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06/19/2011

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El-Greco

Germany is exactly the example of how the typical European Welfare State incentives squander the superior ability of a citizenry which is perhaps amongst the top handful most capable in the world.

By contrast American capitalism is (was?) the more dynamic environment that enabled “Dumb Americans” (as they are known in Europe) to be most prosperous in the world, outproducing the admittedly more competent average Europeans. Now that the plan is to marry the competence of the average American with the incentives of the German Welfare State (the central aspiration of “hope” and “change”) what you will get is prosperity levels similar to Spain, Greece and Portugal. And this is where you are headed dear Americans because this is what you want. You have been bamboozled by the demagoguery of higher prosperity based on lower incentives to produce and once you enter that vicious cycle there is no escape.

But I love how I hear progressive Americans who have never lived, worked or tried to set up a business in Europe claim from afar that the grass is greener in Germany.

While Germany has had a couple of strong (strong by European standards that us) temporary post crisis rebound growth quarters (unlike the US where the recession also coincided with a marked turn towards more socialism) Germany’s long term economic growth trendline is a rather unenviable 2% (actually just a tad less than that). Of course, such is the accepted pathetic future of Europe as a continent, that a 2% growth qualifies Germany as a tiger economy within the Eurozone. “Στους τυφλούς ο μονόφθαλμος βασιλεύει” : “Amongst the blind the one eyed is king”, as they would say in southern Europe. Since the world on average grows by 4-5%, Germans are loosing 2-3% of their standard of living per year compared to the rest of the world, relentlessly compounding year after year. While that is better than Spain or Italy (less than 1% long term growth) that is still a sure path to worldwide economic marginalization.

The equivalent to the American dream for a German family is to upgrade from the typical 900 sqf 2nd floor apartment (the average dwelling for the German middle class) to the “privileged” 1200 sqf “suite” on the 5th floor. If you live in a single family home in Germany (like most of the American middle class) you are said to live in a “villa”. The living in a “villa” status is a privilege reserved to less than 5% of the population living in German cities. Saying in Berlin, Munich, Hanover etc. that you live in a 2000 sqf single family home with an actual yard is like saying in America that you live in a mansion.

How does Germany manage with taxes? By taxing everybody and not just the rich.

Germany and most of Europe have already gone past the hope and change stage and have already taxed the rich to the top of the Laffer curve. Having exhausted the rich as a revenue source (and having sent many productive people to a more mediocre leisurely life – ever wonder why you encounter so many Europeans in the South Seas?) they had to turn to the middle and lower class for more revenue, something that will inevitably happen in America after a couple of miles down the road to “hope” and “change”. The middle class in America is essentially digging its own grave.

Top income marginal tax rates for the rich in Germany, and Europe in general, are similar to the US if one considers higher tax states like California and New York. The big difference is that in Europe EVERYBODY is highly taxed not just the rich. While in the US the top tax rates kick in when income rises to about 7-8 times the average income, in Europe, making about 2 times the average income already bumps one into the top tax rates. Add to that a 20% VAT tax, excise taxes and $9 gasoline, all paid heftily by the middle and lower class and you see how “free” really all those European social services are. In America, on the average salary, one could buy all those services offered “free” in Europe and still have more money left to spend. And that is, spend to buy goods generally priced quite a bit less and without the additional 20% VAT, the hidden taxes that increase the cost of everything (ever tried to eat in a restaurant in Germany?) and the $9 gasoline.

Try to haul 2 kids in and out of public transportation summer and winter in Berlin to do your daily shopping, take them to school, activities etc. and you will see why Europeans have even stopped reproducing, with birth rates ranging between 1.3 and 1.8 in most of Western Europe. If you ask most Europeans about having kids they’ll typically answer “Maybe we’ll have one. It’s too hard! It’s too expensive!”

That is the prosperity level achievable by what is perhaps the most competent workforce in the world under the incentives of the Welfare State. So be careful what you “hope for” Americans because you would be indeed very lucky if a change to Welfare Social Democracy allowed you to maintain even German levels of prosperity, which in the end are simply just a slower path to decline compared to the rest of Europe. As I said above, marrying the competence of the average American with the incentives of the European Welfare State (the central aspiration of “hope” and “change”) will not even allow you to maintain German prosperity levels. Something akin to Spain, Greece and Portugal will be the more likely outcome of combining the competence of the average American with the indolent incentives of the European Welfare State.

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Financial crises has disturbed everything for business terms. Biggest effect occurs on Economy of small country.

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rob matysiak

Economy is not going to recover if we don't start bringing back our jobs!!!

john morris

China is going to own all of the U.S. if we don't stop borrowing money from them, wich devaluates the dollar!!!

Sukarnoputri

Why should your American companies move our Chinese, Indian, Brazilian, Russian, Taiwanese jobs, that pay us 3 times more than our old jobs, to America? Because you Americans insist and hope to continue exchanging 1 hour of your labor with 5 hours of our labor though we are finally learning to do the same things that you do? What are you going to produce? Children’s bicycles at $300 a piece (what they used to cost in 1960 in inflation indexed dollars?) and then force yourselves to buy them at these prices? or solar panels at 5 times the price than we do?

I’m happy making 3 times what I used to make. If you want to make 15 times that then do something 5 times more valuable than I do. Solar panels, for example, are low technology, not rocket science, I can make that type of stuff just as easily as you do and for a quarter of the cost. Either move up to higher value work that I am still incapable of doing or accept the fact that our standard of living will reach yours. Why should you have a standard of living that is 500% higher than ours?

Let’s see how your companies manage to survive paying you 5 times more for the same job. We are starting to have entrepreneurs that create companies capable of completely supplanting your entire companies. But please go ahead, do wage war against your entrepreneurs and companies. That will give our entrepreneurs and companies an additional opportunity to completely supplant your companies and catch up even faster.

You Americans are delusional. And judging from comments on blogs, lately, seems like you are now been fed the same stuff that the Europeans have been fed all these years on their way to extinction. Go ahead and prosper putting forth $0.50 of effort and resources to produce one kWh of energy from alternative sources. If you just look at it from a little further away you immediately understand how moronic of a delusion that is. If the rest of American economic thinking has degenerated to this level of populism, then, no wonder you’re in decline.

S. Sukarnoputri

Dan

I read hoping to get an objective opinion on the topic. However, when the author uses the term "Liberal Democrat" in contras to "Many Republicans", I can see the bias. It diminishes Mr. Becker's credibility on the issue.

glasnost

Absolute nonsense on stilts. An unfalsifiable hypothesis ("we're recovering slower than we might have been under some other unspecified set of policies!") with no attempt to draw empirical comparisons in history or even to describe exactly who's being hurt and how.

Here's a technique that doesn't rely on voodoo:
http://modeledbehavior.com/2011/02/05/gallup-poll-small-businesses-point-to-aggregate-demand-failure/

Becker might want to try on the radical concept that gigantic decreases in asset-to-debt ratios result in everyone in the private sector cutting spending at once, which leads to less purchases of goods and services, which leads to... economic decline! Which continues indefinitely as a state of nature, because no one is able to be the first person to start making gigantic investments when no one is buying anything!

It's not rocket science. It's all market incentives.

From an economics standpoint, this is genuinely illiterate stuff.

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It is not puzzling when you understand that their strategy is to run the economy into the ground so that they can then put a infrastructure of power that only they control.

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This time about reasons for the slow economic recovery in the US. Becker thinks that the US needs a favorable tax environment, a clean up of the public household and better predictability of regulators

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While a great deal of politics is local, not all of it is...thinking!!

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Combination of your most productive people finding in America the most unhindered environment to lead the world in innovation, coupled with the ability to redistribute at the polls proved too tempting to sustain.

Alice Finkel

From 2006 -- the onset of the Pelosi Congress -- onward, anti-business and anti-energy bias from Washington DC grew rapidly. The election of Obama and an echo chorus of fellow bird-brains in 2008 set the war against the private sector on an official and semi-permanent basis. Particularly with the way in which Obamacare was summarily inflicted upon the small and medium business community.

As for Europe...Europe's ongoing demographic collapse heralds a sharp downgrade in prosperity, beginning with southern Europe and moving inexorably northward. Formerly prosperous welfare states, without taxpayers, generate historical ruins and little else.

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Maybe the knowledge that the debt ceiling could be a dramatic face-off can help the government try to avoid having to raise the debt limit in the future.

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Well the slow-down in the American economy is undoubtedly due to problems in the world economy... When we eventually look back at our times in a historical perspective we will realize what a time of precipitous American decline the early 21st was under hope and change.

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