Everyone Cannot Use Trade Surpluses to Generate Demand

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Saturday, 14 August 2010 07:48

The NYT has an article touting the success of Germany's economy. It notes that the Germany's strong growth in the second quarter (8.8 percent annual rate) and relatively low current unemployment rate (7.0 percent) support the view of Germany's leadership that austerity was the right path to foster growth.

It would have been worth noting that it is not possible for every country to follow Germany's path of relying on a large trade surplus (someone must have a corresponding deficit). Germany and some number of other nations can create domestic demand through trade surpluses, but this strategy cannot be followed everywhere.

It also would have been helpful if this article reported economic data that would have been meaningful to its readers. For example, GDP is always reported as an annual growth rate, not a quarterly rate. Also, it would have been more useful to present the OECD harmonized unemployment rate for Germany (7.0 percent), which is measured in the same way as the U.S. rate, rather than the German official rate, which counts part-time workers as part of the unemployed.