Watch Out — America Is Stealing Our Fear

In Davos, the once self-confident Americans are proving that they can whine just as good as we Germans can. It’s not a reason for celebration.

It’s no doubt one of the more enjoyable aspects of the financial crisis: Ever since the carefree days have been over for the U.S. economy, Americans attending major economic meetings like the recent one in Davos are a lot quieter now — they avoid turning up the volume in making explanations to the rest of the world, they’re noticeably quieter about the certainties of business and they very seldom try to tell the rest of the world which path is the right one to take. They’re also a lot less likely to ridicule other less successful nations like, for instance, Germany.

Now the United States is practicing German fear. While America has good reason to do so, that shouldn’t necessarily give us a reason to ridicule them back or brag about our greatness as some German economics ministers do. Experience teaches us that nobody knows exactly who will get the last laugh a few years hence.

Suddenly, everything is bad. For years, Germany’s USP — its Unique Selling Point — was its unemployment rate that hung stubbornly around ten percent of the workforce. Now that’s about where the Americans are, causing many to wildly toss around the question whether that will ever change. Sound familiar? Oh, yes, we had economists who once eagerly promised us that we would have 6 million unemployed.

Experienced American CEOs imagine a permanent war with the aggressive Chinese who flood the U.S. with cheap goods and rob the American people of their prosperity. Been there, done that. We hear those stories, too.

Top U.S. economists whine almost in unison that American workers are unprepared for new jobs in new fields and that the American educational system is a catastrophe. It’s good that we’ve eagerly adopted bachelor and master degrees (we didn’t even bother to translate the two terms into German) — it’s always been: the American educational system is so great. So now what?

Gary Cohn, president and CEO of the all-powerful Goldman Sachs investment bank, now laments that the bank risks being left behind if U.S. regulators begin regulating so strictly that money will begin going off in other directions and that economic growth will be slowed (something that sounds pretty strange since the shockwaves of the banking crisis just cost the industry a great deal of growth).

But something more important hovered over that meeting of elites in Davos: The nasty thought that financial markets could eventually stop causing panic attacks and speculation fever in the Eurozone — something they had been doing because of Chancellor Angela Merkel’s dithering about the crisis. The fact is, the American national debt is higher than the European national debt so there are less convincing reasons to change anything.

U.S. National Debt Is Higher Than the Eurozone National Debt

Many suspect that doubts in the market could soon extend also to the USA. Then America would have to combat an upward spiral of interest rates with the attendant increasing costs of servicing the debt, rabid consolidation and economic weakness. Greetings from Greece! The probability of that happening is relatively great. When it will happen is more difficult to say. That depends on stock investors and they’re not exactly predictable. But the risk itself is enough already.

That’s not a reason for joy because if the United States can’t get control over its massive debt, it could turn into a gigantic shock for an exporting nation like Germany. It doesn’t help to have annoying know-it-alls tell us that this would never have come about if America hadn’t lost control over its economy.

A second reason for restraint is something the Germans themselves experienced over the past decade: The speed with which judgments about an entire nation can change and the speed at which selective impressions take hold. Just four years ago, no one had anything positive to say about the German economy at international meetings. The complaints then were the 10 percent unemployment rate, too little growth, lagging competitiveness, too little innovation, high production costs, inferior education, a dying healthcare system and an unchecked growing national debt — all simply horrible.

Now America has exactly these same problems and the Germans in Davos are held up as an example of the fact that the rest of the world doesn’t have it as bad as the United States, so everything is just fine. There’s something really absurd about that; countries don’t turn around that quickly.

Of course, America hasn’t lost all its economic advantages. And of course all the German complaints ten years ago were just as absurd. It wasn’t just a couple of reforms that completely refurbished the entire nation.

America’s New Complaint

If America is having problems now, it’s because the financial bubble burst is causing shockwaves in its wake. The innovative power of its corporations hasn’t disappeared. And if things are going better here in Germany, it’s because for the first time we’ve succeeded in supporting the economy in a cyclical crisis without destroying it with fatal cutbacks. Despite that, all is not wonderful in Germany. These days, a very human reflex probably exists that tells us that we’re right — even if we’re right or not.

Whoever listens more closely can tell that America’s latest complaint is drawing many more lessons from the crisis. Lessons about market efficiency and the necessity to define radical new rules for the financial sector and financial policy.

The same holds true for business. Nowhere has the unit labor cost been so drastically reduced as it has in the United States. That creates the potential for increased export activity. German governmental officials, meanwhile, maintain a naïve faith in the markets based on the old self-righteous virtues of thrift — although German debt has been brought down almost exclusively by business activity.

The American participants in this year’s Davos conference were notable for one politically correct admission: “I don’t have an easy answer.” Perhaps that’s the best of all answers when it comes to understanding the crisis of the century, and drawing the correct conclusions from it in order to ensure one belongs to that group that will get the last laugh after the next crisis occurs. That’s where a little fear can even be useful.