Here’s a letter that I sent yesterday to the New York Times:
Paul Krugman is impressed that in Germany “unemployment is only slightly higher than it was before the crisis” (“Free to Lose,” Nov. 13). Indeed, Krugman is so bedazzled by the results of Germany’s extensive labor-market interventions that he writes that America “might have something to learn” from “Germany’s jobs miracle.”
Let’s explore this “miracle” with facts. OECD data reveal that annual unemployment rates in Germany during the ten-year period from 1998 through 2007 (the latest year for which consistent data are available) never fell below 7.5 percent and soared as high as 10.6 percent (in 2005). Over these ten years, Germany’s unemployment rate averaged 8.9 percent.*
During the same period, America’s annual unemployment rate never rose above 6 percent (which it reached in 2003), and was as low as 4.0 percent (in 2000). It averaged over these ten years 4.9 percent – fully four percentage points lower than the corresponding figure for “miraculous” Germany. This fact means that if America during these years had had the same unemployment rate as Germany, roughly 5.5 million more Americans would have been unemployed.
Even if Germany’s restrictive labor policies are the reason that that country’s unemployment rate is today lower than is the current rate in the U.S., a longer-run perspective suggests that America has far less to learn from Germany than Germany has to learn from America.
Sincerely,
Donald J. Boudreaux
Also, as my colleague Tom Hazlett points out (in private correspondence) — and others point out, too — Germany engaged in nothing like the “stimulus” spending that Uncle Sam irresponsibly orgied on during the past couple of years. Perhaps the fiscally more prudent Germany — the Germany that resisted U.S. calls for obnoxious “stimulus” spending — does have a thing or two to teach America about fiscal policy if not about labor-market policies.
