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ECONOMIC POLICIES THAT WORK FOR EVERYONE

July 10, 2017

ECONOMIC POLICIES THAT WORK FOR EVERYONE

Following is my lay understanding of European economic history in broad outline following WW I to today, but from an economic perspective. Historian I am not but I have read history and much of what I will write about in this essay is within my own experience, having been born six years before Hitler was elected chancellor.

Hitler rose to power in 1933 for many reasons, foremost because of German hyper-inflation in the 1920s which was in part caused by the French refusal to reduce the reparations agreed to in the Treaty of Versailles ending the First World War. Destitute, despairing and debt-ridden, Germans following WW I were victims of the then current saying that “It takes a wagonload of marks to buy a wagonload of bread.” Their economy was going nowhere, their money was virtually worthless and they became angry over what seemed to them to be continuing policies of the likes of a Kaiser and von Hindenburg that got them into trouble in the first place. The fact that an international depression begun in 1929 with the American stock market crash didn’t help.

Given such an environment, the stage was set for a messiah from either the left or the right to use such negatives to gain power, to “drain the swamp” and to “make Germany great again” invective (to bring Hitler’s ranting and raving up to date), so Enter Hitler and his Nazi party, Stage Far Right, with his incendiary appeals to Aryan race superiority and putdowns of the Treaty of Versailles along with calls to end Jewish and communist intrusions into German history.

Parenthetically, though “socialist” appears in his new party’s name, he was far from being a socialist and bonded with Krupp and other capitalists who were friendly with his plans to rearm in preparation for the next war. Business is business, so with German factories turning out weapons of war, the effect of the depression in the rest of the world was not so severe in the German economy and people who had suffered hyper-inflation and poverty before started to believe they had discovered their economic messiah, whatever his emotional screaming about Jews, communists, the Treaty of Versailles etc. They were ripe for authoritarian control and dictatorship, and they got their wish.

Next on the agenda – World War II, one in which, by the way, I participated. Hitler lost, committed suicide as Russian and American forces were about to capture him. Germany was devastated, its cities were in ruins, and its people starving. Enter their former enemies to help them out, including, finally, a Marshall Plan hatched by the Truman Administration to rebuild Europe. It worked. Germany today has a functioning democracy, a strong economy, a building middle class, and is the leader of the EU in matters economic and political. No messiahs are in sight because no messiahs are necessary.

However, as pointed out in the summer 2017 edition of The American Prospect by Robert Kuttner in a discussion of relative reparations (those of the Treaty of Versailles and those following WW II), and referring to those of post-WW II, he wrote: “Postwar Germany’s economic recovery was partly built on the Allies’ willingness to write off almost all of Germany’s Hitler-era public debt. So while Britain, which won the war, was saddled with a debt ratio of about 260 percent of GDP, West Germany’s debt ratio in the 1950s was under 20 percent.” He then complained about a loss of reciprocity since Germany these days as a leader of the EU will not consider writing off most of fellow EU member Greece’s debt, noting further that “Whatever Greece did to fiddle its books was pretty tame compared with the sins of Hitler.”

I agree that this seems unfair, though the parties and the situation then and now are very different. Perhaps the diplomats after WW II, chastened by the experience of having the harsh reparations of the Treaty of Versailles help give birth to a Nazi madman, decided in addition to our Marshall Plan to go easy on post-war reparations this time.

Germany today is thriving. It has a model for capital-labor relations that can and should be the standard for the rest of the world to emulate what with union members sitting on the boards of corporations and a fair sharing of the wealth and income of its economy which in turn is fueling a prosperous middle class with no end in sight and where wage inequality is unknown, unlike here where wage inequality is (in my opinion) our number one domestic issue which is hollowing out our middle class as its members descend into poverty status. How could there be such disparity in outcome between Germany and the United States?

Politics. We are captive to the financial sector, which has in turn captured our political class composed of the people who make our policies. Thus per Kuttner “Germany’s industrial excellence has long been promoted by a constellation of policies that include state banks, a federal development bank, high-quality apprentice programs, and subsidized job-sharing programs in downturns so that skilled local workforces do not dissipate during recessions. . . . German industrialists and their union partners share a kind of soft economic nationalism; they know without being told to keep good jobs in Germany, while their Anglo-Saxon cousins relentlessly look for ways to outsource.” Result? Germany is managing to thrive in a globalized economy while we are on the constant edge of recession with our slave wage scales, outsourcing and automation of what jobs that haven’t been outsourced. Germany has the identical problems we do in re globalization but has done a much better job that is leading to across-the-board prosperity for all of its people. Why? Politics. Smart politics in setting policy, including wage scales that stimulate demand. With constant propaganda from Wall Street to the contrary, we here have much to learn in such a hostile environment – and to do – if we are to have a thriving economy that benefits all of our people and not just the moneychangers and profiteers as at present.

The German trade surplus today is larger than China’s, and our trade deficit continues to be far and away the biggest on Planet Earth. Anybody wonder why? Many of Germany’s EU partners are put out that Germany is their leader but are envious of their economic success, a not atypical attitude among those who haven’t done their economic homework via policies that work and wish to project blame.

So what now? Kuttner rightly notes that ultra-nationalism as promoted by Trump’s “America First” chatter is a front for corporate plutocracy, is more likely to crash and burn in America than in Europe and that post-Trump America could mark a return to genuinely progressive politics and policy of the Roosevelt years, years in which the United States could once again stand for a brand of globalism that puts the rights of citizens and working families on a par with the rights of finance.

We can compete in a global society. We can turn a massive trade deficit into a surplus. We can stop and reverse the cascade of the middle class into poverty. We can afford to pay living wages which will in turn stimulate demand to the benefit of all. How? Politics. Let’s elect those who take a long look at the German experience and fashion policies that make for success for all of us rather than further enrichment of the already obscenely wealthy who, perhaps perversely, will also do well in such a booming economy of the future and will not need to go begging to Washington for tax cuts and less regulation. Let’s remember changing policymakers a year from November when we go to the polls because we have many policies to undo as well as to enact if all of us are to prosper.     GERALD       E

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