On the same day the Commerce Department dramatically revised down second quarter Gross Domestic Product estimates, New York Times columnist David Brooks published a stinging rebuke of Obama economic policies. “The American stimulus package was supposed to create a ‘summer of recovery,’ according to Obama administration officials,” wrote Brooks. “Job growth was supposed to be surging at up to 500,000 a month,” he continued. “Instead, the U.S. economy is scuffling along.” Scuffling is putting it mildly, for it was announced Friday that the GDP only grew by a pathetic 1.6 percent last quarter which was down from previous estimates of 2.4 percent. With this in mind, Brooks’ column was not only spot on, but a surprising indictment of everything the Obama administration has done since Inauguration Day: During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence. The debate got pointed. American economists accused German policy makers of risking a long depression. The German finance minister, Wolfgang Schäuble, countered, “Governments should not become addicted to borrowing as a quick fix to stimulate demand.” The two countries followed different policy paths. According to Gary Becker of the University of Chicago, the Americans borrowed an amount equal to 6 percent of G.D.P. in an attempt to stimulate growth. The Germans spent about 1.5 percent of G.D.P. on their stimulus. This divergence created a natural experiment. Who was right? The early returns suggest the Germans were. After sharing our dismal data, Brooks presented a stark comparison: The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels. But the results do underline one essential truth: Stimulus size is not the key factor in determining how quickly a country emerges from recession. The U.S. tried big, but is emerging slowly. The Germans tried small, and are recovering nicely. Indeed. As the Wall Street Journal noted last week: In the second quarter, the German economy grew 2.2% compared to the previous three months, or more than 8% annualized-the best quarterly performance in decades. And while the American economy shed 130,000 jobs in July, resulting in an unemployment rate of 9.5%, German unemployment has fallen for 13 months straight and is now down to 7.6%, where it was at the start of the financial crisis. Imagine that: German unemployment is now down to where it was before the financial crisis began ! Not only is ours not even close to that, most economists expect U.S. unemployment to rise in the coming months. What might be the key according to the Journal? [O]ne thing that can be said for Chancellor Angela Merkel is that she has resisted the borrow-and-spend policy temptation. Earlier this year, she announced an €80 billion ($103 billion) deficit-reduction plan. Mrs. Merkel has followed a basic rule of economic policy: First do no harm. Her center-right government has failed to fulfill its pro-growth, tax-cutting campaign promises. But it has also largely refrained from worsening the country’s business conditions. While the U.S. debates whether, by how much and on whom to raise taxes in January, Berlin’s budget cuts have taken some of the uncertainty out of Germany’s fiscal future. In America, U.S. corporations are holding back on investments despite soaring profits. At the end of the first quarter, nonfinancial companies in the Standard & Poor’s 500 had a record $837 billion in cash, apparently preferring to make almost no interest on the money instead of investing it in the face of uncertainty about taxes and regulation going forward. In other words, by the simple expedient of not frightening business, Berlin has made it easier for the country’s export-oriented industries to take advantage of the global recovery. German engineering is successful in emerging markets such as India and particularly China, where BMW, Audi and Daimler, posted record sales these past few months. Meanwhile, as American corporations sit on the sidelines waiting for the next shoe to drop from the Obama administration, our trade deficit continues to explode. Of course, regardless of the comparisons being made by Brooks and the Journal, folks on the Left are sure to blame the slowing economy on not enough federal spending. Almost on cue, Brooks’ colleague Paul Krugman wrote Friday: In the case of the Obama administration, officials seem loath to admit that the original stimulus was too small. True, it was enough to limit the depth of the slump – a recent analysis by the Congressional Budget Office says unemployment would probably be well into double digits now without the stimulus – but it wasn’t big enough to bring unemployment down significantly. Amazing! Despite historical evidence during the Depression that governments can’t spend their way out of economic calamities, and the same being true when Japan couldn’t do it in the ’90s, Krugman and his ilk just want to continue with this failed policy. Maybe Brooks ought to take Obama and Krugman on a trip to Berlin so that Merkel can teach them a thing or two about the benefits of fiscal restraint and getting out of the way of the jobs creating private sector. Alas, they probably still wouldn’t get it. Sigh.
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NYT’s Brooks Bashes Obamanomics, Praises Germany’s Far More Successful Fiscal Restraint
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