Income and Wealth Inequality

[Fabrizio]

Germany has the economic strengths America once boasted

Germany with its manufacturing base and export prowess is the U.S. of yesteryear, an economic power unlike any of its European neighbors. It has thrived on principles America seems to have lost.

By Don Lee, Los Angeles Times
January 21, 2012, 7:33 p.m.

Reporting from Elz, Germany— Every summer, Volkmar and Vera Kruger spend three weeks vacationing in the south of France or at a cool getaway in Denmark. For the other three weeks of their annual vacation, they garden or travel a few hours away to root for their favorite team in Germany's biggest soccer stadium.

The couple, in their early 50s, aren't retired or well off. They live in a small Tudor-style house in this middle-class town about 30 miles northwest of Frankfurt. He's a foreman at a glass factory; she works part time for a company that tracks inventories for retailers. Their combined income is a modest $40,000.Yet the Krugers have a higher standard of living than many Americans who have twice that income.

Their secret: little debt, frugal habits and a government that is intensely focused on high production, low inflation and extensive social services. That has given them job security and good medical care as well as well-maintained roads, trains and bike paths. Both of their adult children are out on their own, thanks in part to Germany's job-training system and heavy subsidies for university education. For instance, Volkmar's out-of-pocket costs for stomach surgery and 10 days in a hospital totaled just $13 a day. College tuition for their son runs about $260 a semester.

Germany, with its manufacturing base and export prowess, is the America of yesteryear, an economic power unlike any of its European neighbors. As the world's fourth-largest economy, it has thrived on principles that the United States seems to have gradually lost. It has tightly managed its budget and adopted reforms — such as raising the retirement age — that some other Eurozone nations are just now being forced to undertake. And few countries can match Germany's capabilities for producing and exporting machinery and other equipment, or its infrastructure for research, apprenticeships and financing that support manufacturing.

"German industry is strong," said Volkmar, speaking in halting English as he occasionally looks up translations on a laptop. "People work good. That's why the German economy is best in Europe." Indeed, Germany was the only major Eurozone nation to escape the credit downgrades that have hit its neighbors. And the country continues to anchor the continent's economy.

Still, Germany has its share of challenges. Income inequality, while less pronounced than in the U.S., is rising. Most workers, including the Krugers, have seen little or no real wage gains in recent years. And the nation's population is declining. And now, with Europe on the ropes, Germany faces both a declining market for its exports and the prospect of having to cough up tens of billions of dollars more to help bail out profligate Eurozone neighbors. Even so, German business and consumer confidence has held up well. The nation's jobless rate fell last month to a two-decade low of 6.8%, considerably lower than in much of Europe and the U.S. And though its industrial production is starting to soften, Germany so far has maintained an impressive trade surplus with the rest of the world, including China.

Germany's economy looks like that of the U.S. a generation ago. In 1975, manufacturing accounted for about 20% of the United States' economic output, or gross domestic product, about the same as in Germany today. Since then, U.S. manufacturing's share of GDP has slid to about 12%. In 1975, the U.S. budget deficit was a manageable 1% of the economy, about the same as Germany's now. Last year, the U.S. deficit was about 10%.

American families in the 1970s and early '80s typically saved about 10% of their take-home pay, about the same as in Germany today. The U.S. savings rate these days is in the low single digits. Germany, like China, fiercely promotes its exports and has been reluctant to ramp up domestic spending, frustrating Washington, which wants to sell more American goods abroad. That may be good for Germany, but many critics say the country's lack of consumption causes unhealthy imbalances for the regional and global economies, much the way America's overconsumption and borrowing does. But Germany's economic practices and lifestyle are deeply ingrained in a culture that fears debt and inflation. In many ways, for instance, the nation discourages consumerism. Its streets aren't plastered with the billboards that dot the U.S.. Taxes on goods and services are high. Many shops and restaurants in Germany are closed Sundays.

Many smaller stores don't even take credit cards. Volkmar laughed about how consumers in other countries pull out plastic for the smallest of purchases. "In France you pay for your croissant with your credit card. In Germany, they don't like it," he said, referring to both merchants and consumers. Since paying off their home loan recently, the Krugers have almost no debt. They sock away money for old age and summer trips, and they rarely eat out.

Household liabilities in Germany have been rising, but remain lower than those in other developed countries. By one common measure, Germany's household debts were 97.5% of total after-tax income in 2010, compared with 125% for the U.S. Still, the Krugers and other Germans are seeing a rise in freewheeling spending, especially among the young. Volkmar said he gets a lot of credit card offers. More marketing, however, doesn't mean that a lot of consumers are getting credit. "In truth, it's not easy credit," said Fasun Batmaz, a manager at a TeamBank consumer unit whose name, Easy Credit, belies the rigorous process and strict requirements. "Only a handful come in and may get it."

Easy doesn't describe the Krugers' lives either. On weekdays and every few Saturdays, Volkmar is out the door by 5 a.m., driving 45 minutes to his factory. Vera also works some Saturdays. But neither gets paid more when they work additional hours, nor do they get paid less when they work fewer hours. Over time, the hours balance out. A similar idea is behind a work-sharing system that many experts said helped Germany avoid the mass layoffs that swept the U.S. during the Great Recession. A company might reduce the hours of all workers to avert laying off an employee.

Germany's lower unemployment rate also reflects its orientation toward formal vocational training. The Krugers' older child, Thorsten, was interested in books from an early age, and prepared for a university education. Their daughter, Nadine, got a vocational diploma in social work that included three years of schooling after high school, with the final year being on-the-job training at half pay.

About one-fourth of all German businesses take part in this apprenticeship program; six of 10 apprentices end up getting hired permanently, said Dirk Werner of the Cologne Institute for Economic Research. The practice, he said, is a key reason why Germany has one of the lowest unemployment rates for 15- to 24-year-olds, about 9.7%, according to the Organization for Economic Cooperation and Development in Paris. In the U.S., the comparable rate is about twice that. Volkmar and others attribute part of the lower unemployment rate to the German work ethic. Yet Germans, on average, work far fewer hours a year than Americans, thanks partly to five or six weeks of vacation.

The amount of the Krugers' vacation time is typical for most Germans. When they go to France, the Krugers take an old Volkswagen camper, but still expect to spend about $3,000 over three weeks. Over the recent winter holiday, they took the 45-minute train ride into Frankfurt to buy Christmas presents. They picked up practical gifts: a breakfast tray, cutting board and sleeping gown for Nadine. For Thorsten, the couple bought a tool kit made in Germany. Volkmar laughed when asked why he bought tools for his son. Thorsten asked for them, he said, adding a bit sheepishly, "The Volkswagen camper needs repair."

[BBMW]

^
I agree with this (well some, not all), but I've looked at the German model, and there could be lessons here. They've created a global brand for their country as producing premium good. The US once had that, but not so much any more. And we definitely need more vocationally oriented education. The concept that every US student should go to college is not feasible or necessary, but a standard HS diploma doesn't mean anything.

One issue is that Germany is a lot smaller than the US. You may be able to sell enough premium exports to keep it's population going, but we may be too big for that trick.

[Fabrizio]

Sell enough? Germany exports more than the US.

A list of countries by exports. And compare exports per population:

http://en.wikipedia.org/wiki/List_of...ies_by_exports

[BBMW]

What I'm saying is that if we tried to play Germany's game (high end exports) we'd have to produce and export so much (to soak up all our excess labor) that there would not be enough global demand for the goods.

Sell enough? Germany exports more than the US.

A list of countries by exports. And compare exports per population:

http://en.wikipedia.org/wiki/List_of...ies_by_exports

[Ninjahedge]

Some people in China are getting over the hump. But even if there are a 100,000,000 of those, it's well less then 1/10 of the population.

That is my point.

Oddly enough, helping China may be one way to help weaken it. People are less willing to die for a country on anything but the most dire of circumstances if they actually have something to live for.

It is also a lot harder to keep information from people that have more ways to get it. If these guys are kept in the villages, it will be a lot easier to keep them in the dark.

[Ninjahedge]

What I'm saying is that if we tried to play Germany's game (high end exports) we'd have to produce and export so much (to soak up all our excess labor) that there would not be enough global demand for the goods.

The problem is more than that. We would need to produce stuff that WE would want to buy rather than others. WE are the largest consumers in the world right now, if we produced better stuff, we would be feeding ourselves.

But we undersold our own vested interests and made companies like "Ford" a curse word rather than a compliment.

Add to it our best "industries" are non-productive leeches that drain us of our funding to do no more than simply funnel it up the ladder.

Why do Insurance companies do so well? Why do we have private industry controlling that when it has been shown that our health care is worse than most other countries at our level of development? Why are they ALLOWED to charge so much, and how is it we are still so stupid that one drum-beating hypocrite can shout "socialized medicine" and we are all afraid that Karl Marx is going to jump out of the closet and take our women and children?

We do not need the exact same model, but training our youths to be PROFESSIONALS in a field, whether that be Plumbing, Dentistry or Automotive Engineering, is good for our long run, and is something we should pursue.

Being a good student should not be viewed as something to be ashamed of.

[BBMW]

The problem is more than that. We would need to produce stuff that WE would want to buy rather than others. WE are the largest consumers in the world right now, if we produced better stuff, we would be feeding ourselves.

People would have to be willing to pay the price. So far, they haven't, and many now don't have the money to do so.

But we undersold our own vested interests and made companies like "Ford" a curse word rather than a compliment.

Ford (and GM and Chrysler also) did that to themselves. "Found On Road Dead", "Fix Or Repair Daily" were reality for a long time. For a decade or three, they made junk. They've only recently gotten their act together.

Add to it our best "industries" are non-productive leeches that drain us of our funding to do no more than simply funnel it up the ladder.

Why do Insurance companies do so well? Why do we have private industry controlling that when it has been shown that our health care is worse than most other countries at our level of development? Why are they ALLOWED to charge so much, and how is it we are still so stupid that one drum-beating hypocrite can shout "socialized medicine" and we are all afraid that Karl Marx is going to jump out of the closet and take our women and children?

This can be (and has been) it's own thread or several. Health care has to change, but many (probably most) people don't want socialized health care, so it's a dead issue.

We do not need the exact same model, but training our youths to be PROFESSIONALS in a field, whether that be Plumbing, Dentistry or Automotive Engineering, is good for our long run, and is something we should pursue.

Being a good student should not be viewed as something to be ashamed of.

Agree.

[stache]

Health care has to change, but many (probably most) people don't want socialized health care, so it's a dead issue.

Can you provide any supporting documentation/polling to support this theory?

[Ninjahedge]

No, he can't.

They are afraid of the term "socialized" because of just what I said. If it can be shown that the majority of Americans, in the same demographic as they are, would be paying (net) less money than they are now for better all-around health care, they would have something different to say.

Like I said, the terms Socialism (Damn Chinese!!!!!) and Communism are thrown about willy-nilly like they were satanic while Capitalism (in its truest form a very unforgiving and cruel system) is praised on high like it will save the world.

The world has never worked on pure academic socio-economic definitions. You need a blend to run the real world. The blend we have now is showing its weaknesses, and shouting "tradition" and "heritage" to a country still in its teens is just laughable.

[BBMW]

The fact that it's been run up the political flagpole numerous times over the last half century and has gotten shot down every time.

Can you provide any supporting documentation/polling to support this theory?

[Ninjahedge]

Can you provide any supporting documentation/polling to support this theory?

The fact that it's been run up the political flagpole numerous times over the last half century and has gotten shot down every time.

IOW, no.

[eddhead]

Germany has the economic strengths America once boasted

Germany with its manufacturing base and export prowess is the U.S. of yesteryear, an economic power unlike any of its European neighbors. It has thrived on principles America seems to have lost.

By Don Lee, Los Angeles Times
January 21, 2012, 7:33 p.m.

.

Their secret: little debt, frugal habits and a government that is intensely focused on high production, low inflation and extensive social services. That has given them job security and good medical care as well as well-maintained roads, trains and bike paths. Both of their adult children are out on their own, thanks in part to Germany's job-training system and heavy subsidies for university education. For instance, Volkmar's out-of-pocket costs for stomach surgery and 10 days in a hospital totaled just $13 a day. College tuition for their son runs about $260 a semester.

Not to mention relatively low defense spending.

[lofter1]

Ford (and GM and Chrysler also) did that to themselves. "Found On Road Dead", "Fix Or Repair Daily" were reality for a long time. For a decade or three, they made junk. They've only recently gotten their act together.

How did they do that? Oh, yeah, with a push by the government and help from taxpayer $$.

The other option -- let them die, as pushed by many in the GOP -- would have been a terrible and stupid choice.

[GordonGecko]

Not to mention relatively low defense spending.

IMO Germany's biggest advantage is their focus on apprenticeship and holding trades in high value

[BBMW]

If it was so damn popular, it would have been done. Both Clinton and Obama tried, while the Democrats holding both houses of Congress, and failed miserably, which largely led to the democrats losing one or both houses in next election (the most definitive poll of all.)

Yeah, is REEEEAAAAALLLLYYYYY popular out there

IOW, no.