Analogy watch: The U.S. as post-reunification Germany
For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the “lost decade” in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank’s massive spending policy just after German reunification. He writes: The results were ...
For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the "lost decade" in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank's massive spending policy just after German reunification. He writes:
The results were less than wonderful. The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation. The new demands took the West German economy only so far. The higher taxes and debt then kept the German economy down for many years. Few Germans were happy with the economic fallout from this "stimulus." And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.
For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the “lost decade” in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank’s massive spending policy just after German reunification. He writes:
The results were less than wonderful. The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation. The new demands took the West German economy only so far. The higher taxes and debt then kept the German economy down for many years. Few Germans were happy with the economic fallout from this “stimulus.” And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.
You can list many dissimilarities between German unification and the current U.S. situation (and in the comments I am sure you will). Still, as historical examples go, I believe this one has some relevance. When European leaders are skeptical about fiscal stimulus, they have some reasons, some of them quite recent.
Cowen gets to the real utility of the comparison at the end there: It helps to explain why many European leaders are hesitant to pony up billions of Euros to stimulate their economies.
Photo: Flickr user gavinandrewstewart
More from Foreign Policy
Is Cold War Inevitable?
A new biography of George Kennan, the father of containment, raises questions about whether the old Cold War—and the emerging one with China—could have been avoided.
So You Want to Buy an Ambassadorship
The United States is the only Western government that routinely rewards mega-donors with top diplomatic posts.
Can China Pull Off Its Charm Offensive?
Why Beijing’s foreign-policy reset will—or won’t—work out.
Turkey’s Problem Isn’t Sweden. It’s the United States.
Erdogan has focused on Stockholm’s stance toward Kurdish exile groups, but Ankara’s real demand is the end of U.S. support for Kurds in Syria.
Sign up for Morning Brief
Foreign Policy’s flagship daily newsletter with what’s coming up around the world today. Delivered weekdays.
By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time.
