“German unemployment fell in July for the 13th consecutive month, putting Europe’s largest economy on the brink of a milestone: regaining all the jobs lost during the recession far faster than many economists expected.” Brian Blackstone, ‘Germany Regains Jobs Lost in Recession’, The Wall Street Journal, July 30, 2010
Once again, hydraulic Keynesian economists like Lawrence Summers, Christina Romer, Paul Krugman and Joe Stiglitz have been confounded by facts. First, their successful demand that the United States federal government should engage in massive fiscal stimulus programs has predictably failed to create jobs during an anemic economic recovery. Now, Germany, utilizing a much more conservative, market-oriented fiscal policy, is showing the U.S. economy a clean pair of heels with respect both to economic growth and job recovery.
The German government correctly targeted the labor market with respect to its limited fiscal stimulus. Recognizing that German wages tend to be sticky in the downward direction, government subsidies were directed to that weakness, with subsidies designed to keep workers on payroll at reduced hours. Under the plan, companies reduce workers hours but keep them on the payroll, with government kicking in for some of their lost wages and social security contributions. In consequence, instead of government subsidising individuals who are not working, government is paying individuals to retain their jobs, and encouraging companies to hire more such workers.
The results are predictable, from any non-hydraulic Keynesian perspective. In July 2010, unemployment fell to 3.2 million, putting it near to the pre-recession trough of 3.19 million in Octber 2008. The rate of unemployment fell to 7.6 percent, its lowest for two years, and well below its peak of 8.3 percent in July 2009. By comparison, the Keynesian induced unemployment in the United States peaked at 10.1 percent in July 2009 and remains at 9.5 percent in July 2010.
What should President Obama do to move into Angela Merkel’s shoes? Well, an obvious answer is to fire Summers, Romer, and Geithner, ignore the rantings of Krugman, Stiglitz and Bernanke, and hire professional economists who understand the nature of market process.
Because the German subsidy program has been successful, it can now be phased out. At its peak, in May 2009, 1.5 million workers were in the program. That has now been cut to half a million as companies move workers back to full time shifts. The German unions, exposed to the job-enhancing impact of subsidized wages, have begun to make wage concessions of their own in order to preserve jobs.
Nothing succeeds like success; and nothing fails like failure. Wake up, President Obama and smell the coffee. Clean out those job-destroying hydraulic Keynesian ‘economists’ from the White House and the Department of the Treasury, and shut your ears to Ben Bernanke’s hydraulic Keynesian message .