Democrat-Republican Economic Divide Is Peanuts Compared To US-European Split
Op-Ed: President Obama has been wagging his finger at Europe, and Germany in particular, to do more to stimulate the world economy. It reveals a major transatlantic gulf on both philosophical and practical solutions to the global economic crisis.
BERLIN - An advisor to US President Barack Obama has been quoted as saying that if, when trying to understand the problems of the economy, one had to pick just one economist: it would be John Maynard Keynes. Though Keynes died more than a half century ago, his theories about recession and depression remain fundamental to the understanding of modern macro-economics.
The advisor is right on. Barack Obama, in true Keynesian fashion, keeps initiating stimulus packages to boost the weak American economy -- and he keeps encouraging the Europeans, particularly the Germans, to do the same in order to save the euro.
But the reference to Keynes does not stop at the Democratic president's entourage: the British economist was actually a model for Nicholas Greg Mankiw, who served as chairman of the Council of Economic Advisers under President George W. Bush from 2003 to 2005.
As the United States gears up for the next presidential elections in 2012, hostility between Republicans and Democrats may be reaching a new post-War peak. Republicans systematically and passionately oppose Obama's economic policies, and view Keynes himself as a kind of ghost of Karl Marx.
However -- with the exception of libertarian opponents of virtually all commitments of the state, led by presidential hopeful Ron Paul -- Republicans and Democrats are actually not that far apart in terms of economic philosophy.
While Democrat Bill Clinton fought for a balanced budget and ended his presidency with a budget surplus, Republican Ronald Reagan cut taxes only to later increase them massively. One could argue that Reagan, who believed that the state was not the solution but the problem, had a Republican phase followed by a Democratic phase.
In simplistic terms, Democrats are said to see the state as a safety net, Republicans see it as a drain on individuals. Yet in the face of high unemployment, members of both parties are not looking up to private investors but to the President for a solution.
High debts and budget deficits don't seem to worry US voters very much, and are only marginally of more concern to politicians, experts and journalists. The words on Time Magazine"s cover on New Year's Eve 1965 (following an economic upswing after tax cuts planned by John F. Kennedy and implemented by Lyndon B. Johnson) seem still to hold true: "We are all Keynesians now!"
Do deficits matter?
Republican Richard Nixon took a stab at controlling prices and salaries. Nixon later viewed the experiment as one of his greatest political mistakes, and called on anti-Keynesian Alan Greenspan, who later became Chairman of the Federal Reserve, to be his chief economic advisor.
Under George W. Bush the "deficits don't matter" approach – which one would have thought more likely to come from Democrats -- took firm hold. After 9/11, billions were pumped into national security, and two foreign wars. Farmers were granted higher subsidies. Congress let anti-deficit provisions introduced under President Bush Sr. expire.
Obama‘s calls to European governments to make a stronger commitment to boosting the global economy and rescue the euro are not something he's come up with in the last few weeks. Shortly after he took office, he criticized the German government for doing too little to get the world's economy going again after the 2008 crash. Editorialist and Nobel Prize winner Paul Krugman backed the White House's demand up in the New York Times, calling for a more generoususe of German taxpayers' money.
Chancellor Angela Merkel has equated stimulus packages I and II of over 80 billion euros to Washington's stimulus package – and it must be said that, particularly as regards the financing of short-term jobs and other measures to stabilize the jobs market, those packages had far more positive effects than the 787 billion dollars used so ineffectively by the US.
The Greek crisis has made Washington's demands more insistent. Germany in particular is called on to support the euro whatever the cost. According to Obama, Europe never fully dealt with the challenges to their banking system and European states need to show more convincingly that they were willing to play their part to protect the global financial system.
As regards budget matters and finance, the United States is hardly in a position to dole out advice. It has been focused on consumption for far too long, leaving production up to the Germans, and now also the Chinese.
Washington isn't even capable of getting Republicans and Democrats to subscribe to a joint strategy to solve the nation's problems.
So their expectation that governments and parliaments in Europe approve ever-larger bailouts is off-putting, to say the least. The conflict between the Americans, who consider that spending more is the solution to the euro crisis, and the EU countries, who favor cost control and spending cuts, is not going to quiet down anytime soon.
Read the original article in German
Photo - antjeverena