We all know that for the long-term health of the global economy and financial system national stimulus packages have to end and governments need to begin paying down the debt that they’ve run up during this crisis.
And we all doubt that governments will do any such thing. We suspect that stimulus and subsidies once extended will never be withdrawn and that instead of discovering thrift national governments will tax or inflate or default their way around this mountain of debt.
Anybody looking for signs that the most cynical projections aren’t the most accurate forecasts has to shudder at the news out of Germany in the last few days.
Germany, the most fiscally responsible major economy in the developed world, has decided to cut taxes and increase its deficit in 2010 and 2011.
The rules of the European monetary union say that no country is supposed to run a deficit of more than 3% of its GDP (gross domestic product). The average deficit next year, however, will be 6.9%, according to the European Commission.
 Germany will be right near the middle of the pack with a deficit projected at 6.5%
Shockingly that’s higher than the 6.2% deficit projected for Italy, long the symbol of runaway deficit spending.
One problem is that, while Europe moved out of recession in the third quarter of 2009, the recovery so far looks to be very weak. U.S. GDP climbed a larger than expected 0.9% in the third quarter from the second quarter of 2009. In comparison German GPD climbed 0.7%.
That was especially disappointing since the German (along with the French) economy had moved out of recession in the second quarter and economists were looking for signs that growth was accelerating as the recovery advanced. Economists had expected 0.8% growth for the quarter. Even after two quarters of growth the German economy is still 4.8% smaller than it was in the third quarter of 2008.
The Berlin government projects that German GDP will grow by just 1.2% in 2010. The unemployment rate is projected to average 9.4% for 2010, up from an average of 8.2% in 2009.
So it’s not surprising that the newly re-elected government for Prime Minister Angela Merkel has proposed $36 billion in tax cuts for 2010 and 2011. (That’s the equivalent of $140 billion in tax cuts in the much larger U.S. economy. The Bush administration tax cuts of 2001, 2002, and 2003 came to about $190 billion.)
Not surprising, but dismaying.
 If German politicians, especially after they’ve won an election victory, can’t find the discipline to move toward fiscal restraint in 2011, if not 2010, then what can those of us who live in historically less fiscally prudent economies expect?
How about the difference in education level of govt. employees vs the rest? I know professionals prefer private sector because that pay more. You need to compare the pay of people at same education level.
OK. My $.02 – The responsibility of the average worker is around few $k. But many decision makers in gov – their responsibility is priceless. They better make good decisions – meaning you need to pay well to compete for the talent. (whether it actually works this way is another story)
Because the “Chicago Way” is to give those jobs to friends and cronies. The Democrats have done it that way for years in IL and now (with Obama), they are taking it national. It no longer matters what you know, it’s now about who you know.
Drevil’s right that those figures are absurd. They’re absurd because they’re inaccurate. Free market think tanks are constantly putting out misleading and flat-out wrong information like this in an attempt to convince us that government workers are spoiled fatcats who sit around sipping cognac all day while the rest of us tighten our belts. That is a severe distortion.
If the average total hourly cost of employment for a government worker (including benefits, etc.) is actually somewhat higher than for a private-sector worker–which I concede it may be, though nowhere near three times higher–consider that the opportunity for advancement in these jobs are slim and merit increases practically nil. If government jobs are so plush, why isn’t everyone I know running out and trying to get one?
LOL
German elections are OVER, our elections are just coming next year. That will make a huge difference he way the funds are allocated and spent.
Why do we always “dumb down” ??? . . . why don’t the “Rest of the US citizens” have the same pensions, healthcare, and taxes as government workers? Rather than vice versa as drevil suggests.
How about cutting the fat and fraud out of the government before cutting or raising taxes.
How about cutting the fat and fraud out of medicare before we create another fat and fraudulent agency for national healthcare.
How about government workers having the same pensions, healthcare and taxes that the rest of the US citizens. Avg Govt employee 76K/yr; Avg US worker $26K/yr. Absurd.
Yes, I know if I received a large tax cut I’d be sure to put it into infrastructure improvements, educational upgrades, military support and environmental cleanup. I’d *never* use it to buy a 78″ flat-panel TV to replace my 65″ one.
Fact is, for many years we’ve dramatically underfunded government with our tax cuts and running deficits, while shouting the “Privatization!” mantra. There are innumerable projects that the private sector is too shortsighted or competitive to produce in a reasonable time. These projects, which include huge infrastructure needs, lie begging for government investment and when completed will benefit society as a whole (think universal internet access, energy efficiency projects, highways, water relamation projects, etc).
I’m tired of watching our tremendous national advantages, my inheritance from the wisdom of leadership in the mid 20th-century and before, deterioriate because no one will stand up and fight for the responsibility of government to “insure domestic Tranquility [and] promote the general Welfare”.
I’m curious. What is the U.S.’ percentage deficit to GDP? What are projections for 2010 and 2011?
Not sure why we’re not cheering for tax cuts Jim. I’m sure German citizens know how to better spend their money then letting the government do it for them. Sure, there’s a “cost” to the tax cut, but also a cost to not having the tax cut. If you believe that long term growth has to come from the private sector, then let them do it.