What Obama Can Learn From Germany on Unemployment and Debt

They’ve given us a great model for how to get out of our current economic mess.

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Remember the scene from Ferris Bueller’s Day Off when Ferris sings “Danke Schoen” in the parade? Americans could take a lesson from that, and start saying thank you to the Germans. They’ve given us a great model for how to get out of our current economic mess.

Rewind to about six months ago, when German Chancellor Angela Merkel first announced the biggest round of spending cuts since World War II in order to reduce the government’s massive deficit. Her plans were immediately denounced as balancing the budget on the backs of the poor. From Time magazine last summer:

Already, union leaders are planning a nationwide day of protest with a series of demonstrations in major German cities on June 12. "The government is punishing the weakest in society," Frank Bsirske, head of Germany's public-sector union Verdi, told reporters on Monday, warning that the savings would lead to a spike in unemployment. The German press was also baying for blood, with tabloid paper the Berliner Kurier branding the austerity plan as a "list of horrors" and claiming that every German would have to fork out $1,200 to pay for the cutbacks. The government has "ruined the summer" screamed the left-leaning paper Die Tageszeitung on its front page. Even the conservative daily Die Welt was skeptical that the measures would be able to restore public finances in the long-term. "The poorest of the poor seem to be worst off in the austerity drive, and this will give plenty of ammunition to opposition parties — they'll fight these measures tooth and nail," Uwe Jun, professor of political science at the University of Trier, told TIME. And with members of the social wing of Merkel's conservative party criticizing the austerity drive, Jun predicts "yet more splits in the coalition government."

Instead, the opposite happened: the coalition government held, the “debt brake” was applied--politicians were constitutionally barred from borrowing more money--and taxes on the wealthy were not raised. There’s some disagreement among economists about whether all of the spending cuts have actually been implemented, and whether growth in exports is driving the expansion, but there’s no argument about these results: Germany is now also one of the fastest growing economies in Europe--annual GDP is up 3.9 percent there, beating predictions--and its unemployment rate has fallen to 7.5 percent, which is the lowest it’s been there in 18 years. Business confidence is the highest it’s been in two decades. As for the poor, the German Finance Minister put it best: “Nothing is less socially just than to allow public finances to hit the wall." [Read more about the deficit and national debt.]

The German approach is the opposite of the Obama approach: they went with reducing the deficit first, confident that economic growth would follow. We’re betting on economic growth first, followed by deficit reduction. The problem is our bet is nearly a trillion-dollar one: tax cuts and more spending in a second stimulus plan that instead will add even more to our bloated deficit. That’s a bet the lame-duck Congress and the Obama Administration seem to be willing to take. But to the millions of outraged Americans who are tired of the endless deficit spending, we’d rather say, “No thanks.”

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