Latte Ordoliberals

by Henry on September 22, 2005

Matt Yglesias a couple of days ago:

The other thing to say, though, is that even if you accept the main premise of [English language coverage of the German election results]—that Germany’s welfare spending and labor market rules are responsible for an inordinately high unemployment rate and low level of economic growth—the tone of indignation at the voters’ persistent refusal to vote for the dismantling of this situation is odd. After all, it’s not as if Germany is some sort of desperately impoverished country whose citizens are going to be doomed to misery unless they achieve rapid growth. It’s not Chad or China or even Chile.

Jeffrey Gedmin, director of the Aspen Institute in Berlin, writes a quite jawdropping reductio ad absurdum of this trope for the Financial Times (sub required).

Germans know [that they face a fundamental choice over their economy]. But they still love their “social-market” economy and have not yet decided whether allowing more market forces can be in tune with their values. Until now, it has been too easy for Germans to defer painful choices. The country has been doing – simply put – too well. In Berlin, a city with 19 per cent unemployment, the cafes are packed with people ­drinking over-priced café lattes, the employed and unemployed alike happily indulging themselves. Will economic circumstances soon hurt enough to give people the swift kick they apparently need?

I had to read this paragraph twice to be sure that my eyes weren’t deceiving me. The problem with the German economy is that it’s doing too well for people to, like, actually want the cleansing winds of free-market reforms? That the unemployed can sip their café lattes too? I dunno whether this sort of Frummagem smacks more of Jonathan Swift or the Medium Lobster – but it speaks volumes about the motives of some of continental Europe’s would be ‘reformers.’

Update: non-paywalled version of link available here (thanks to ‘luc’ in comments).

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1

abb1 09.22.05 at 2:18 pm

The right meets the left: he who shall not work shall not eat.

2

TH 09.22.05 at 2:27 pm

And *that*, exactly *that* is why the conservatives did not get a majority. The system is working, and while it’s not perfect and it hurts, it’s still working.

And barring major catastrophes, we’ll keep it that way, thank you very much.

3

David Yaseen 09.22.05 at 2:32 pm

Henry, could you be a bit more specific in terms of what you believe motivates these ‘reformers’?

I’d like your great point not to be left up to my interpretation. Tell us what you think they’re up to.

4

Stan 09.22.05 at 2:35 pm

I have to disagree. Germany’s competitiveness is on a downward trajectory, and Germany is sustaining its current levels of consumption by borrowing heavily against the future. Right now it would be less painful to reform the labor markets and other institutions, following for example the Dutch example, than doing the same reforms later when even more competitiveness has been lost and more government debt accumulated. Germany needs to get its act together now, become innovative and dynamic again, and start investing heavily into education, high-tech, and services. The fact that this is not done, that Germany is wasting time and resources clinging to an out-dated model of the industrial society, is indeed at least partly due to the fact that the infamous median voter is still doing well.

5

Barry 09.22.05 at 2:42 pm

I was recently thinking of the difference between an (neo-classical to mainstream) economist and a labor economist – when productivity and corporate profits rise faster than wages, the economist will pontificate that this is necessary, to get higher wages in the future. Whenever wages actually go up faster than productivity and corporate profits, those words are forgotten. It’s a sign of inflation, and strong measures to increase unemployment are urgently needed.

6

yabonn 09.22.05 at 2:43 pm

There is, it seems to me, such thing as an english language coverage of economic matters – or maybe at least a “murdochian” coverage of economic matters.

In my bad days i see it as a displacement for simple nationalist discourse. Softness, decay, or feminity on the one hand, hardness, masculinity on the other : capitalism is not an economic option, it’s about being manly.

They’re so cute when they do that :)

7

a different chris 09.22.05 at 2:48 pm

What a total dick.

As I observed over at MaxSpeak, Germany manages to both supply everbody with top-quality lattes *and* still have enough production left over to run a solid trade surplus with the rest of the world.

Gee, I wonder why they don’t want to be more like us, working our butts off so our overlords can more easily sell our future to the Chinese.

8

C.J.Colucci 09.22.05 at 2:48 pm

I suppose it’s possible that the current trade-off between social welfare and economic growth is ultimately unsustainable. If that’s the argument, say so and substantiate it. Otherwise, it’s just Germans making different choices, and it ain’t nobody’s business if they do.

9

Richard Bellamy 09.22.05 at 2:59 pm

I don’t understand. Why are the employed paying for over-priced lattes when the unemployed can afford them too?

Doesn’t that defeat the purpose of the over-priced latte?

10

Luc 09.22.05 at 3:04 pm

Without a sub required here.

You’d wonder why the Aspen Institute would hire someone from the AEI. Probably a remnant of the old Germany, before they became “anti-american”.

11

Donald Johnson 09.22.05 at 3:14 pm

Richard Bernstein wrote a similar piece for the NYT a few days ago. It was in the “news” section, but the last few paragraphs were spent venting about the need for Germany to reform along Anglo-American free market lines. I complained to the Public editor about the line between objective reporting and editorializing, something which is constantly broken at the NYT whenever the subject of European economies comes up.

12

Donald Johnson 09.22.05 at 3:15 pm

No doubt they’ll never do it again, of course. I have faith in my ability to reform the mainstream media with a few adequately-written complaints. It’s what keeps me going.

13

DC 09.22.05 at 3:18 pm

Priceless.

I can add that some unenemployed people in France can lead a fine lifestyle too, even if it isn’t exactly what they want.

This is what welfare states do – they ease the price of being unemployed and thereby represent an arm with which workers can defend themselves in class struggle, without being enough to allow them to actually win such struggle.

Now, since my sympathies are with workers rather than employers I think that’s a jolly good thing in so far as it goes. But I do also accept that increasing the pain of unemployment – reducing the provisions of the welfare state – is likely to persuade workers to accept employment in worse conditions than those which they would accept with a more generous welfare state, and thus to decrease unemployment.

14

P ONeill 09.22.05 at 3:24 pm

From the most recent IMF Statistics for Current Account Balances, the 2005 projections (Table 26).

Current Account Balances as % of GDP
USA: -6.1
Germany: +4.3

Tell me again who’s borrowing from the future?

15

Henry 09.22.05 at 3:45 pm

luc – thanks will update post with link to the speech. I hadn’t realized he was an AEI type – can’t say I’m surprised.

David – the best account that I’ve come across of this strain of conservative thought and its motivations is the John Holbo essay on Frum that I link to in the post.

16

Stan 09.22.05 at 4:03 pm

Germany is unfortunately indeed borrowing heavily from the future:

http://fistfulofeuros.net/archives/001928.php

17

lemuel pitkin 09.22.05 at 4:41 pm

This is a great post. But I wonder how it fits with your comments on France’s vote against the European Constitution a couple of months ago. Then, you were pretty clearly a member of the pain caucus yourself.

18

Shelby 09.22.05 at 4:53 pm

If th in post #2 above is really writing from “inside the system,” doesn’t that actually validate Gedmin’s argument? Even if you disagree with Gedmin’s tone it seems reasonable to conclude that so long as things are going “well enough” from the voters’ standpoint, they will maintain the status quo. They’re largely maintaining the status quo, ergo they think things are going well enough.

Why is this so irritating to y’all?

19

Villaveces 09.22.05 at 4:57 pm

What Jeffrey Gedmin is trying to say – when he states that the country is doing ‘too well’, is that the unemployed are too well off. As much as this may satisfy some who seek to propogate class struggle or some such thing (See comment 13), it doesn’t change the fact that people are consuming when they are not producing. The only efficient system will solely reward the productive. Is this nice? Definitely not, but it is much more efficient that a system that allows for the unemployed to go unpunished by the market.

20

Henry 09.22.05 at 5:09 pm

Hi Lemuel

I’m not sure which post you’re referring to – my two big posts on the France referendum are “here”:http://crookedtimber.org/2005/05/24/3351/ and “here”:http://crookedtimber.org/2005/05/30/no-regrets/ ; other recent posts of mine on European capitalism are “here”:http://crookedtimber.org/2005/06/16/not-frightening-the-horses/, and “here”:http://crookedtimber.org/2005/05/07/shutting-down-alternatives/. I’m not sure how any of these would qualify me as a member of the ‘pain caucus.’ If there’s an inconsistency in what I’ve been arguing, I’m not getting it – though I’d of course be interested, and would respond more precisely if you could point to the exact place where I say what you think I’m saying.

21

nick s 09.22.05 at 5:18 pm

it is much more efficient that a system that allows for the unemployed to go unpunished by the market.

Hm. I wonder. One big anecdotal difference between US and European patterns of employment is that there are far more jobs for jobs’ sake: car park attendants instead of ticket machines, store greeters, etc. There’s a whole section of minimum wage employment designed to keep people busy, without being that productive or offering chances of advancement.

Now, to me, that’s inefficient.

22

Daniel 09.22.05 at 5:23 pm

just on the subject of whether “Germany is borrowing from the future”. As a country it clearly isn’t; it has a substantial current a/c surplus with the rest of the world. The German government is, but since it will pay this back by taxing Germans and it is currently spending the money on Germans it’s not really sensible to say that “Germany” is borrowing from the future. It’s the balance between private and government saving that matters here surely and the sum of the two is positive; unlike for the USA where the sum of the two is negative, sorry to bring that up again.

23

Matt McGrattan 09.22.05 at 5:53 pm

“The only efficient system will solely reward the productive. Is this nice? Definitely not, but it is much more efficient that a system that allows for the unemployed to go unpunished by the market.”

What do you mean by efficiency here? It’s not entirely clear to me that it has a determinate and value-neutral meaning in this context.

Surely we are concerned with whether social systems are instrumental in achieving some goal. One could argue that the German system is extremely ‘efficient’ at producing the kind of outcome that German citizens want. One with a strong social safety net, some degree of resource distribution, protection for the economically vulnerable, etc.

Efficiency in this context isn’t some value-free term. It expresses some commitment to an ideological position. You may disagree with the ideological position favoured by the German electorate but you can’t straightforwardly reject it as inefficient unless you are clear what you mean by efficiency and your account of efficiency isn’t just some way of smuggling in some ideological premises by the back door.

24

Jason G. Williscroft 09.22.05 at 6:00 pm

Maybe reforms are required because Germany’s employed are damned tired of buying the unemployed’s overpriced lattes for them. Maybe reforms won’t happen until enough of Germany is unemployed that the flow of lattes stops entirely.

When you rob Peter to pay Paul, maybe you’ve purchased Paul’s vote. Maybe that looks like democracy… but it doesn’t SMELL like it.

Then again, who cares? Germany voted itself into irrelevance years ago. It’s easy to be sanctimonius about your 37-hour work week when somebody else is paying the bills.

25

Matt McGrattan 09.22.05 at 6:06 pm

Jason:
When you say that ‘someone else is paying the bills’ for German’s 37 hour work work what can you possibly mean?

As has been repeatedly stated Germany is in current account _surplus_ with the rest of the world. Unlike a certain large nation we might mention.

This is just some ideological position — that the poor must be living lives of discomfort otherwise there’s something `wrong’ with the system — and it’s an ideological position that much of the developed world has rejected. And significant chunks of that part of the developed world are doing very nicely indeed.

26

david 09.22.05 at 6:15 pm

If it makes you feel better, Donald Johnson, I’m glad you’re complaining; I’m sorry you’re right and they’re wrong, but sorry’s not doing much these days.

27

Matt Austern 09.22.05 at 6:15 pm

Two comments about efficiency.

First, it’s a bit of a tipoff to see the word “efficient” in the same sentence as the words “rewards” and “unpunished”. It makes it pretty clear that we are not talking about a neutral an objective evaluation, but about someone’s moral and ideological values, about valuing punishment for its own sake.

But second, and more important, efficiency can’t ever be separated from values and purposes. You can’t ever ask whether a system is efficient until you ask what the system is trying to do. Is a machine that takes in electricity and converts 75% of it to heat efficient? Depends on whether it’s a light bulb or a furnace. That is, it depends on what you want to use the machine for. A machine is efficient if its ratio of output to input is high, where “output” means the thing you want to get out of the machine. You can’t separate the notion of efficiency from goals.

How do you judge whether an economy is efficient? Answer: it’s efficient if it doesn’t waste whatever you care most about wasting, and if it does an effective job of giving your society whatever you most care about an economy doing. And this means you will have multiple definitions of efficiency, depending on what goals you’re looking at.

I realize that in some technical contexts people talk about “efficiency” in an unqualified sense. All that means is that for the purposes of discussion in those contexts, there is a shared understanding about which inputs and outputs, which goals, are under discussion. It’s just shorthand, and you get into real conceptual problems if you forget that. If someone recommends that you do something for the sake of efficiency, they’re saying you’ll get more of Y for the same amount of X, or the same amount of Y for less of X. And the question you should always be prepared to ask yourself is: why should X and Y be the things I care about?

If someone says that German citizens should make themselves more unhappy because it will make their economy more efficient, it suggests to me that this person is looking at the wrong X and Y. If your notion of efficiency is something that requires making a country worse off, then it is not a goal we should work for.

28

Matt McGrattan 09.22.05 at 6:16 pm

Matt Austern:

Exactly.

29

geoff mcvoern 09.22.05 at 6:27 pm

It’s quite ironic that the conservative complaint sounds so familiar. It’s the same criticism that their mortal enemy socialists employed to justify communist revolts: the revolution will come, the worker just doesn’t understand how miserable he is yet!

30

dipnut 09.22.05 at 7:16 pm

With reference to the above-linked appendix:

Table A, page 6: the ratio of GDP Share to Population is 38.2 / 30.5 for the US, but a measly 7.9 / 8.6 for Germany. So we beat Germany, 1.252 to 0.919. Ha!

Oh, no, wait. What the heck is purchasing-power-parity? Some bookkeeping boondoggle, to be sure. Let’s see…Table 2, Page 14, Real GDP is 3.5 for the US, 0.8 for Germany. Re-using the population shares, we get a GDP/Pop of .115 for the US, .093 for Germany. In your face!

What’s this? Real Per-Capita GDP…Table 4, page 17: US 5.2, Germany 9.5? What? Oh, I get it, that’s unemployment. Here it is, same table: Growth in Real Per-Capita GDP: US 2.5, Germany 0.3! Whoohoo!

What the heck is a GDP deflator? Table 8, page 25: we’re kicking the crap out of Germany on that too, but maybe it’s something bad. Hey, whatever!

Table 9, page 26: Hourly earnings: US wins, 6.9 to 2.5! Productivity: US wins, 4.4 to 2.8! That’s how we like our proles: bent-backed in toil and terror of our brutal capitalist overlords! Booyah!

Somehow Germany comes out with a negative unit labor cost. Don’t they feed those people?

Table 14, page 35: General Government Structural Balances: US -3.2, Germany -3.3. Stupid hurricanes!

Table 16, page 37: Japan has 0.0 interest rates. Man, that’s just creepy.

Finally (drum roll please)…Table 26, page 50: Balance of payments on current account: US -759, Germany 131.

Crap. We are so screwed!

No, but seriously: what’s a current account?

31

sara 09.22.05 at 7:27 pm

I suppose that Germany’s Calvinists and Lutherans emigrated to the United States.(Well, Calvinists were actually Swiss.)

Free-market capitalist ideology doesn’t make sense in human terms unless you remember that it evolved from Calvinism.

Suffering through insanely long work hours is godly.

32

lemuel pitkin 09.22.05 at 8:12 pm

Henry,

I was thinking of this post, where, even more in the commetns than in the psot itself, you seemed convinced that raising standards of living in Turkey and Eastern Europe was simply not possible without lowering workers’ standard of living in Western Europe.

33

Matt McGrattan 09.22.05 at 8:15 pm

Dipnut:

Germany’s current account balance i.e. the net flow of money into Germany as a result of trade, etc was in the region of +80 billion Euros last year.

That’s what Daniel was referring to and which you’ve conveniently ignored by choosing to use entirely different sets of measures.

The US current account, on the other hand, was deeply in the negative. Something like $600 billion in deficit.

Germany are not having their bills paid by someone else, contrary to Jason Williscroft’s statement above.

[http://en.wikipedia.org/wiki/Balance_of_payments if you need to look up a definition of ‘current account’ in this context…]

34

lemuel pitkin 09.22.05 at 8:17 pm

Matt Austern,

Everything you say is spot on. Except for one thing: We all know, even if we’re too polite or too cowed to say so these days, what output efficiency is being measured in terms of here.

35

Ross Smith 09.22.05 at 8:41 pm

Sara: “Free-market capitalist ideology doesn’t make sense in human terms unless you remember that it evolved from Calvinism.”

…into Calvinball.

36

soubzriquet 09.22.05 at 9:08 pm

matt:

It’s even worse that that (re 33), unless I’ve missed something because those numbers reported as % of GDP . However GDP is a relatively poor indicator of quality of life, etc., which is the sort of thing we are really talking about the German electorate choosing.

If you have have a large current account deficit, but also a very large GDP, this percentage will obviously be smaller than if your GDP were lower. This hypothetically lower GDP doesn’t necessarily mean your quality of life is lower, but by this measure, it would appear you are worse off.

I think this effect is significant when comparing two countries whose GDP:quality of life ratio is quite different, such as the US and Germany.

37

trotsky 09.22.05 at 9:26 pm

Funny, if someone wrote (blank country)’s competitiveness is on a downward trajectory, and (blank country) is sustaining its current levels of consumption by borrowing heavily against the future, I would naturally assume the writer referred to the United States. Call me a jingoist.

What advanced industrial country isn’t facing a similar challenge in the face of globalization? Japan has an enormous savings rate, bless ’em, but their rapidly aging population will strain their economy, and Sony is cutting 10,000 jobs to try to get competitive again.

38

Liv 09.22.05 at 9:58 pm

Man I always wonder why the people in the U.S. care so much about the future and dismiss the present. If the Germans want to live well now, not in a distant future, why should the rest of the world care? Are the unemployed German worst off in the present than the hotels employed New Orleans? Is Germany on the brink of collapse and in bed with fascism now, more than the US? I don’t think so, from the posting. But I suppose the mainstream press & economists in the English speaking world lost touch with the reality, always speaking about the people as “numbers”.

39

Henry 09.22.05 at 11:19 pm

Lemuel – I think that there’s a pretty large difference between arguing that there should be cutbacks, if necessary, in the particular benefits of the German welfare state in order to extend the umbrella over Turkey, and arguing that the welfare state should be reformed out of existence, because of its purported negative effects on character, national initiative or whatever. It’s the latter that we’re talking about here with the Aspen op-ed. I have absolutely no objections to the welfare state – I’m an enthusiastic supporter – but I do have strong objections to some of the arguments that I have seen for excluding Turkey on the basis that admitting it would damage the European welfare state.

40

Steve Burton 09.23.05 at 1:01 am

It’s surprising to find you guys still linking to that Holbo review of *Dead Right* as if it were some sort of classic. It took Adam Stephanides (in comments attached to said post) about a tenth of Holbo’s word count to demolish his major points; Holbo’s attempts to respond were pretty feeble.

As for Gedmin’s piece, it’s not at all clear why it’s supposed to be any more “jaw-dropping” than leftist laments that Americans are just “doing to well” to admit that, in the long run, they need to give up their SUV’s, their deficit spending, etc.

41

abb1 09.23.05 at 2:15 am

What Matt Austern said is true as far as it goes, subject to one’s definition of the words “unhappy” and “worse off” attributed to a community as opposed to an individual.

The problem is that the Germans are unhappy (as is empirically demonstrated by SPD’s declining popularity) and their discontent seems to be related to German economy (aka ‘efficiency’). So, obviously, there’s more here than meets the eye.

[I can’t believe I have to argue this side, dammit.]

42

Kenny Easwaran 09.23.05 at 3:34 am

Dipnut’s comment is the best ever!

I remember one year when I was an undergrad at Stanford, before Big Game, some “school spirit” group published a booklet that (among other things) included a chart comparing various statistics between Stanford and Berkeley… and when the statistics favored Berkeley, they calculated it per capita instead, so they favored Stanford. (My favorite was “height of tallest tower, per capita”, to obscure the fact that the Campanile is substantially taller than Hoover Tower.)

43

glenn 09.23.05 at 3:48 am

I guess people have a right to be foolish. People have a right to live the way they like. We can complain that Germans are foolish to support a system that helps the unemployed to the extent that they can sip lattes. We can complain that Americans are mortgaging their future. Unless and until the citizens themselves want to make changes, it’s very diffcult to argue, perhaps especially from outside, that what’s going on is “wrong” or “ineffecient” or whatever. Odds are, the citizens of both countries will have to make some major lifestyle changes before too long.

44

Matt McGrattan 09.23.05 at 4:19 am

“We can complain that Germans are foolish to support a system that helps the unemployed to the extent that they can sip lattes. “

Actually, generally speaking, unemployment benefit isn’t a major cost in Western European countries when compared to spending on pensions and any number of other budget items.

It may well be right that there are big problems with the German system but that needs more substantial evidentiary support than just “Dude, the poor can drink latte”.

45

Julie 09.23.05 at 4:27 am

I think the main fallacy here is that drinking cafe lattes is common in Berlin. It’s not. One usually gets a choice between cappuccino, latte macchiato (big glass, lots of milk, barely any coffee), or milchkaffee (big bowl, lots of milk, not much coffee).

46

Jack 09.23.05 at 4:54 am

Where does he establish that the lattes are overpriced? Coffee usually seems quite cheap in Germany.

47

Stephen 09.23.05 at 5:21 am

High rates of unemployment can lead to widespread alienation notwithstanding the generosity or otherwise of benefits. High unemployment is surely a waste of human talent.

Years ago I used to think a lot about moving from the UK to pursue a science career in Germany where the action then seemed to be. Nobody does that now– when I meet German colleagues many talk about coming here, and many of them are depressed about the state of their country.

I don’t get the impression from this that the outcome of the election reflects contentment with the staus-quo, I haven’t heard any Germans say this.

They are lucky though to be starting from a high platform. Although growth in the UK is higher it will be decades before our infrastructure matches them I think. I don’t think they need a Thatcherite revolution (far from it) but mild social reforms I think are in their best interests.

48

Doug 09.23.05 at 5:22 am

So we’re getting the argument here that a system and a society that have 19 percent unemployment in the national capital are just fine? We’re getting the argument that nothing is wrong with a national unemployment rate of more than 10 percent, and regional unemployment rates of up to 25 percent?

Gedmin hin, Gedmin her, is that what folks here believe?

49

Keith M Ellis 09.23.05 at 5:27 am

If someone says that German citizens should make themselves more unhappy because it will make their economy more efficient, it suggests to me that this person is looking at the wrong X and Y. If your notion of efficiency is something that requires making a country worse off, then it is not a goal we should work for.

But here you’re making the same sort of error as the one you are criticizing. What exactly is “unhappy” and “worse off”? When you move into the realms of philosophy and psychology, both of which have spent considerable effort on these questions, you find fairly strong arguments that what superficially seems “unhappy” may be “happy” and vice-versa. You can go all the way back to Aristotle where his notion of eudaimonia (often badly translated as “happiness” but useful for my rhetorical purpose here) persuasively includes the “happiness” of one’s descendents.

Utilitarians struggle with what utility they are trying to maximize, a superficial self-reported “happiness” generally not being sufficient.

Finally, in the context of evolutionary psychology, it seems to me that the whole notion of actually satisfying our desires is suspect. Maybe what is in objective terms best for us is to constantly try to satisfy those desires and to almost, but not quite, succeed.

Anyway, as someone says upthread, isn’t this very like how Americans are very happy and satisfied with, for example, their reliance on cheap oil and their avoidance of any painful sacrifices designed to ameliorate the damage when cheap oil is no longer so cheap?

All that said, the quoted writer is still guilty of many egregious errors, the chief of which is assuming what he’s trying to prove and not even bothering to tell us how he thinks Germans are deluded about what’s best for them. So Henry’s complaint is still right on the money and completely justified. When the English-speaking press looks at social welfare economies, they start with some unquestioned assumptions that poison all the reasoning that follows.

50

Keith M Ellis 09.23.05 at 5:32 am

“So we’re getting the argument here that a system and a society that have 19 percent unemployment in the national capital are just fine? We’re getting the argument that nothing is wrong with a national unemployment rate of more than 10 percent, and regional unemployment rates of up to 25 percent?”

No, we’re getting an argument against your undefended assumption that these things are prima facie bad. Yeah, where you’re drawing your lines in terms of distguishing acceptable from unacceptable unemployment rates closely follows, for example, how the Fed sees things. And I happen to know that there are good arguments defending drawing those particular lines where they are. Even so, it’s a values-laden determination and I think it’s deeply suspect especially when it’s assumed to be prima facie as part of a larger argument about the proper organization of a society.

51

Ray 09.23.05 at 6:02 am

I think the argument is against the idea that a welfare state that allows the unemployed to spend money on luxury items is _prima facie_ bad, not about the unemployment levels that this particular welfare state has. Gedmin seems to be arguing that if you have 19% unemployment than you _should_ have people, maybe not living in workhouses, but at least living on gruel.

52

Natalie Solent 09.23.05 at 7:21 am

Stuff efficiency. More important questions: do the unemployed themselves think that their situation is better than low-paid work? If yes, will they regret it if unemployment goes on for a lifetime? What does it do to social mobility across the generations?

Given that a tradeoff exists between welfare benefits and unemployment the “better pain now” idea is reasonable.

There is a strain of thinking, accessible to both socialists and free-marketeers, that says that what one should aim for is not egalitarianism but the assurance that the worst off are not too badly off.

53

Doug 09.23.05 at 9:09 am

Keith m ellis, are you saying that the levels of unemployment in Berlin or parts of Mecklenburg-Vorpommern or parts of Sachsen-Anhalt are not, on their face, bad?

54

C.J.Colucci 09.23.05 at 9:24 am

Two questions here:

(1) In the medium to long term can Germany afford a social welfare system generous enough to make high levels of unemployment tolerable for the unemployed and for those footing the bill?
Nobody so far has said it can’t.
(2) If the answer to question (1) is “yes,” is that what the Germans want?
The only people whose opinions matter on that question are the Germans.
What’s hard about this?

55

Doug 09.23.05 at 9:54 am

C.J. Colucci – Gedmin, whatever the merits of his views, is almost certainly a taxpayer in Germany, even if he is not a voter. As a participant in the system, his opinion should matter, shouldn’t it? (Admittedly, I may be prejudiced because I am also a non-voting payer of German taxes.)

Second, the post from Fistful of Euros cited above does suggest that the German government is spending at a level that unsustainable over the medium- to long-term. When will a reckoning come? What will it look like? How painful might it be? These are all open questions.

56

Natalie Solent 09.23.05 at 9:56 am

In my previous comment, “What does it do to social mobility across the generations?” was poorly phrased. What I meant was something like “Are the unemployed locked out of the chance of social mobility?”

Knowing my luck on Crooked Timber comment threads this revised version will appear before the original comment (which appears to be awaiting moderation) and totally confuse everyone!

57

Doug 09.23.05 at 10:15 am

Natalie, the last time Crooked Timber said it was moderating my comment, I asked it not to, as I was being deliberately immoderate.

58

abb1 09.23.05 at 10:26 am

Eventually, I hope, most of the work will be done by machines – should being unemployed still be a bad thing then? Should we be inventing meaningless work just to keep people employed, jobs like gas-station attendant, grocery bagger or telemarketer?

59

Stephen 09.23.05 at 10:27 am

(1) In the medium to long term can Germany afford a social welfare system generous enough to make high levels of unemployment tolerable for the unemployed and for those footing the bill?

Posssibly many of those footing the bill and many receiving welfare are voting for different parties, and are thus not agreed about the tolerability of the current welfare system.

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Natalie Solent 09.23.05 at 10:48 am

abb1, the possibility you raise has often worried me, being a regular reader of SF stories where the human race is outclassed by machines and decays for lack of purpose. I don’t quite know the answer. But the proto-answers I would offer fall into two groups: (1) irrespective of the very long term, most people nowadays would feel they have a more meaningful life as a gas-station attendant than unemployed. Or, at least, would feel that way on their deathbeds. (2) I forget who, but someone once asked “if you could have two people working for you full-time*, could you think of things for them to do? Nearly everyone answers “yes.” That suggests that there are plenty of services to go round even in the modern economy.

*By hypothesis these two workers would be totally uncoerced and admirably well-paid. Coercion or guilt would confuse the thought-experiement.

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abb1 09.23.05 at 11:33 am

Natalie, I think having to work for a living is often something that actually prevent people from having a more meaningful life. You are certainly free to provide services when you don’t need to earn a living. Bagging groceries all day would probably cause more decay for the lack of purpose, than, say, reading books or even fishing.

But that’s not the point. Let’s say there is a self-sufficient economy with 25% unemployment that provide a decent standard of living to everybody and keep most people satisfied (clearly the Germans are not) – why would it necessarily be a bad economy? It’s not obvious to me at all.

If greed and ambition – without fear – can provide enough motivation for people to produce enough for everyone, that would be a good thing, correct?

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Matt Austern 09.23.05 at 11:41 am

Keith is entirely right that terms like “unhappy” and “worse off” are difficult and value laden. I don’t think he and I disagree at all.

That’s really my point. If we’re talking about what a society’s economy should look like, we are unavoidably in the realm of philosophy and psychology. We are talking about what kinds of lives are meaningful and what kinds of freedoms we care about the most. We need to be open about the fact that we’re having a discussion about values, instead of using competing quantitative measures as proxies for competing ethical ideas.

If we all agree on what kind of society we want, what our values are and what kind of goals we’re working for, then we can usefully hold a quantitative discussion about how to get there. But we can’t skip that initial discussion about goals. Until we have it, discussions about things like efficiency just get in the way.

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lemuel pitkin 09.23.05 at 12:04 pm

Given that a tradeoff exists between welfare benefits and unemployment

That ain’t a given. The empirical evidence (e.g. here) says that European unemployment levels are mostly due the excessive tightness of the ECB and hardly at all to unemployment benefits and other “rigidities.”

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rea 09.23.05 at 4:17 pm

“The only efficient system will solely reward the productive. Is this nice? Definitely not, but it is much more efficient than a system that allows for the unemployed to go unpunished by the market.”

Let’s think about this for a minute. “A” is a $100 million a year CEO. “B” is a low-level worker. “A” makes a series of blunders. “B” loses his job as a result. And efficiency requires that “B” get punished by the market. Do I have that right?

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a different chris 09.23.05 at 4:45 pm

>Posssibly many of those footing the bill and many receiving welfare are voting for different parties

Huh? Only 11.5% (or thereabouts, consult your favorite oracle) are unemployed. And Germany’s voter turnout is fabulous. So maybe it’s a swing vote at the absolute most strained.

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a different chris 09.23.05 at 4:49 pm

Oh, and so Mr. Gedmin pays taxes in Germany. Big deal. Do you want to know what I think he is worth to the country? About what he’s paid minus his salary.

Furthermore, to say Mr. Gedmin is upset that the “unemployed” can afford purportedly expensive lattes is seriously disingeneous.

You can damn sure bet that he thinks the employed are also paid too much, and he could straighten that up damn quick if he could just stuff more people into the workforce.

Again, the only person in Germany I’m absolutely sure has too much income is the Director of the Aspen Institute.

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j0nesing_around 09.23.05 at 11:51 pm

I agree

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j0nesing_around 09.23.05 at 11:55 pm

but i am not like taxings because if the taxings is big from the governments thens this is bad for all of econmics. Taxings makes all to slow down inside the engine of gwoth that we are needing for gwoth. So i think no to this because it not is working so good now.

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abb1 09.24.05 at 3:58 am

Dan, it’s fear of pauperism, severe poverty, or even simple poverty. According to Mr. Gedmin, unemployed in Berlin – being able to afford latte – seem to be living above the poverty line; that is what he’s complaining about. And that’s the current poverty line, not the one from 19th century.

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Barry 09.24.05 at 8:02 am

Posted by Natalie Solent:

“Stuff efficiency. More important questions: do the unemployed themselves think that their situation is better than low-paid work? If yes, will they regret it if unemployment goes on for a lifetime? What does it do to social mobility across the generations?”

What does earning the minimum wage, with no job security, and lousy health care, do to people over a lifetime?

As for social mobility, isn’t it higher in europe than the US?

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Barry 09.24.05 at 8:02 am

Note: I got a whole page of error messages, but the post wen through despite that.

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Doug 09.24.05 at 10:12 am

different chris, one of Gedmin’s tasks in his job is to ask questions that cut across the grain and to annoy people into probing cherished beliefs. looks like even a brief citation here has done thatwork.

i’m curious, though, do you think that someone who pays taxes should shut up about how those taxes are used, just because he doesn’t agree with you?

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Barry 09.24.05 at 12:20 pm

Doug, whoring for those with weatlh and power who want more is not ‘cutting across the grain’, and that’s what Gedmin is doing.

And (speaking for different chris here) I don’t think that anybody is telling taxpayers to shut up. They’re criticizing stupid arguments.

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Uncle Kvetch 09.24.05 at 2:47 pm

different chris, one of Gedmin’s tasks in his job is to ask questions that cut across the grain and to annoy people into probing cherished beliefs.

Please. If “Western Europeans are spoiled rotten and have had it too good for too damn long” isn’t a “cherished belief” of the mainstream American media, I don’t know what is. As has been pointed out by several people in this thread, it’s been a staple of the NY Times for years. There is absolutely nothing daring or contrarian about Gedmin’s argument.

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engels 09.24.05 at 4:31 pm

Full marks then for “annoying people” but nil points for “probing cherished beliefs”. C’est la vie!

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John F. Opie 09.25.05 at 6:42 am

Hi –

Apparently no one here actually lives in Germany.

I do.

The German economy is stagnant, German politicians are incompetent, and a majority of the public votes for largesse to be paid for by the those who actually work and pay taxes.

The problems are well documented for the German-speaker in a book by Hans-Werner Sinn “Ist Deutschland Noch Zu Retten?”.

Put simply: Gedmin’s comments are spot-on. Germany is living on borrowed time: it cannot afford to continue to pay those benefitting from the system (retirees, those on the dole) with the income from those financing the system (all taxpayers in Germany). Germans are today where the US might be in 2015 or so: too many old people, too few taxpayers.

The problem is exacerbated by the fact – not opinion, fact – that qualified workers are leaving Germany faster than qualified immigrants are coming in. In other words, the quality of the workforce available in Germany is declining. The vast, vast majority of unemployed in Germany do not have any qualification – and this is critical in Germany, as anyone looking for work here will tell – and immigrants do not help.

Where I work we’ve been desperately looking for a trained econometrician with job experience: we’ve not been able to find one on the market for the last six months. One we did find didn’t want to move from Hamburg to near Frankfurt.

German unemployment is a structural crisis, since unqualified, unskilled labor cannot compete in Germany with unqualified, unskilled labor in China, Vietnam, Turkey, Hungary and Bulgaria.

And it’s not a function of lack of training opportunities: it’s a function of attitude. No one is willing to go train for a job that pays €700/month when you can be on the dole for basically the same price. Working off the books is vastly more rewarding than working legally due to heavy taxation not only of the worker, but also the mandated costs for an employer.

You can protest all you want that this is what the Germans want, but at the end of the day someone has to pay for it. And I have colleagues who are actively planning to emigrate because the burden is becoming onerous. And at least one colleague who is going to Switzerland to work because he will have more disposable income at the end of the day with the same salary than if he stays here.

John

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abb1 09.25.05 at 10:31 am

…train for a job that pays €700/month…

A job that requires training pays €700/month in Germany? Sorry, I find it hard to believe.

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Phoenician in a time of Romans 09.26.05 at 1:13 am

As much as this may satisfy some who seek to propogate class struggle or some such thing (See comment 13), it doesn’t change the fact that people are consuming when they are not producing. The only efficient system will solely reward the productive. Is this nice? Definitely not, but it is much more efficient that a system that allows for the unemployed to go unpunished by the market.

Dude, efficiency is a second-order value. It has no moral weight in itself; it serves as a value to be pursued in context of a set of objectives which make a moral statement. A slave tends to be more efficient than a salaried worker; this does not mean slavery is more moral than capitalism.

If the Germans decide to, in comparison to the US, pursue the “good life” in exchange for a little efficiency, good for them. I think most of us would prefer to live our lives as if we work to live, rather than we live to work.

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David Rossie 09.26.05 at 8:19 am

Henry, the concept isn’t a strange one, though it may need a primer. Free-market liberals will allow that a market system can withstand much regulation and redistribution, but this realization doesn’t negate the facts that a.) the market performs better when unhampered and b.) consumption without production makes a person, or a society, poorer.

Gedmin is saying that hey, the market for decades has been able to withstand the burden of funding non-producers and redistributing great amounts of wealth, and that people have become complacent with a system that can’t last indefinitely with its current obligations. Any metaphor using children living with their parents money would be appropriate here.

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Doug 09.26.05 at 4:38 pm

barry, Gedmin usually writes for German publications, and his arguments do indeed often cut against the grain of consensus here. It irritates people to no end, but occasionally it is useful. I’m pleased that you could find a coherent argument in what a different chris had to say. I could not.

john f. opie, I live in Germany as well. Personally, I don’t think that Gedmin’s article, either the bit quoted here or the piece as a whole, holds much water. Greater flexibility in the labor market is part of a solution, but only part. A significantly simpler tax code is also part of a solution. Serious efforts to reduce non-wage costs are also part of a solution. Reducing the corporatism in public life is also a part. Finding ways to make more Germans the first in their families to attend university is also a part. Making it easier to start a business is also a part. Also on this list are recognizing that not every village will survive, particularly in the East.

And let’s face it, except for Bremen and parts of the Ruhr area, a very high structural level of unemployment is an Eastern problem. That’s one reason why Berlin is so worrying: practically every other post-communist capital is a boom town. If you want to measure unemployment in Central Europe, there are two rules of thumb: the greater the distance from the capital, the higher the unemployment; unemployment rises in an almost linear fashion from west to east within a country.

So the fact that Berlin has such a high level of unemployment is worrying, because it suggests that the forces at work (or more precisely, the sum of choices made by individuals) in other post-communist parts of Central Europe are blocked in Eastern Germany. What the blockages are and what could be done about them are questions too complicated for a blog comment. And lattes don’t have much to do with it.

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Peter 09.26.05 at 8:38 pm

I seriously doubt that many German voters question are happy with the current state of the economy, or that many unemployed Germans prefer mooching off the welfare state to holding a regular job. I would suspect, rather, that many Germany are concerned about the negative consequences of deregulating the labor market and scaling back social protection, while skeptical that these reforms will deliver lower unemployment.

After all, Germany had the same “rigid” labor market in the 1960’s and the early 1970’s when its average unemployment rate was below 1%. Despite its modest reforms in the 1990’s, The Netherlands has a more generous benefit system, and stricter employment protection than Germany, yet it has a much lower unemployment rate. Similarly, Austria also combines low unemployment with high social protection and centralized bargaining. At the same time, labor market reforms in Belgium have not brought lower unemployment.

There are several studies arguing that high unemployment in the major European economies is due to low investment rather than to distorted incentives or rigid labor markets. (See here, here, and here, in addition to the New School study linked to by Lemuel Pitkin.)

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