Europe Channeling the Gipper

A funny thing happened on the way to a greater European socialist paradise…

As The Wall Street Journal pointed out last week, Germany is the one country in Europe that isn’t circling the bowl in the worsening euro crisis.

They’re doing just fine, thank you very much.

How fine is Germany doing?

Take their unemployment rate—I wish we would—because it’s only 5.5%.

5.5%!  That level is what used to be called “structural unemployment” here in the US…

Structural unemployment means that at any given time, 5-6% of the work force was between jobs, had chosen to resign, or otherwise did not want a job.

That means that in the worst global recession the world has seen since the Great Depression, Germany is very close to full employment.

But not only that, Germany’s youth unemployment rate is lower than the national unemployment of the US.

A brief comparison is enlightening…

Agenda 2010

About 10 years ago, in 2003, Germany’s unemployment rate was 8.2%.  In the US, it was 5.7%.

And bear in mind that Germany was still trying to digest the dead economy of East Germany that it took on with re-unification…

Today, the US unemployment rate is 8.6% (if you believe in fairy tales)…

And youth unemployment in the US is over 50%.

What happened in the past 10 years?

Well, then-Chancellor Gerhard Schroeder initiated a long term, structural reform plan called “Agenda 2010.”

Agenda 2010 focuses on supply side economics…that are right from the play book of none other than…Ronald Reagan.

His idea was to give business an advantage in Germany, and give people a reason, as well as the opportunity, to work.

This meant removing barriers to entry in a variety of professions, and giving business the right to fire as well as hire.

The goal was to make German businesses and labor competitive.

To do this Chancellor Schroeder had to transform the German economy and many of its socialist policies…

The biggest part of this was to reform the labor market…

And to accomplish that goal, he had to greatly reduce the power of unions and guilds throughout the country.

This meant that yes people could get fired easier; and they often did.

But it also meant those who wanted to work certainly were given the chance to do so.

He also cut unemployment benefits…

Today they are half as generous as they are in the US.

The immediate effect of these policies was…higher unemployment.

This, of course, was to be expected, as companies streamlined their operations and let go of unproductive workers.

As such, it’s no mystery that this effect cost Schroeder re-election.

But Angela Merkel took his placed and continued with Agenda 2010.

And look where Germany is today…

The only country in the entire Eurozone with an economy worth a damn.

Reagan Forgotten in US, But not in Europe

And that is why other Eurozone countries are looking to the German model for healthy and sustainable economic growth…

Meanwhile, in the US, the number of Americans receiving government benefits is higher than ever before, and rising…

As more proven failures of socialist policies are laid upon the economy to make an ideological point that simply can’t be made.

It seems that ideology has triumphed over economics…

Because 10 years of an ever expanding welfare state has left the US economy right where Germany was 10 years ago…with high unemployment and a loss of competitiveness.

Reagan’s economy has been forgotten in the US…

But--news flash--other European countries are adopting “supply side” economics of Ronald Reagan.

And why wouldn’t they?

The whole world can see where the socialist agenda has led, with the exception each and every Eurozone economy that has tried it…

Into an economic black hole and civil unrest.

Which is why, with their backs against the wall, other Eurozone nations are trying to follow Germany’s path…

But as they’re finding out…it’s not an easy path to follow at first, because people become addicted to benefits.

In Italy, one of the PIIGS economies hanging by a thread under the euro crisis, things are so bad that for the first time ever, Italy is revoking the Vatican’s tax-exempt status…

And the newly-installed, IMF-selected Prime Minister Monti is finding that restructuring the Italian socialist economy is not easy…

He’s found that overcoming union opposition is a tough slog to get anything done…

But, he has raised the retirement age and broken the grips of unions and guilds across a wide range of professions…as unions howl their opposition.

In Spain, the Rajoy government has made a similar law to give firms the right to drop out of collective-bargaining agreements, to raise their competitiveness and lower the cost of firing.

Likewise, Portugal is also trying to redirect its economy toward pro-growth policies…and are finding the same resistance from the same groups: unions and guilds.

Does a pattern leap out at you here?

It should.

Socialist policies leave an economy less able to compete and consistently roll up deficits to finance them…

And unions and guilds, when too strong, can actually choke an economy to death.

This point has been made as well as it can be by Mancur Olson, in his book, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities.

There is no question that when supply side economic are followed, economies flourish.

With no place to go under their current policies, Eurozone countries are rapidly reaching that conclusion.

The question is…why aren’t we?

And those are…The Gorrie Details.

Related posts:

1. Channeling Thomas Jefferson
2. Europe For Sale--Cheap
3. “Governing” the Economy

Other posts by James R. Gorrie