The U.S. v Germany: David Brooks Weighs In

Last week, we called attention to Germany’s incredible second quarter growth rate (9.1% on an annualized basis). It was an interesting data point in intense debate between the German and American political establishments about whether the right economic recipe (for today) was more borrowing to stimulate growth or less debt and more action to balance budgets. Today, David Brooks weighed in with some very interesting comments of his own.

Here are some of the best excerpts from his column:

On the fundamental issue – that each country took a separate path forward:

“The two countries followed different policy paths. According to Gary Becker of the University of Chicago, the Americans borrowed an amount equal to 6 percent of G.D.P. in an attempt to stimulate growth. The Germans spent about 1.5 percent of G.D.P. on their stimulus. This divergence created a natural experiment. Who was right? The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along. The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels.”

On how Germany is growing partly because of America’s borrowing:

“Germany is surging, in part, because America is borrowing. Essentially, we Americans borrowed from our kids, spent some of that money on German machinery, and ended up employing German workers. But the results do underline one essential truth: Stimulus size is not the key factor in determining how quickly a country emerges from recession. The U.S. tried big, but is emerging slowly. The Germans tried small, and are recovering nicely.”

On how some of the best policy advice is just to keep things simple and focused:

“The crucial issue is getting the fundamentals right. The Germans are doing better because during the past decade, they took care of their fundamentals and the Americans didn’t.

The situation can be expressed this way: German policy makers inherited a certain consensus-based economic model. That model has advantages. It fosters gradual innovation (of the sort useful in metallurgy). It also has disadvantages. It sometimes leads to rigidity and high unemployment.

Over the past few years, the Germans have built on their advantages. They effectively support basic research and worker training. They have also taken brave measures to minimize their disadvantages. As an editorial from the superb online think tank e21 reminds us, the Germans have recently reduced labor market regulation, increased wage flexibility and taken strong measures to balance budgets.”