Posts Tagged ‘Government spending’

Germans remember economic boom, not austerity

July 26, 2012

Germans are said to be scared of a revival of their hyperinflation of the early 1920s, explaining why they don’t want to fund bailouts for eurozone countries. But what Germans remember more is the Depression of the 1930s, when austerity did not work, and even more the 1948 economic reforms which led to the German economic miracle.

Polls show Germans consider the creation of the Deutschmark and the lifting of price controls and other market restrictions in 1948 as one of the two most important events in their recent history (the other being reunification in 1989). Overnight severe scarcities of everything turned into abundance. A bicycle shop which one day had no parts to repair broken bicycles the next day had 60 new ones on sale. The German economic miracle took off and in 1960s growth was still steaming ahead at 9%.

What’s the moral for today? Firstly, in 1948, there were no austerity measures, no cutbacks on public spending. It was economic boom from one day to the next. Today the euro is still a relatively stable currency, for all its recent wobbles. It is firmer against the dollar and sterling than four years ago. It has kept inflation in check, just like the creation of the Deutschmark did in 1948.

So Germans don’t need to force an austerity on others that they did not need in their severest crisis 63 years ago. Nor do they need to worry about inflation.

But what Germans did create in 1948 was a liberal economic market free of distorting price and other controls. The needy eurozone countries have huge distortions in their markets due to all sorts of government measures. Eliminating them overnight, as the Germans did in 1948, may be the salutary example the Germans have to offer.

See A FOOT IN BOTH CAMPS: A GERMAN PAST FOR BETTER AND FOR WORSE by Marcus Ferrar, published July 2012.

%d bloggers like this: