A Cure for ‘The Sick Man of Europe’

 

Takeaway

  • 10 years ago, Germany was faced with the problem of sustaining its economy and delivering on social commitments
  • Today, it has the lowest unit labor cost despite also having the highest wages in Europe

Since the housing and mortgage expansion reached its unsustainable zenith nearly five years ago, economic headwinds and financial contraction have been at the forefront of financial market discussions. Two years ago, the sovereign debt problems of the developed world further added demand-side challenges. Over that time, economic policy has concentrated on resurrecting demand via government debt-financed spending or monetary expansion. It is safe to say that we have learned that the Keynesian tools that served well in a less debt-challenged environment no longer solve the macroeconomic problem. If they did, we would not be facing the question of yet another QE.

Moreover, we do not have an answer to the larger question of the sustainability of the Western social model of a government-funded retirement with medical care.

In a guest post for The Spellman Report, Dr. Wilfried Prewo — chief executive of the Hannover Chamber of Industry and Commerce in Hannover, Germany — points out that a decade ago, Germany was faced with a similar problem of sustaining the economy and delivering on the government’s social commitments. As a result, its leaders devised supply-side policies that have been very effective in meeting both goals. Today, Germany has the lowest unit labor cost despite also having the highest wages in Europe. As a result, the country runs a trade surplus, has relatively low unemployment and a near balanced fiscal budget. The U.S. has a lot to learn from these innovative supply-side policies.

To read the full article, visit The Spellman Report.

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

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