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« Trivia Tidbit of the Day: Part 859 -- Republicans Lead On Every Single Issue. | WILLisms.com | Trivia Tidbit of the Day: Part 861 -- The Emerging Pension Crisis. »

Trivia Tidbit of the Day: Part 860 -- Texas, Germany, America, And Economic Experiments.

Which Model Works Best?-

A WILLisms.com reader Neville, from Oregon, writes in with a link to this David Brooks column which evaluates the divergent German and American responses to the economic/financial crisis:

According to Gary Becker of the University of Chicago, the Americans borrowed an amount equal to 6 percent of G.D.P. in an attempt to stimulate growth. The Germans spent about 1.5 percent of G.D.P. on their stimulus.

This divergence created a natural experiment. Who was right?

The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels.

Neville also echoes the point Glenn Reynolds made this morning, which is that this is a "surprising indictment of everything the Obama administration has done since Inauguration Day."

As Professor Reynolds would say, "indeed."

In his email, Neville also brought up the point that Texas is in many ways America's "Germany" in this divergent set of examples.

Texas rejected huge portions of the federal stimulus-- the hundreds of millions of unemployment insurance dollars with strings attached. Texas has received the second lowest number of stimulus dollars per capita. Texas has one of the freest economies in the country, with one of the lowest debt loads per capita in the entire nation. Texas necessarily limits government by virtue of the legislature meeting for only 140 days every two years. Texas has relatively low taxes, keeps state government spending growth basically in line with population and inflation growth, and Texas has enacted among the most sweeping tort reform packages in the nation.

The result is that Texas' foreclosure rate is far below the national average and its bankruptcy rate is near the bottom. Texas has added far more jobs than all other states combined over the past few years, and income growth in Texas is far ahead of all other states.

Indeed, individual Texas cities (Austin, for example) have outpaced every other state in private-sector job growth over the past few years:


That green bar is the Austin metro area. The other bars are Utah, Delaware, North Dakota, Oklahoma, Alaska, Wyoming, South Dakota, Washington, Nebraska, and Montana.

You could do the same graph for Houston and Dallas, and San Antonio would rank second if it were its own state.

Texas, just like Germany, is not completely out of the woods yet. Nor are Texas or Germany without their own shortfalls. Texas' economy was as turbulent as any in the 1980s, with bank booms and busts, oil booms and busts, and real estate booms and busts. While Brooks notes that "Germans have recently reduced labor market regulation, increased wage flexibility and taken strong measures to balance budgets," some serious long term structural issues remain in that country, in terms of over-promising on pensions and entitlements.

Still, the recent relative success of Texas and Germany, compared to the backsliding United States economic picture, offers strong evidence that Keynesian stimulus is a failed policy prescription, and market forces can best provide the kind of economic growth that political leaders covet.


Previous Trivia Tidbit: Republicans Lead On Every Single Issue.

Posted by Will Franklin · 27 August 2010 03:02 PM