Saturday, October 23, 2010

Austerity vs. Prosperity- What Germany is Teaching the Rest of Us

The Other Half of the Story

"It's the economy, stupid."
-President Bill Clinton

The midterms are almost here. And while all the networks are simultaneously refusing to cover the biggest crowds President Obama has drawn since his inauguration, the "liberal" media, from FOX News to the BBC, loves to endlessly beat the same dead horses of pre-conceived narratives for millions of viewers. You've heard them. You know, like how the the president isn't connecting with voters. Or how Republicans are going to take majorities in both houses of Congress because after 8 years of Republican rule, the Democrats somehow didn't make the rivers flow with milk and honey after two years of Obama in the White House. Or the narrative that because the $787 billion stimulus package didn't fix all of our problems, government spending in a recession is somehow useless. That voters are blaming double-digit unemployment and no money in the bank on Democratic majorities, instead of corporate greed made possible through Republican deregulation and big money owning Congress.

And not surprisingly, the "liberal" mainstream media isn't telling the whole story. After all, the whole story doesn't sell nearly as much as a pre-conceived narrative does.

One place where the anti-government, anti-liberal narrative doesn't mesh with reality more than anywhere else is Germany. But what's so hot about Germany right now?

Beating the Recession with Big Government

In the second quarter, the US economy grew by 0.6% in terms of raw GDP. Germany, in the meantime, grew by 2.2%, their strongest growth in two decades. This growth is unlike China's recent 9% 3rd quarter growth, because China is growing their economy by devaluing their currency and then overloading the global market with their exports, made by people who are working because of the West's outsourcing of manufacturing jobs.

Germany, in the meantime, grows their economy through the underlying principle of keeping German workers working no matter what. When the recession hit everyone, America and most of Western Europe chose fiscal austerity. Germany, on the other hand, is faring quite well due to progressive taxation, business regulations that favor the employee and strong labor unions; coincidentally, all of which have been demonized by the champions of Reaganonomics and the "liberal" mainstream media.

The benefit of a strong domestic workforce and a prosperous middle class is not lost on the German government, as it seems to be in the USA. Germany's chief fiscal policy during this recession has been to keep unemployment numbers low; after all, the more people there are working, the more money gets spent in local economies. Not to mention the revenue gained from more people paying income taxes.

Germany's export market is also a chief factor of her prosperity. When demand for American products goes down in the global market, firms are quick to cut wages and drop workers from the payroll, so profit margins aren't lowered by paying their employees a fair salary. But Germany has instead relied more on furloughs instead of firings, meaning that manufacturing plants still stay open, and when demand improves again, there are still trained workers ready to do the job productively. And the demand for German-made products has indeed gone up, so Germany gets the benefit of nearly $800 billion in export revenue, with plenty of high-salaried workers with benefits and job security protected by unions, to make those products. Germany is a workers' paradise. This economic growth will eventually result in population growth, meaning increased tax revenue, meaning better government infrastructure for all, meaning an overall more prosperous nation as a net result.

The United States and other nations, like Spain, for example, have chosen instead to scale back stimulating the economy, and cut budgets even more. This means less loans for small businesses starting up, which means less people working, which means less people spending, which means a weakened economy and a less prosperous nation as a net result.

Some fiscal conservatives might like to blame the economic downturn on "big government" interference in the private sector. But the fact is, big government has yet to be tried here like it's been tried in Germany. Big government has been proven to be a force for job creation and economic prosperity for all, both for FDR during his tenure as he led us from depression to the introduction of the American middle class, and for Germany as they prosper in the midst of global recession. Pragmatic socialism, while the word has been demonized by the far right, is a tried-and-true way to overcome a stale economy.

So how could a social market economy save the United States?

How Obama can Save the US Economy

Germany's already found prosperity by taxing progressively, although interestingly enough their top income tax rate is 45%, which is still lower than Reagan's rate of 50%. And I've mentioned Germany being called a "workers' paradise" because of its dedication to keeping its domestic workforce strong and healthy, as well as its labor unions. These measures can come over time, although the Obama administration lacks the political capital to implement those right now. But Obama need only to launch one major project to regain that political capital and launch the US from broke to rich.

That project must be a new, WPA-style program aimed at building an efficient light rail system across the nation. We could do it by simply building 30 to 40-foot platforms with tracks on highway medians. There would be rail stations in every city, just like there are exits on the interstate. We would create literally millions of jobs in the manufacturing, installation and maintenance of both the railway itself, the rail cars and the renewable, sustainable energy sources that could power them. And we could get the funding to finance the project by taxing the top 1% of the richest in the country, who currently own 95% of the nation's wealth. Traveling by car would eventually be a thing of the past. I'm sure Big Oil would lobby against it tooth and nail, which is why it will take electing progressives to Congress to make sure it happens.

Think about it- FDR stimulated the economy with his New Deal programs that created millions of jobs for folks who had none during the worst economic crisis in history. There was the Civilian Conservation Corps (courtesy of the Unemployment Relief Act of 1933), where young men from their late teens to mid-twenties from unemployed households were given construction jobs, and expected to share their wages with their families. There was the Public Works Administration, which used $3.3 billion to improve public infrastructure and promote economic growth in places that weren't suited for economic growth. The Works Progress Administration created 8 million jobs in and of itself, and rejuvenated downtrodden urban environments. There were numerous other projects in the New Deal that stabilized the economy through stimulus and regulation, all of which eventually resulted in the biggest economic boom in history, from 1949 to 1973. The media likes to push the narrative that World War II was what spurred such growth, while ignoring the fact that us currently being involved in not one, but TWO overseas conflicts has only bankrupted us.

But big government spending to create jobs isn't merely a Democratic idea; Gen. Dwight D. Eisenhower took the White House and oversaw the creation of the Interstate system. While these roads were originally intended for quick evacuation from a potential nuclear attack, it ultimately resulted in millions of jobs created and a highly-efficient system of travel. However, we now have the technology to transcend beyond ribbons of concrete and a dependence on petroleum- a light rail system built in similar fashion to the Interstate system would revolutionize both the energy and transportation of this nation as well as catapult us to economic prosperity.


Conservatives might suggest that if government stimulus actually stimulated the economy, the ARRA failed miserably, as we're still facing high unemployment and job losses even after its passage. But as Paul Krugman notes, the "stimulus" package was almost completely made up of tax cuts and bailing out broken state governments, not any real stimulus programs to create jobs. Sure, there might have been several billion dollars allocated for road repair and teacher rehiring, and the stimulus that we did get certainly helped in those aspects. But the ARRA lacked any legislation or funding allowing for the mass creation of jobs.

Could you imagine, a week before the midterm elections, President Obama and the Democratic Caucus in the House and Senate standing behind him on the Capitol steps, on all of the networks to announce a major economic initiative? Could you imagine the "American Job Security and Energy Independence Act of 2010," consisting of progressive taxation to fund a light rail system, and an infusion of funds into the private renewable energy sector to power it? It would be an out-of-the-park grand slam for Democrats, Obama, and Progressive economic policy. It would reverse the media narrative about the midterms. Democrats would sweep the 2010 elections as they did in 1934, increase their majorities instead of lose them, and our nation would witness a period of economic growth not seen since the 1950s.

History has spoken in favor of stimulus overpowering recession, while simultaneously not rewarding austerity with anything but wealth and income stagnation. Will we listen to it once more, or will we continue with the failed status quo?

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