Opinion What Obama Could Learn from Germany

The United States is experiencing its worst crisis in decades. Obama is trying to fight it by preparing one gigantic economic stimulus program after the other. But the hangover is inevitable, and if the desired economic miracle doesn't materialize, it will be a massive one.

By Gabor Steingart in Washington, DC


The most attractive thing about globalization is that it has enabled us to develop international tastes in our shopping. Our wine comes from France, our flat-screen televisions from Korea and our elegant shoes from Italy.

But you can also find good ideas for governing by shopping for them around the world. The catalogue of ideas is packed. Indeed, many countries have answers to the question on everyone's mind these days: "How do I rescue my economy?"

President Barack Obama: Should he take his cue from Germany's economic miracle of the 1950s?
AP

President Barack Obama: Should he take his cue from Germany's economic miracle of the 1950s?

But the new US president prefers American-made products. And even if the Senate has watered down the internationally contested protectionist provisions in the US economic stimulus package, "Buy American" remains a popular term in the heartland as Washington navigates the muddy waters of this crisis. For Obama, the obvious course was to opt for an XXL-sized stimulus package complete with a job-creation program, even if that meant a huge deficit. It is a concept that was developed and tested by former US President Franklin D. Roosevelt in the 1930s and 1940s.

FDR, as the Depression- and World War II-era president is commonly known, remains popular in the United States today. Obama describes him as his role model.

The idea works like this: You take money that you don't have, you let it rain down on the people and public construction projects start to spring up all across the country. Under FDR, the country built 900,000 kilometers of new roads, 77,000 new bridges and 285 additional airports. Under Obama, the country will see millions of new high-speed Internet connections, health insurance companies will obtain modern computer systems and the parks on Capitol Hill will be freshly landscaped.

It's a shame, though, that Obama hasn't shopped around a bit more. He could have looked to Germany for ideas -- its competing plan for rescuing the economy is certainly worth a look. It's cheaper and has a longer shelf life than a lot of the other products currently available on the intellectual market. It originated in the 1950s and is referred to as a "culture of stability."

It was the handiwork of former German Economics Minister Ludwig Erhard, better known as the father of the country's post-war Wirtschaftswunder ("economic miracle"). Erhard's model not only functions differently from FDR's, it also smells different -- namely of sweat.

His plan shuns excessive debt. His argument was that people would first make an effort when money became tight and, thus, more valuable. You get the best results, he found, if, in the tried and true manner of our forefathers, you work hard and don't forget to save. "The state can't afford anything that doesn't come from the strength of its own people," was the message. He also could have said: No pain, no gain.

The Roosevelt model is more generous in this respect -- one could also say more careless. The same rules apply which were standard until the beginning of the American real estate crisis: we'll give you the keys today, no down-payment necessary, we'll send you the bill later. Of course you can pay in installments.

The national debt under the Roosevelt administration stood in his first year in office at a moderate $22 billion. By 1940 it had doubled to $50 billion and in 1943 it was $143 billion. In Roosevelt's last year in office, he achieved his personal record of $260 billion.

Cheating the People

No US president governed on credit with such abandon as FDR. Obama, however, is now trying to emulate him. He has already asked Congress for $1.5 trillion in debt-financed public spending. Another $2 trillion could follow, if the banking sector continues to be unsettled.

But nobody should worry about the cost, say those who are trying to sell the FDR model. That is exactly the clever thing about this product: Everything pays for itself. If a country has enjoyed too many economic excesses -- so says the instruction manual -- it should simply keep partying. The merry reveler knows no hangover, as the Germans like to say.

And anyone who feels a bit unwell has drunk, not too much, but too little from the credit punchbowl. The limiting factor is not money, writes the Nobel laureate Paul Krugman, goading on the Obama administration, but the timing and the speed of the borrowing.

Erhard called such rhetoric "cheating the people." His key words were not consumption and credit, but pay and performance. He insisted, practically to the point of stubbornness, that work and only work is the foundation of prosperity: "We must either make do with less or work more." He felt that the third way, which leads to the vault of the next best bank, was a dead end.

His record is impressive, even from today's perspective. He gave Germany the longest economic boom in world history, from 1949 to 1966. During this period, the country, still recovering from the war, rose up to become a leading exporter. It overtook first the French, then three years later the British and as of 1976 the Americans. Germany's currency remained stable and its level of debt low. From the late 1950s onwards, there was full employment in Germany.

The FDR approach enjoys not nearly such a good reputation. If statistics were kept for the biggest flops in political concepts, it would be right at the top. The then Secretary of the Treasury Henry Morgenthau admitted that much himself.

In court and in his own diary, Morgenthau told the truth. Toward the end of the 1930s, the treasury secretary reached the following gloomy conclusion in his personal records: "We are spending more than we have ever spent before, and it does not work ... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."

A Roosevelt without a World War

The Roosevelt model would be impossible to sell today if it had stopped there. But although Roosevelt was good at spending money, he was even better at warfare. And he was best of all at winning wars. In the same year that he set a world record for debt, he won the war against Hitler's Germany which had been imposed on him. But the funds which he had used mainly to support the armaments industry were subject to high interest after 1945.

American corporations moved into war-ravaged Europe and the country was able to export itself out of the credit hole. US firms enjoyed dazzling profits and the American middle class was born. Fifteen years after the end of the war, the debt burden was largely eliminated.

But the original version of the FDR model is -- thank God -- no longer available. Obama is a Roosevelt without a world war. The national debt which he is currently imposing on the country serves no higher purpose than to postpone America's hangover one more time.

In relieving the crisis, Obama is laying the foundations for another one which will be almost as big. But the hangover cannot be postponed forever. Unless a miracle happens, Obama will be looking pretty rough on the morning after.

Speaking of miracles: Erhard bears part of the blame for the fact that his approach is today considered a hard sell. He wasn't a fan of fancy packaging. Even the term "Wirtschaftswunder," coined by an admiring populace, was repugnant to him. Anyone who used the expression in his presence was snubbed. "There are no miracles," he liked to say.

Hence, although today's Germany can export cars, heavy machinery and Riesling, it is not able to export its culture of stability. After all, sweat is hard to sell.

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