparison to his being right about investing to create and protect jobs. It doesn’t even sound like you disagree on that score.

Posted by: Max at November 17, 2009 2:12 PM
Comment #290962

My take on Mr. Remer’s post above;

It is a shame that the Republicans don’t have an adult and objective liberal party to work with, who can negotiate and barter improvements in the legislation and actions which our nation MUST act on in order to save its future.

Posted by: Royal Flush at November 17, 2009 5:08 PM
Comment #290965

Max,

Right? Take a look here http://www.washingtonexaminer.com/maps/Bogus-jobs-created-or-saved-by-the-Stimulus.html

Posted by: Rhinehold at November 17, 2009 5:54 PM
Comment #290968

Royal Flush, how conveniently your comment ignores which party has majority control by a vote of the people. Which leads to the GOP being the do nothing, obfuscate, and deprive the United States from solutions however, imperfect, which are desperately needed.

The GOP can never regain power until they accept with humility, their current position as the party rebuked and thrown out of the majority by the people. Why would the majority of voters put the GOP back in the majority if they can’t handle being the minority in an adult and responsible way for the nation and the future of its people?

Sure, there is an anti-incumbent movement underway and it will deprive the majority party of some seats in 2010, but, one has to be oblivious to the reality of politics today to think the people are going to put THIS GOP back into the majority again. They have accomplished NOTHING as the minority except to deprive America of solutions of anykind, to national problems which were in greater or lesser part, of the GOP’s own making.

Posted by: David R. Remer at November 17, 2009 7:01 PM
Comment #290975

RH
Good link. It is important that we keep a close watch of where stimulus money is being spent.I’m with PK on this. The package was too small to start with so we need every bit of it to work toward its goals. The article you sited did state around a 10% overestimation of jobs creation. Thankfully that leaves a 90% effectiveness. I noticed that a good portion of the miss-spent IMO funds went to pay increases. We do get some stimulative benefit from that also but job creation gives us more bang for the buck. A uniform method of keeping track would help. When I was working as a carpenter,usually on public jobs like bridges etc. they figured that for every one of us working, something like 40 other people gainned employment. When you start counting engineers, loggers, truckers, steel workers,inspectors etc. the numbers can get large pretty quickly but its pretty difficult to come up with a statistical model that is very accurate overall.

Posted by: bills at November 17, 2009 10:11 PM
Comment #290995

Mr. Remer wrote; “The GOP can never regain power until they accept with humility, their current position as the party rebuked and thrown out of the majority by the people.”

That’s just silly. Please outline the display of humility shown by the Dems to gain office after the last Rep majority in congress. Your comment suggests that the way to victory by a political party is thru sack cloth and ashes. Baloney! It’s ideas, jobs, balanced budgets, openness in governance and much more that counts.

No one know what the issues will be in 2010 or how the parties will be addressing them. What is known today is that a majority of American voters are telling pollsters that they don’t like the big spending way of this congress and president.

Posted by: Royal Flush at November 18, 2009 11:11 AM
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