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When Germany Spends Money It Helps Its Neighbors

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Wednesday, 13 August 2014 04:57

NPR harshly criticized a change in Germany's social security system which allows workers to collect benefits at age 63, rather than the previous age of 65, if they had contributed to the retirement system for 45 years. The piece repeated claims that this expansion of the retirement system was hypocritical, since Germany is demanding austerity from other members of the euro zone. It also implied that it would be a large expense, telling listeners that 50,000 workers are taking advantage of the reduction in the retirement age.

It would have been worth noting that increased spending by Germany helps it neighbors. Since the euro zone is suffering from inadequate demand, when Germany spends more money it helps Italy and Spain since it will create more demand for their goods and services.

These countries may resent that Germany has the money to spend, just as poor people may resent that rich people have the money to spend, but in the context where the rich do have the money, the poor are better off if they spend it than if they don't. While people in the rest of the euro zone have plenty of grounds for resenting the austerity demanded by Germany, which is causing mass unemployment and costing the region trillions of dollars in lost output, if they really don't want Germany to spend more on its retirees, then they must want higher unemployment and less growth in their own countries.

It would also have been useful to put the numbers here in some context. Germany has a labor force of a bit under 43 million, or roughly 28 percent of the size of the U.S. labor force. This means that this flood of new beneficiaries would be equivalent to an addition of 200,000 retirees to the U.S. Social Security system. That would be an increase of approximately 0.6 percent.

The piece also claimed that Germany is facing a labor shortage as more workers retire. It is difficult to know what this is supposed to mean. In a market economy if there are fewer workers, people switch from less productive jobs to more productive jobs. This means that there might be fewer people working in convenience stores, or as housekeepers, and kitchen workers. What's the problem?

 

Note: Typos corrected.

Comments (11)Add Comment
MSM Finally Gets Its - Workers Jump at Chance to Work and Retire as Well
written by Last Mover, August 13, 2014 7:29
Older German Workers Jump At Chance To Retire Early

Germany has lowered its retirement age to 63. The move fulfills a government promise, but critics say it makes no sense in a country facing an aging population and a shortage of trained workers.


Imagine in general for the same subject a title and summary that reads:

Older Acme Workers Jump At Chance to Have A Job After Increased Spending

Acme has also lowered its retirement age to 63. Critics say older workers now face a choice anyone would like to have, to continue working at higher wages or retire two years early anyway.


Younger workers have repented, giving up intergenerational warfare for full employment that comes with training, higher wages and benefits, and a chance to retire early.

Critics say this is just a matter of equilibrium economics. When more is spent at below full employment, a higher equilibrium economy results where most markets tend to clear at higher real wages without causing inflation.

---

Unfortunately there is a chronic shortage of these critics due to lack of training among journalists who can't find them, and higher pay doesn't help to correct the shortage.

Critics say journalists who have avoided MSM sock puppet positions have been crowded out by an aging population of journalists retiring too early combined with a shortage of training available for younger journalists, forced to take whatever jobs and pay are available from their sock puppet employers.
...
written by Dennis, August 13, 2014 8:12
German retirees not only consume EU-produced goods that have been imported, insofar as many are also said to typically burn through their payments by traveling to warmer (Mediterranean) climates.
Today's NPR always hates improved social security
written by Other Dennis, August 13, 2014 8:21
The old codgers are bleeding us dry, DRY I TELL YOU.
....
written by djb, August 13, 2014 8:25
it was during the bush years that the right wing "discovered' npr and started putting right wing supply siders in charge and then the "economic experts" that appear on the program started to come from libertarian/austrian school/right wing/supply side school


...
written by Bloix, August 13, 2014 11:41
Earlier retirement in Germany = (1) more job oppty's in Germany for other EU workers (Spanish engineers in German factories) and (2) incentives for German companies to outsource (find parts suppliers in Italy) and (3) active German retirees who will take vacations on Greek islands.
Conflating
written by John, August 13, 2014 2:13
Dean, you seem to be conflating the subject. Retirees are a frugal bunch so there is no way of knowing the few extra euros these folks will get in their pockets will they spend it to make a difference in Spain, for example.
...
written by skeptonomist, August 13, 2014 2:58
Germany's competitive position in the EU was enhanced by keeping wage raises down since the 90's (although at the start of this period its unit labor cost was much higher than that of the other countries). The fewer workers there are in Germany, the more upward pressure there is on wages, and higher wages should raise the prices of German goods compared to the other countries, which will help their industries.
re john
written by djb, August 13, 2014 4:14
regarding written by John, August 13, 2014 1:13

John, if retires dont spend as much, then it is because they dont make as much, but if more people retire, then it opens up jobs and increases income of other people in the economy...... and if that occurs workers will be able to negotiate for higher wages....... and if that occurs they will spend more but further, the price of german goods will go up, and then the other euro countries will be more competitive
for john again
written by djb, August 13, 2014 4:48
so you see john, what we are really talking about at this point is full employment, where to do we define

full employment is defined in terms of how many people who are expected to work (and willing to do so if they have to) are actually working

we have less than full employment when these willing and able workers cant find work

if we subtract from the amount of people who are expected to work, by lowering the retirement age, we change to parameters of full employment

in that case we reduce involuntary unemployment, putting the people that still are expected to work, in a better position,

and further the income of the working class will grown becaue the retirees still have income and the number of workers will not shrink sincethe workers who retire will be replaced by workers who make the same or more
What's the problem?
written by Sandwichman, August 13, 2014 5:45
It's the "lump of labor," which is against the law -- Say's Law.

'We all cannot believe that we have been fighting this theory for more than 150 years,' said April Yanyuan Wu, a research economist at the Center for Retirement Research at Boston College... The theory Wu is referring to is known as 'lump of labor,' and it has maintained traction in the U.S., particularly in a climate of high unemployment.


Since belief in the lump of labor leads people to think older workers staying on the job take jobs from young workers and the lump of labor is clearly a fallacy, then the obvious conclusion is that older workers staying on the job create jobs for younger workers. People retiring early create unemployment! Supply creates its own demand (plus a little extra).

Or at least that is what the experts say.

Who are we to question authority?
...
written by watermelonpunch, August 14, 2014 12:51
written by John, August 13, 2014 1:13
Dean, you seem to be conflating the subject. Retirees are a frugal bunch so there is no way of knowing the few extra euros these folks will get in their pockets will they spend it to make a difference in Spain, for example.


Whoa John! I don't care how frugal retirees are... they have to buy food and whatnot.

Do you really think the vast majority of 63 year olds who've been working since the age of 18 or younger are going to opt to keep on working AND collect their early retirement? That makes no sense.

It says they need to have contributed for 45 years... continuously? If it's continuously, then this means most people who qualify will be working class people (with the ailments that go along with that). It won't be Martin Stratmann or Juergen Fitschen who qualify I think.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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