Estadao, Brazil
United States Emerging
from Economic Crisis First
By Carlos Alberto Sardenberg
Flexible, with a wide capacity to change and open to innovations, the American economy grows more than the European economy and creates more jobs.
Translated By Marcela Canavarro
15 February 2010
Edited by Brigid Burt
Brazil - Estadao - Original Article (Portuguese)
Which country in the developed world is emerging from the crisis as one of the strongest?
Did you think it’s Germany or Japan?
Wrong. It’s the United States.
The European numbers for the fourth trimester of 2009 were released last week. Germany, which had been the first rich country to grow, has stagnated. France has managed a weak growth of 0.6 percent. And it was known that Japan’s recovery would continue to slow.
Meanwhile, the United States has registered a very strong growth of 5.7 percent in the last trimester of 2009, in annualized terms. Moreover, its productivity has grown an astonishing 6.2 percent, which is equivalent to three times the historical average.
This shows that the country has a flexible economy with a great capacity to adapt. If productivity has grown this much, it means that companies have reacted to decreased demand by cutting costs (including workers) but somehow taking advantage of the available factors. The result: Given the recovery, they are ready to increase their production quickly.
With the crisis, unemployment almost doubled in the U.S., from an average of 5 percent to more than 10 percent (it recently dropped to 9.7 percent). In Germany, unemployment didn’t increase — which was considered a success and, as it’s been discussed in the United States, an exemplary policy.
If we look into these two situations, we can notice that the German unemployment rate was at a historical average of 9 percent! Indeed, the worst rate in the U.S. is the norm in Germany.
Why didn't unemployment increase in Germany? Because the government has paid for this. Companies were encouraged to offer vacation or part-time schedules for their workers, instead of firing them. Hours not worked were paid by the government.
Therefore, the companies that faced strong expansion in the pre-crisis time didn’t have to adapt themselves during the recession. They just sent workers home (and to the government’s bill) and now wait for the crisis to be over. And the government increases its costs, which limits its capacity to invest.
This avoids a short-term social issue — the rise in unemployment. But it doesn’t prepare the economy for a new situation.
Instead, in the U.S., where the social protection network is smaller and thinner, the economy is used to quick adaptations. The companies register their losses, close factories, fire, cut salaries and seek ways to increase productivity. The adjustment is immediate.
And wild.
The social and political costs are higher, but they allow a quicker exit from the crisis. This is what is happening now.
And this is what happens outside of the crisis. Flexible, with a wide capacity to change and open to innovations, the American economy grows more than the European economy and creates more jobs. As the main symbol of Europe, Germany, with its wide social protection network and rules that limit companies’ actions, grows less and hires less.
Unemployed people have a better life there than in the United States, though. That’s true. But without a dynamic economy, opportunities for youth can’t be created.
Models to choose from.
It’s curious that the debate in Germany is about how to gain flexibility and control public spending in the social network (retirement, health and unemployment insurance). In the United States, instead, President Obama claims that both parties have a deal about public policies to create jobs. The sense of flexibility, however, prevails: One of the ideas, for instance, is to simplify the hiring process and make it cheaper for small and medium companies.
By the way, it’s a great idea for Brazil, isn’t it?
CLICK HERE FOR
ORIGINAL VERSION
|
|
CLICK HERE for... 
February 24th, 2010 at 11:38 am
We are fooling ourselves if we think the economy will “improve”
Excerpt from the Green Living site,
Even if our economy “improves,” this would be illusionary, since a similar financial crisis can happen again. The reason for this is that the math doesn’t work. Most household budgets have no income that can be spent on anything beyond basic needs. To buy anything else requires going into debt. But lending institutions are now required to be picky about who they lend money to. Even more importantly, there is no room in this tight average budget to make payments on any debt beyond housing and maybe a car. If borrowing that cannot be paid back keeps going on, it can lead to a total and permanent breakdown of the world economy, far beyond what we have already experienced.
Let’s look at the average family budget:
Income $50,303
Taxes: federal income and payroll 7,281
Taxes: state and local income 4,879
Housing 17,109
Food 6,443
Healthcare 2,976
Transportation 8,604
Insurance, pensions 5,605
Total $52,897
Left after basic expenses -$2,594
The median income is according to the U.S. Census Bureau’s Income, Poverty, and Health Insurance Coverage in the United States: 2008. Expenses are from the U.S. Bureau of Labor’s Consumer Expenditures—2008. The amount for federal and payroll taxes is from the IRS Employer’s Supplemental Tax Guide, which provides withholding amounts for employers. The state and local tax estimate is based on the average of 9.7%, from retirementliving.com. Keep in mind that the healthcare average cost from the Bureau of Labor seems far too low (what were they smoking?), and it is not clear from the report whether health insurance is included under “healthcare” or “insurance/pensions.” It appears that utility costs are included in “housing.” Even if the numbers need a little adjusting, they would tell the same story.
The average family has no discretionary income per year, and is behind by $2,594 per year when only spending on basics. No wonder the economy melted down. The problem is not that suddenly Americans didn’t have money to spend. They never had the money. Although the average income declined in 2008, from $52,163 in 2007, and offset a gain in income over the previous three years, there was no discretionary income in those years either. None of the vacations, electronic gadgets, restaurant meals, and such were paid for by money people had actually earned.
And the Obama administration’s plan of tinkering with the tax code and making one-time stimulus payments will not alter the basic equation here.
So the green economy, or any economy that does not crash and burn on a regular basis, is focused on basics, with almost nothing on additional products and services.
This is sobering until you realize that such an economy would be far better for the environment without the destruction that excess consumer goods causes. It is also far better for people’s lives. Is it really all that great to sit in a car several hours every day? To rush around, “multitasking”? Isn’t the shopping mall a weird, impersonal place? Haven’t you noticed that children will ignore a roomful of expensive toys and play with boxes or pots and pans?
Electronic gadgets aren’t fun. They suddenly quit working and you go nuts trying to hunt down and read the manual to figure out what to do. Quickie food doesn’t taste all that good compared to peaches right off the tree. When you go green you really aren’t missing anything.
Patty Zevallos
media producer – web, video, print
February 24th, 2010 at 11:50 pm
Official unemployment figures are always half the reality in the US. The realistic unemployment rate in the US is closer to or over 20%, depending on how one measures it. Over 20 million Americans are in peril of losing their jobs, in addition to the millions that already have lost their jobs. Record numbers of banks are in danger of collapsing and most of the states are in deficit.
This is recovery? I’m an American. Give me the German version anytime.