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 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