Debt? We Won't Be Bothered By That!

In the U.S., neither Democrats nor Republicans are distracted by a huge debt and budget deficits. Germans, on the other hand, put trust in debt reduction, for which they are increasingly criticized by the Americans.

An adviser to the U.S. president says, “If you had to pick a single economist in order to grasp with the help of his theory the problems of the economy, there is little doubt that that economist would have to be John Maynard Keynes. Although Keynes died over half a century ago, his assessment of recession and depression remains the basis of modern macroeconomics.”

Barack Obama probably agrees: Acting in the spirit of Keynes (1863-1946), he has recently tried to launch stimulus packages for the purpose of boosting the economy at home and invites the Europeans, particularly the Germans, to follow suit in order to rescue the euro. However, the adviser who is quoted praising the British economist is not to be found in the circles around the Democratic president. Instead, it is Nicholas Greg Mankiw, who from 2003 to 2005 served as the top economic adviser to Republican President George W. Bush.

The race for the White House, which will be decided in November 2012, has seen Democrats and Republicans oppose each other with an animosity that the country has not seen since the end of WWII. Republicans are bitterly denouncing Obama’s economic policy.

Republicans not that far apart from Democrats

The current interpretation of Keynes is turning into a revenant or reincarnation of Karl Marx, but aside from libertarians who despise nearly all forms of governmental activity and whose champion is presidential candidate Ron Paul, when it comes to the economy, Republicans and Democrats are actually not that far apart philosophically.

Bill Clinton, the Democrat who ended his term with a budget surplus, succeeded in his effort to balance budgets. Ronald Reagan, the Republican who cut taxes radically in his first term, raised taxes massively later on. He who said that “government is not the solution to our problem; government is the problem” had, in a way, a Republican and then a Democratic phase.

The simplified picture looks like this: Democrats consider the government to be a savior. Republicans don’t have trust in it. In the face of high unemployment, both parties rarely call upon private investors but ask the president to fix it at first.

In the U.S., not only voters are left cold by huge debt and budget deficits, but politicians, experts and journalists are similarly rarely impressed. Time Magazine’s cover title from New Year’s Eve 1965, after an economic recovery that came about as a result of tax cuts initiated by John F. Kennedy and executed by Lyndon B. Johnson, confirmed what has seemed to be proven true. It read: “We are all Keynesians now!”

Deficits don’t matter

Republican President Richard Nixon tried fixing and controlling prices and wages. Later, he called that experiment one of his biggest political mistakes and appointed Alan Greenspan, future Fed chairman and one of the fiercest anti-Keynesians, as his chief economic adviser.

Under George W. Bush, an attitude usually attributed to Democrats gained acceptance among Republicans. This was the belief that deficits don’t matter. After 9/11, billions were pumped not only into homeland security and two wars, but renewed subsides for farmers who had previously been made to accept market laws. Congress let expire an anti-deficit decree that had been introduced under George H.W. Bush and passed in a bipartisan manner.

Obama’s call, or perhaps even demand, for the European governments to do more for the purpose of boosting the global economy didn’t originate in these last weeks. Shortly after his inauguration, he criticized the German government, saying it was doing too little to get the world economy going again after the crash of 2008. In his New York Times column, Nobel Prize recipient Paul Krugman flanked the White House’s demand for a more generous use of German taxpayer money.

Obama has squandered $787 billion

At that point, Chancellor Angela Merkel told the U.S. president that stimulus packages one and two, passed in Berlin already under the great coalition between the CDU and SD political parties and amounting to 80 billion euros, were absolutely commensurable to Washington’s stimulus package. Notably, the financing of short-time work and other measures to stabilize the German job market were showing more positive effects than Obama’s $787 billion, which has had no effect since 2009.

In the face of the crisis surrounding Greece, Washington’s demands grew ever more pressing. The Americans argued that it was Germany in particular that had to prop up the euro, whatever the cost. Obama criticized Europe for never reacting sufficiently to the problems of its banking system.

Accordingly, the European states had to demonstrate that they were willing to give their share in protecting the global financial system. The fact that Germany, the economic powerhouse sustaining the mutual currency, had endorsed the numerous euro stabilization funds only reluctantly and after controversial debates was seen by the White House as a policy rejection by a country that was starting, again, to think nationally rather than in a European way on the eve of a new global economic crisis.

The U.S. is hardly qualified to be a tutor

In terms of budgetary and financial policy, though, the U.S. is hardly qualified to be a tutor. For too long, they have been concentrating on consumption and have left production to others — first to the Germans, and now to the Chinese.

And Washington can’t even manage to commit Republicans and Democrats to a common strategy for solving their own problems. With an astounding matter-of-factness, the U.S. is expecting governments and parliaments in Europe to commit themselves to ever more generous rescue funds for neighboring countries which in the past didn’t show a great deal of austerity and thereby solidarity toward their fellow EU member states. Nonetheless, the dispute will go on, between the Americans who recommend increased spending as the solution for the euro crisis and the EU countries who put trust in cost controls and spending cuts.

For too long, the U.S. has indulged in consumption and left production to the Chinese and the Germans.

*This quote, accurately translated, could not be verified.