Statement to German Colleagues

As American economists and social scientists, we are concerned about the plans recently announced by the German government to restructure and deregulate the German economy along lines alleged to be the "American model." This effort to emulate the United States is driven by misconceptions about the nature of recent American successes, and also about the sustainability of the American path. While we recognize Germany’s severe unemployment problem, these policies could jeopardize the real gains achieved by German workers over the last three decades without curing German unemployment.

It is true the U.S. economy has a lower unemployment rate than at any time in the last twenty five years. But, contrary to myth, this was not achieved through deregulation and increasing inequality. In fact, inequality increased most in the United States in the 1970s and 1980s, while unemployment was also rising. And American pay inequality, though still far too high, has been falling as unemployment declined after the mid-nineties. In recent years wages have been rising more rapidly than average for low-income American workers, minimum wages have been raised, and the Earned Income Tax Credit has strengthened the after-tax income of low-income working families, all while unemployment declined. The American employment miracle is also not due to deregulation. Employment has grown rapidly in sectors like health care where the government plays a large and continuing role, but not in trucking or air travel or banking, where the effects of deregulation are greatest.

The most important source of American growth has been a Federal Reserve policy of low interest rates and easy credit; this has fostered an enormous expansion of borrowing by households and by state and local governments for capital projects. This has proved successful so far, particularly when compared to stagnation in Europe. But we now fear for the sustainability of a boom built on these grounds. Consumer debt is now more than 20 percent above its previous peak as a share of disposable income. The U.S. trade deficit has soared. And the U.S. stock market has risen to price-earnings ratios that are more than twice their historic average. No one can say how or when these trends may be reversed, but they are clearly dangerous, and they suggest that further American growth may well require a stronger, not weaker, presence of government in the U.S. economy.

Unlike the U.S. economy, the German economy has managed to produce large gains in living standards for the vast majority of its work force over the last quarter century. Measured productivity growth in Germany has also significantly outpaced productivity growth in the United States, and by some measures absolute productivity levels are higher in Germany today. It is no surprise therefore that in Germany real wages should also be high. There is no basis today for giving up these gains and absolutely no reason to do so.

The drive to undermine wage standards in Germany will not reduce unemployment; German firms will not add workers that they do not otherwise need. Meanwhile cuts in pensions, social programs and public investments will have the opposite effect. Nor will these policies raise savings and investment: during the Reagan period they had no such effect in the United States.

Germany is today in the grip of an ideology of free markets, deregulation and privatization that originated here. But as that ideology was the source of American failures in the 1980s, and not of our recent successes, many Americans have abandoned it. The extraordinary fall in the German government’s polls shows that the German people are suspicious of this model, and in our view, rightly so.

In this country, there is increasing recognition of the vital role of government to support low-income working people, to support the elderly through a strong Social Security system, to provide critical infrastructure, to support education at all levels, to expand access to first-quality health care, and to properly regulate the financial sector. Germany should look to these positive features of U.S. policy, and not to our most destructive recent phase.

Signed:

Randy Albelda, Professor of Economics, University of Massachusetts, Boston

Teresa Amott, Professor of Economics, Bucknell University

Rania Antonopoulos, Economics Professor, New York University, SCPS/GSP

Dean Baker, Senior Research Fellow, Washington, D.C.

Marc Baldwin, Economist, Washington State Senate

James Barrett, Economist, Economic Policy Institute

Dale L. Belman, Associate Professor of Economics, University of Wisconsin, Milwaukee

Peter Berg, Assistant Professor, School of Labor and Industrial Relations, Michigan State University

Jared Bernstein, Senior Economist, Economic Policy Institute

Robert Blecker, Professor of Economics, American University

Barry Bluestone, Russell B. and Andrče B. Stearns Trustee Professor of Political Economy and Director, Center for Urban and Regional Policy, Northeastern University

Michael Brun, Associate Professor of Economics, Illinois State University

Jim Campen, Professor of Economics, University of Massachusetts, Boston

James Crotty, Professor of Economics, University of Massachusetts at Amherst

Jane D’Arista, Director of Programs, Financial Markets Center, Philamont, Virginia

James Devine, Professor of Economics, Loyola Marymount University

Paul Davidson, Holly Chair of Excellence in Political Economy, University of Tennessee

Gregory E. DeFreitas, Professor of Economics and Director of the Center for the Study of Labor and Democracy, Hofstra University

Edward Dickens, Assistant Professor of Economics, Drew University

Peter Dorman, Professor of Political Economy, The Evergreen State College

Robert Drago, Professor of Labor Studies and Industrial Relations, Penn State University

Laura Dresser, Director of Research, Center on Wisconsin Strategy

Richard B. Du Boff, Samuel and Etta Wexler Professor Emeritus in Economics, Bryn Mawr College

Gary Dymski, Professor of Economics, University of California at Riverside

Gerald Epstein, Professor, Department of Economics and Political Economy Research Institute (PERI) University of Massachusetts at Amherst

Jeff Faux, President, Economic Policy Institute

David Felix, Emeritus Professor of Economics, Washington University

Marianne A. Ferber, Professor of Economics and Women’s Studies, Emerita, University of Illinois, Urbana-Champaign

Ellen Frank, Associate Professor of Economics, Emmanuel College

Sheldon Friedman, Senior Economist, AFL-CIO Public Policy Department

Steven Fazzari, Professor of Economics, Washington University

Deborah M. Figart Professor of Economics, Richard Stockton College

James Galbraith, Professor at the Lyndon B. Johnson School of Public Affairs and in the Department of Government, The University of Texas at Austin, and Senior Scholar of the Jerome Levy Economics Institute

Teresa Ghilarducci, Professor of Economics, University of Notre Dame

Bill Gibson, Professor of Economics, University of Vermont

Eban Goodstein, Associate Professor of Economics, Lewis and Clark College

Mark Greer, Associate Professor of Economics, Dowling College

Robin Hahnel, Professor of Economics, American University

Emil Haney, Professor of Business and Economics, University of Wisconsin-Richland

Edward Herman, Professor Emeritus of Finance, Wharton School, University of Pennsylvania

Steve Herzenberg, Executive Director, Keystone Research Center

Helene Jorgensen, Labor Economist, Public Policy Department, AFL-CIO

Jane Knodell, Associate Professor of Economics, University of Vermont

Mark Levinson, Chief Economist and Director of Policy, UNITE

Scott Littlehale, Assistant to the President for Trade and Sourcing, UNITE

Catherine Lynde, Associate Provost, University of Massachusetts, Boston

Arthur MacEwan, Professor of Economics, University of Massachusetts at Boston

Ann Markusen, Professor, Hubert Humphrey Institute, University of Minnesota

Ray Marshall, Bernard and Audrey Rapoport Professor Emeritus, Lyndon B. Johnson School of Public Affairs, the University of Texas at Austin, and former United States Secretary of Labor

Elaine McCrate, Professor, Department of Economics and Women’s Studies Program, University of Vermont

Robert McGarrah, Senior Policy Analyst, AFL-CIO Public Policy Department

Michael Meeropol, Professor of Economics and Chair of the Department of Economics, Western New England College

Tom Michl, Associate Professor of Economics, Colgate University

William Milberg, Associate Professor, Economics Department, New School for Social Research

John Miller, Professor of Economics, Wheaton College

Lawrence Mishel, Vice-President, Economic Policy Institute

Monique Morrisey-Duffy, Research Associate, Financial Markets Center, Philamont, Virginia

Tracy Mott, Professor of Economics, University of Denver

Doug Orr, Associate Professor, Department of Economics, Eastern Washington University

Michael Perelman, Professor of Economics, California State University at Chico

Ute Pieper, Economics Department, New School for Social Research

Robert Prasch, Visiting Assistant Professor of Economics, Vassar College

S. Abu Turab Rizvi, Associate Professor of Economics, University of Vermont

Dawn Saunders, Visiting Assistant Professor of Economics, University of Vermont

Charles Sackrey, Associate Professor of Economics, Bucknell University

Max B. Sawicky, Economist, Economic Policy Institute

Marc Schaberg, Chief Financial Officer, Tomorrow Film Corporation

John Schmitt, Economist, Economic Policy Institute

Rob Scott, Economist, Economic Policy Institute

Stephanie Seguino, Assistant Professor of Economics, University of Vermont

Bernard Smith, Professor of Economics, Drew University

Darren Spreeuw, Assistant Professor of Economics, Denver University

Lance Taylor, Professor of Economics, New School for Social Research

Chris Tilly, Professor, Department of Regional Economic and Social Development, University of Massachusetts, Lowell

Frank Thompson, Lecturer, Department of Economics and Head, Social Science Program of the Residential College, University of Michigan

Ross Thompson, Associate Professor of Economics, University of Vermont

Norman J. Waitzman, Associate Professor, Department of Economics, University of Utah

Mark Weisbrot, Research Director, Preamble Center, Washington, D.C.

Thomas E. Weisskopf, Professor of Economics and Director, Residential College, University of Michigan

John Willoughby, Professor of Economics, American University

Martin Wolfson, Professor of Economics, University of Notre Dame

Affiliations are for identification purposes only