The German economy, once the industrialized and efficient heart of the EU is now facing the highest level of unemployment since the Second World War:
The number of people out of work in January rose by 227,000 to 4.71 million in seasonally adjusted terms, including 230,000 new jobless claimants, the Nuremberg-based Federal Labor Agency said today. The adjusted unemployment rate rose to 11.4 percent, a seven-year high, while the unadjusted jobless total passed 5 million for the first time since the war.
The German economy is facing what the rest of Europe is: the effects of a punitively high tax climate and massive overregulation. The German economy is sputtering due to the massive non-wage costs of labor, which run at a dangerous 42% of total gross wage costs. Despite Chancellor Shröder’s Agenda 2010 reform package, the reforms come too little too late to reduce the onerous regulations that are keeping the German economy in the toilet.
The fundamentals of the German economy should be more than enough to keep Germany economically strong, they remain an industrial and high-tech leader, but the weight of a massive welfare state and other regulatory burdens have transformed one of the EU’s strongest economy into a state that has slipped below the EU averages in terms of per-capita income. There is a cautionary tale here of how even the strongest economy can be stalled by inflexible labor regulations and overwhelming taxation. It’s also a reminder of the direct correlation between economic freedom and economic strength.
From the depths of the toilet…
What seems even more devastating than those figures is the spreading pessimism mixed with apathy. The public perception is that no matter what party is in power, no matter what programs are initiated, no matter how much money you save, no matter where you invest your meagre posessions – you come out on the loosing end.
Your investment fund goes belly up (result of a mix of government regulations and fraud – remember Enron?); you loose your job (because the administration made it easier to lay off workers, which they did in the first place to make it easier to hire people), you don’t go the doctor anymore because it is too expensive (despite the fact that you pay enormous amounts of money to you health insurance by law) until you get so sick that you just have to go – and are fired for missing out too many days.
I sometimes feel like I am sitting at a computer (windows, of course…) and it just does not work anymore – the best thing to do is to press CTRL-ALT-DEL to start all over. But of course, in a state there is not such button.
Ah, but I am complaining, aren’t I?
So, Jay, have you got any suggestions to start this country over?
J.
The thing is the German economy really isn’t that bad on a fundamental level. There’s plenty of potential investment capital floating around, and the banking system is sound. Germany’s where the US or the UK was in the 1970s, so a turnaround is certainly possible.
I’d say the best way to get things started again is to do what Reagan and Thatcher did – jump start economic growth. Reduce the non-wage costs of labor, cut taxes, and cut the red tape that keeps small business growth down.
In the short term, it’s not going to be politically popular, which is why the current leadership just won’t do it. In the long term, Germany can easily get back to where it was and more, it’s just a matter of someone finding the will to make the cuts that need to happen.
In other words, if you only cede the quality of life luxuries that come with civilized society (health care, retirement compensation) so that German investors and corporations can fatten their wallets, you’ll be richly rewarded with tens of thousands of new low-wage jobs without benefits like us Americans who boast of our low employment even as the ranks of those who earn enough to pay income taxes declines.
I’m not gonna try to say that there aren’t some major drawbacks to Germany’s heavily socialized economic structure, but the alternative is enacting supply-side economic “reforms” that will ultimately trade in 12% unemployment rates for 30% underemployment rates. As it stands now, an unemployed German generally has a higher quality of life that the tens of millions of low-skill or semi-skill Americans who work their fingers to the bone in McJobs only to be called parasites for not earning enough to meet the threshold for income taxation. The last thing Germany needs is to take the advice of Jay Reding.