As the global economic crisis questions many long-hold beliefs about American and European economic policy, the U.S. press has discovered that some answers might be found across the Atlantic. Germany offers a fine case study for the advantages as well as drawbacks of increased government interference to bring the economy back on track.

Here is the Wall Street Journal’s take on the social security net in the U.S. and Germany, embodied in two workers who have to face the economic downturn. The German worker, upon loosing his factory job, decides not to cancel his vacation in Cyprus, because his income will be secure. His American counterpart has to evaluate his complete budget to find out where to make cuts. The article is an informative read, well backed up with statistics.

Atlantic Review, in reaction to the WSJ article, points out that while the American system offers a more flexible labor market, that makes sure the economy can bounce back fast after a recession, the German system creates less panic during the recession. The question is, in which system do we want to live?

TIME Magazine has devoted the cover of its European issue to answer “What Germany got for Its $2 Trillion.” The main example is Halle, a town that has been successful in stimulating industry and job growth with money from the reunification fund, even if success simply means loosing less jobs and population than other former industrial centers of the GDR. There are three lessons for the U.S. to be drawn from Germany’s attempt to spend its way out of a major economic slump:

“[T]hrowing money at an economic meltdown isn’t a cure-all.” Two decades after the fall of the wall, former East Germany still lacks behind economically. 20% of the German population live here, but the region accounts for over 30% of Germany’s unemployed.

“[B]ig spending packages don’t work if the economic policies underlying them are miscued.” The decision by Chancellor Helmut Kohl to exchange West and East German currency 1:1 sabotaged the competitiveness of East German industries.

“[S]pending so much money in such a short time is bound to be wasteful.” This one is a no-brainer. Try getting a year’s worth of shopping done in one day. Then see how much of the stuff you bought you will actually need. Chances are, you got yourself a Cargolifter.

What can the U.S. draw from this? Mainly that expectations for the American stimulus package should not be too high. There will be failure. Also, failing fiscal policy can partly be blamed on monetary policy not being in step. Ideally, the two should be carried out in unison.

At the same time, the discussion about culture as the determing factor for fiscal policy is still raging on. Phillip Stevens at the British Financial Times thinks that Europe’s reaction to the crisis is fearful. His main point is that the stimulus needs to be bigger, but he also argues that “Americans are happy to take risks while Europeans strive to avoid them. This is as often reflected in their respective economic performances during good times as in their reactions at moments of crisis. Gamble-everything entrepreneurs are much more likely to be found on the US side of the Atlantic.”

At the same time, Roger Cohen, reporting actually from Germany, thinks the opposite. Writing in German in the Sueddeutsche Zeitung Magazin, he has recently proclaimed that German Angst is over. Looking at the traumatic 20th century, the biggest economic crisis since the 1930s will not cause mass panic with Germans, Cohen concludes. In fact, the Americans are the ones who are shuddering now, while they witness the American empire falling apart.

As we have said before, the political process is a little more complicated than gross stereotypes like this one want to make you believe. Dear Mr. Stevens, if you want to make the point that the European stimulus needs to be bigger, focus on why the governments oppose your idea, and argue against them. Blaming it all on cultural differences is a logical shortcut that leads you off the track.

German swimming pool: Too many rules?

„President Obama’s approach to the financial crisis has been typically American — bold, improvisatory and on the fly. The Germans have been studied and measured, evincing a far greater trust than the Americans in their social-security system to patch the cracks in the foundation of their economy.“

„Of course that is due in part to the famed German aversion to excessive deficit spending, stemming from gut-level fear of a repeat of the hyperinflation of the 1920s. But there is also the German adherence to rules, love of a good plan and cautious, thoughtful approach when it slowly becomes apparent that a return trip to the drawing board may be necessary.“

It‘s true, we love rules. They make daily life more efficient. They enable us to drive our cars at top speed on the Autobahn, which means doing at least 200 kph (124 mph). This of course only works, if you can be sure that everyone will play according to the playbook, in this case the holy StVO. Slow drivers and trucks use the right lane, middle class cars drive in the middle lane, and the finest examples of German engineering are always to be found in the left – or express — lane. Tractors can use the shoulder, but no one else.

But do we actually think our economy can be handled like Autobahn traffic?

There are some points that speak to it. Economists like to say that when Americans drive a car against a wall, they try to figure out how to get around it as quickly as possible. Germans study the texture of the wall to find out how to dematerialize it. The idea that what was right just moments ago now is wrong, clearly causes discomfort to the German soul.

But does the love for analysis and discussion accurately predict the response of the Merkels and Steinbrücks to the economci downturn? No, perfectly epitomized in the latest addition to the German dictionary, „Abwrackprämie“. The measure gives buyers of new cars a € 2,500 subsidy if they scrap their old car in return.

The procedure is highly unfair. Other Industries have no chance to lay their hands on the stimulus money. Upmarket carmakers do not see their sales spur, because it is mainly buyers of compact cars who fall for the bait. Everyone who always wanted to buy a new car but has no old one at hand, will remain without a ride. Even used car dealers and repair shops complain, because their markets are shrinking due to less old cars on the streets and fewer demand for used cars.

However, the government has just decided to extend the budget and timeline for the program. This despite concerns from the opposition that the measure merely shifts demand from later years to today — demand that will be missing during a possible economic upswing in the future. It’s efficiency is contested as well, as many of the newly bought cars are manufactured in Eastern Europe and Asia. This attempt to get the economy going again clearly speaks against the careful deliberation Germans are supposed to like so much.

Then there is the fact the German economic system is better prepared to take a hit in bust years. The vast provision of welfare and unemployment pay (compared to the U.S.) is a sort of automatic stimulus package in its own right. These automatic stabilizers start to work as soon as the first wave of lay-offs hits the Federal Employment Offices. Then, the government budget increases even without the need to pass stimulus packages, simply because more people access these funds.

On the other side of the Atlantic, the U.S. Congress has to pass more spending bills to reach a higher level of spending. Plus, the U.S. state governments are subject to stricter spending rules which prevent excessive deficit spending on state level, thus exacerbating the problem. The bottom line is: Germany has to do less to match U.S. spending levels during a recession simply because we have a more developed welfare system.

Berlin-based journalist Ben Perry points out some more arguments against the idea that the German love of rules is behind the slow response to the crisis:

„The fact is, though, this is caricature and a tired caricature at that. For every German who wouldn’t dare cheat on his taxes, I can show you one who has made tax evasion an art form (let alone running off to Switzerland, as Kulish mentions). If there is such a strong desire for order, could someone please tell me why Germans are completly incapable of forming a simple single file line, ever? What’s so orderly about all the sidewalk dog crap?—something I don’t complain about but plenty of folks do. And on the government level, America’s essentially two-party system looks practically monolithic compared to the chaotic jumble of Germany’s multi-party coalition makers.“

In the end, as Ben Perry also notes, if the Germans are reluctant, risk-averse spenders, who prefer government bonds to the stock market, what does this tell us about Americans in the light of their trillion dollar stimulus packages? That they are imprudent spenders, who delay their financial problems until their credit card bill hits them over the hat and they have to go into foreclosure? Maybe there is a kernel of truth hidden in every beaten cliché.

By Kolja Langnese

The First Ladies of Fashion - Screenshot from vanityfair.com

Now, one would think that when world leaders from 20 and 28 countries, respectively, meet within a week, there would be important issues to discuss. Such as how to save our economies in midst of the worldwide financial crises, how to save Afghanistan from chaos, or how to save the financial industry from new regulations (this last point was only on the agenda of some participants, and seems to pose a contradiction to point no. 1).

But then a graceful, tall, pretty first lady entered the picture and everyone was momentarily blinded. The result was that the focus of the media outlets shifted from world conflicts (they’re so hard to convey to the fast-clicking internet crowd anyway) to Mrs. Obama’s outfits. Scandalously, she wore a cardigan to meet the Queen! This prompted Bonnie Fuller to scream that Michelle Obama has lost her mind! and is suddenly “a fashion disaster”. Wow, good thing we talked about that. Afghanistan – who? (What might be added: Bonnie Fuller – who?)

The Obamamania caught on with “serious” news outlets as well, even though their interpretation was different. Christoph von Marschall of Der Tagesspiegel concludes that the visit to Europe “stabilizes her position.” Michelle Obama’s, that is. As U.S. First Lady, it’s apparently essential to have a stronghold in Europe.  Even the complicated links of international relations were broken down to the questions of which first lady dressed better. The result of this “fashion face-off” varies depending on the observer, so at least the two issues have one thing in common.

In all the marvelling, some publications completely lost their heads and even made German Chancellor Angela Merkel part of the outfit competition. The subheading to their picture (see screenshot) says: “Barack and Michelle Obama pose with French president Nicolas Sarkozy and Carla Bruni-Sarkozy, along with other NATO leaders and their wives at the Kurhaus in Baden-Baden, Germany.” Thanks, Vanity Fair, for informing me that Joachim Sauer has taken over government activites from his wife. I almost missed that.

The Afghans were left to save themselves, but I’m not sure anyone noticed.

Update, April 5: Time has written an interesting analysis about the dissonance between Barack and Michelle Obama’s worlds.

By Jessica Binsch

The Trouble with Bubbles

When Alan Greenspan, former Federal Reserve Chair and longtime icon of the free market, testified last October before the House Oversight Committee on the current financial crisis, he did something that he had not done much very much in his 18 glorious years as the head of the Fed: say “Oops.”

The 82-year-old acknowledged that he had made a mistake in believing that the nation’s banks, operating in their own self-interest, would adequately protect their shareholders and avoid unreasonable risks in the financial markets. Such economic decision-making, made possible through lax regulation and low interest rates that Mr. Greenspan once endorsed but is now shying away from, was, as he put it, “a flaw in the model that defines how the world works.” Indeed, Mr. Greenspan’s world doesn’t seem to be making much sense as it once did.

And while Mr. Greenspan refused to take the blame for the current crisis, he also admitted he’d been wrong about one other not-so-minor phenomenon of the last decade or so: the housing boom, which began under his watch in the late 1990s. Or, to put it more precisely: Mr. Greenspan admitted that the housing boom, which had been fueled by his famously low-interest rates, had actually been a big, exuberant bubble, which now, of course, has burst and created turmoil in the nation’s financial markets and brought about a fierce recession, the consequences of which we are only now beginning to see.

In making the spectacular admission that his belief in the power of markets and rational economic decision-making had allowed him to mistake a boom for a bubble, Mr. Greenspan shed some light on the peculiar nature of financial bubbles: it’s where market behavior stops and herd-like, exuberant speculation takes over; where the true price of an asset is driven by psychology, not economic principles; where prices are expected to continue to rise and rise and rise. And when this faith in ever-increasing prices becomes shaken, well, the herd runneth away, and the bubble deflates, often with dire consequences for the larger economy.

But what drives the herd? For one, investors and buyers have imperfect – in the parlance of economists, “asymmetric” – information about markets. Second, risk-taking and risk-evaluation move in tandem; in a boom, people take more risks, and conversely, in a downturn, people take fewer risks—a recipe for disaster.

The housing bubble of the last ten years found its stride alongside another one: the stock bubble of the 1990s. Between 1996 and 1999, the prices of stocks in the Standard & Poor index rose by seven-fold, driven by people fanatical about the new dot-com technologies. This in turn drove up demand, and made prices rise. And then the herd came to feast, with each buyer expecting that the next would be willing to pay more. And so prices rose. But, seemingly just as quickly, in 2001 the stock bubble burst. At some point, the next buyers in line decided they weren’t willing to pay more – and sure enough, the rest of the herd began to run from the stocks. And, just like that, boom became bust.

Rather than curtailing it, the dramatic collapse of the high-tech stock bubble in the late 1990s fed the housing boom even further. As newly cautious investors sought more secure investments, they turned to housing. Builders worked feverishly to match the supply of homes to the increasing demand, which was, to put it mildly, a losing yet profitable battle for homebuilders and mortgage lenders alike. Prices shot even higher, and expectations of home prices in the future went apace. Enter psychology: the expectation that home prices would continue to rise, perhaps indefinitely, led more Americans to buy more real estate than they otherwise would have. And so it went.

But that wasn’t all it took for the housing boom to become a bubble: it also needed cheap money and lax lending standards for mortgages. Especially after 2001, as the economy began to slow, the Fed, with Mr. Greenspan at its helm, loosened its monetary policy to hold off a recession. Lower interest rates then made mortgage rates – whether fixed or the more reckless adjusted mortgages – even cheaper.

Add to this a highly deregulated mortgage industry and increasing breezy lending standards for potential homeowners, then it became all the more easier for Americans to buy a home, even as prices continued to rise.

And to finance all of this lenders and bank concocted financial mechanisms – the now-infamous collaterized debt obligations, or bundled mortgages – which sliced and diced and sold and re-sold mortgages around the world on the erroneous belief that the risk could be effectively minimized by bundling the mortgages and securitizing them and passing them on to secondary parties. Thus, the whole thing kept its perverse energy going.

During those heady times housing prices did strange things. Having held relatively steady from the 1950s until 1995 relative to inflation, from 2002 to 2006 housing prices had risen more than 7% a year and nearly 32% overall. But starting in 2006, that all changed. As information about the true risks involved reached one person, it reached another and another – and the whole thing spread like a virus. As a result, the bubble popped, and once it did, the herd ran away just as quickly as it had come to feast. Prices started to fall – quickly – basically as quickly as they had shot up. The bubble deflated.

That the herd runs away as fast as it ran toward the bubble is part of the sorry logic of a bubble: The irrational dynamics that perpetuated the bubble – the belief that prices would only continue to rise as buyers lined up – also helped to undo it as prices began to slip as demand waned and home values began to plummet.

Experts predict by the end of 2009 that housing prices nationwide will have fallen by more than 30% – leading to a loss of more than $100,000 per homeowner and a loss of $7 trillion in housing wealth. That still excludes the foreclosures that have besieged homeowners, as they are unable to pay their mortgages, which were pegged on the expectations of rising home prices. Now, over-supply has put a glut on homes. Such is the sad cycle.

In the end, the burst of the housing bubble and the resultant shocks in the financial markets will have cost the economy trillions of dollars in wealth, left many Americans owing more on their home than it is worth, and of course has left some of the nation’s biggest and most famed financial institutions looking at their balance sheets and scratching their heads.

Now that it’s burst, economists and policy wonks are busy slinging mud. Liberal economists who had warned of the housing bubble before it burst, and who see market imperfections as something the government must protect against and be wary of, are happy to place blame on conservative policymakers and economists like Mr. Greenspan.

Greenspan had famously denied the presence of a bubble and maintained that the rise of housing prices had been basically justified by increased earnings and lower interest rates, which had drastically reduced the cost to own a home. Sure, conservatives conceded, there were some boom-dynamics at play in housing, but housing prices had never dropped in the United States to a great degree before, so why worry so much? It was really an argument over bubbles: whether they can be prevented or are just natural market occurrences. But it seems as though the events of the last 18 months have started to change some people’s ideas about the danger of bubbles.

Which brings us back to Mr. Greenspan and the terrible lesson he’s learned about bubbles: you don’t know that you’ve actually experienced a bubble until it’s too late, that is, until prices have already fallen. Unfortunately, for liberals and market conservatives alike, such disasters are only seen in the clear, unforgiving light of hindsight.

By Mark Prentice

Mark Prentice is an exchange student from Seattle at the John F. Kennedy Institute for North-American Studies at the Free University of Berlin.

There is help to make the right decision. One solution is to pledge to deliver your next paper on time. If you fail, you will donate a significant sum to charity. In this scenario, the short-term incentives to keep delaying are contrasted with the somewhat clearer long-term consequences of loosing money. The question remains—why do we fail to make the right choice so often, and how can we improve?

The problem lies in human nature. We are good in long-term planning, but carrying out our decisions seems awfully complicated. Humans are good “planners”, but bad “doers”, to use two terms coined by economist Richard H. Thaler and law professor Cass R. Sunstein, who also heads the White House Office of Information and Regulatory Affairs. The two have published “Nudge – Improving Decisions about Health, Wealth, and Happiness” last year, in which they deal extensively with how to turn us into better “doers”.

Their book fits in with the Obama approach of intelligent government and the general reappraisal of intellectuality. At the same time, it highlights the greatest problems with the kind of government action this school-of-thought puts forward.

Predictably Irrational

Thaler and Sunstein are both of the University of Chicago and were both informal advisors to Barack Obama’s presidential campaign.  And, they both have worked on the intersection of rational economic decision-making and the predictable irrational behavior of most humans when it comes to economic decisions. The intellectual background of the book is formed by “behavioral economics“, a subfield of economics that integrates the systemic biases of human action into traditional economic models.

The basic premise is that since people don’t seem to think very hard about the choices they make, policy makers should use their knowledge of the systemic biases to “nudge” people into making better decisions. A nudge is any device “that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives,” the authors write.

A “nudge” can take many forms. If you put fruits and salads in the beginning of the cafeteria line, you “nudge” students to eat healthier, since the way choices are arrayed to them influences their decisions. Thaler and Sunstein call the setting in which people make decisions “choice architecture”. Since there is no neutral way to arrange the foods, “choice architects” like cafeteria managers influence people in any case—so why not help the hungry students to improve their decisions about chips or Caesar salad?

Another “nudge” are default options. A lot of patients die each year, because there are not enough organs for transplant available. How can more people be persuaded to commit to donate their organs after their death? They could either be asked to tick a box opting into donation or opting in might be the default setting and they have to actively opt out. The difference? One study found that with an opt in policy, 42% of people agree to donate, whereas with an opt out policy, 82% committed to donate. They were “nudged” to follow the default.

Want more Soup?

The examples for the influence of choice settings go on and on-sometimes to the point of absurdity. One study showed that how much you eat depends on the size of the plate you eat it from. In the experiment, test persons were asked to eat as much as they liked from a bowl of tomato soup, while the soup was secretly refilled from below the entire time. Some people continued to eat until the scientists stopped the experiment.

Politically, Thaler and Sunstein’s ideas are in hot demand. Their book is popular both in circles around Tory leader James Cameron, as well as with the Obama crowd. Now add that Cass Sunstein has just been named to lead the White House Office of Information and Regulatory Affairs—there is reason enough to turn attention to the policy recommendations of the book. Thaler and Sunstein offer help for everything from drug prescription plans, student loans, mortgage rates, climate protection to the privatization of marriage.

Whatever the issue, the blueprint is the same each time. The observation that behavioral economics can be helpful in predicting the shortcomings of traditional economics leads the authors to their main idea. Policy makers can use the influence of “choice architecture” to steer people to make better decisions. If economists and political scientists can abandon the thought that people always act rationally, they arrive at the position of Thaler and Sunstein.

Paternalism vs. Liberalism

Their book offers a third way in between two dominant schemes for government action from the last century. Thaler and Sunstein set out to bridge the gap between two of the most influential economists of the last century—John Maynard Keynes and Milton Friedman. The ideas put forward by Keynes suggested a bureaucratic paternalism. His theories were turned into a top-down approach that tried to push rather than to “nudge” people. Keynes’ theoretical challenger—Milton Friedman—trusted the people more than the government; he asked policy makers to let the market work. This approach was especially salient during the Regan-era, when deregulation and limited government interference were de rigueur in the political world—and “nudges” were frowned upon.

Thaler and Sunstein try to unite these two poles in the awkward term “libertarian paternalism”, which sounds like a classic oxymoron at first. The idea is to give a subtle hint what the “choice architect” thinks is the best decision, while the cost of leaving the default path are kept extremely low. This allows policy makers to both target the systemic biases of irrational human action and eliminate the danger that people are not free to choose.

Save More, Earn More

For example, Thaler and Sunstein explain that retirement plans suffer from being overly complex. The authors cite a study that not even MBA-students are able to calculate the optimal savings rate for a retirement plan. So they advise that future plans should have a default setting that raises people’s contributions each year by the percentage that their pay increases.

This idea stems from two psychological insights. People are loss-averse; they hate loosing money more than winning it. Hence the contributions are indexed to the pay so that the paycheck doesn’t shrink. They are also effort-averse; they don’t like to download, fill out and send back the forms that are needed to raise the savings rate. Hence it is raised automatically. This so-called “save more tomorrow” scheme would thus produce a better outcome, as opposed to a plan where people choose one static saving rate and then just forget about it.

The Perils of Freedom

All these suggestions seem like good ideas to improve the outcome of government policies. The book discusses them in great length and detail. The drawback is, as the authors recognize, that the implications of their ideas are not discussed with the same scrutiny. If we can’t trust people to make informed and optimal decisions, why can we trust other people to lure them in the right direction? One failure of the political system is that it doesn’t recognize human irrationality; another is that politicians and legislators seldom act in the purest public interest. The authors fail to dismantle the argument that people need to be free to choose simply because the government tends to make the worse choices.

Another problem is that commercial interests are far better in exercising the techniques of “nudging.” The relationship between “nudging,” advertising, and marketing remains unclear. No matter to what extend the government “nudges” people to eat bananas instead of burgers, the junk-food corporations will tell them the opposite.

Can we Trust Humans?

And finally, if you say that people’s wishes, as expressed by their decisions, do not always match their real requirements, you have an argument to abandon their freedom altogether. But do scientists always know best? No, they do err quite frequently. That is why they give recommendations instead of prescribing policy.

Thaler and Sunstein mention the introduction of plastic bags in Chicago that dog owners can use to dispose their dog’s excrements. People were effectively “nudged” to use them, which the authors cite as a success. Now, people in Chicago use tens of thousands of plastic bags each year to remove organic waste that would eventually dissolve itself—a great success for pedestrians, a rather small accomplishment in terms of environmental protection. However you use “nudges”, your aims will always be up for discussion.

Which is not to understate the magnitude of the ideas Thaler and Sunstein present to the reader. They acknowledge that “nudging” needs an extremely high willingness of policy makers to reveal their true motifs to justify their actions. Sure enough, the techniques can be exploited. But if the influence of “choice architecture” is known, it is negligence to ignore it. The trick is to tell people about what you have in mind, instead of using the power of the “nudge” to manipulate them.

By Kolja Langnese

“Nudge: Improving Decisions about Health, Wealth and Happiness” by Richard H. Thaler and Cass R. Sunstein (Yale University Press, 2008; 293 pages).

More info: www.nudges.org

German Finanzminister Peer Steinbrück is interviewed in the recent Newsweek issue, and he doesn’t sound too happy:

Doesn’t an unprecedented crisis call for unprecedented measures?
“It’s the yearning for the Great Rescue Plan. It doesn’t exist. It doesn’t exist! Dealing with an unprecedented crisis is a puzzle, a trial-and-error.”

So, what’s wrong with a little governmental push to jumpstart demand?

“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.”

Ok, got that, Gordon Brown is a Keynes follower now. And what about Germany using its economic power to take a bold stance on this issue when talking with Sarkozy and Brown, just to make sure the both of them understand that there is no such thing as a Great Rescue Plan?

As Europe’s biggest economy and the world’s leading exporter, wouldn’t it be in Germany’s interest to take more of a leadership role in this economic crisis?
“I’m ambivalent about leadership. That Germany makes its contribution, that our capabilities are neither underestimated nor overestimated, I can live with that.”

Alright. So we know which way to go but are reluctant to tell anyone? Now wonder Germans are getting slammed for being too passive when it comes to putting a fiscal stimulus together.

Here is New York Times Columnist and freshly awarded Nobel Prize Laureate Paul Krugman explaining why Steinbrück’s talk makes him sad:

“Germany’s economy is the biggest in Europe, but even so it only accounts for about a fifth of EU GDP, and it’s only about a quarter the size of the US economy. So how much does German intransigence matter? The answer is that the nature of the crisis, combined with the high degree of European economic integration, gives Germany a special strategic role right now — and Mr. Steinbrueck is therefore doing a remarkable amount of damage.”

What’s the problem? Since European markets are highly integrated, it’s hard to target a fiscal spending program at a national economy. Krugman estimates that around 40 % of all final demand is vanishing over a country’s borders if it is in the EU. That means that the multiplier effect—the reason why governements think about spending programs in the first place—is much smaller, too.

So, a concerted action is needed. If the biggest economy in the European Union refuses to take any, it might enjoy some extra demand coming from across the border, but overall it pretty much chokes off demand in the entire EU. Which leads to a new multiplier effect, according to Krugman:

“It is, in short, a classic example of the kind of situation in which policy coordination is essential — but you won’t get coordination if policymakers in the biggest European economy refuse to go along.”

“And if Germany prevents an effective European response, this adds significantly to the severity of the global downturn.”

“In short, there’s a huge multiplier effect at work; unfortunately, what it’s doing is multiplying the impact of the current German government’s boneheadedness.”

So what does Peer Steinbrück think about the prospect of the American economy?

“The U.S. is exceedingly dynamic, has tremendous flexibility, mobility and energy, and has so far come out of every economic hole faster than we in Old Europe. There is no reason they shouldn’t come out of the current situation faster, too.”

I wonder why that is.

By Kolja

But not as an elected officials, at least not literally. Instead, students all over the world have the opportunity to join the Model G8 Youth Summit held in Milan, Italy, March 15- 21, 2009. This simulation, to take place parallel to the G8 meeting in Italy, provides a great chance to get an inside look at the obscure working of the Big Eight, controversial as they may be. During the negotiations, participants will work out an official communiqué that will be handed over to government representatives from the G8 states.

With all the controversy and protest sorrounding the G8, the organizing NGO points out that the purpose of the youth summit is “to make the G8 summit more transparent and (…) introduce a younger generation’s goals, visions, ideas, and ways of solution into the G8 process.” Therefore, this is not a protest camp – but not a group of yes-sayers, either. Instead, an opportunity to learn more about G8, explore the workings and limits of negotiations in that setting, and voice constructive criticism.

All the while participants will get to know students from all over the world and their unique perspectives while staying in beautiful Milan.

The positions to be filled for each country are

• Head of State
• Sherpa
• Minister of Foreign Affairs
• Minister of Economics
• Minister of Finance
• Minister of Development
• Minister of Environment
• Minister of Defence
• Expert: climate change
• Expert: intellectual property rights vs. humanitarian aid
• Expert: Corporate Social Responsibility and financial instituitions: financial sustainability

Additionally to the G8 countries USA, Canada, Germany, France, Italy, the UK, Japan, and Russia the so-called O5 Outreach States Brasil, China, Mexico, India, and South Africa will need representation as well as.

To apply, you need to have student status and proper English knowledge (which I guess is presumed if you are reading this blog right now). Send in a resume and the application form to your country’s committee. More info on the application process can be found here for the German delegation, and at g8youthsummit.org for all other countries.

But hurry, the deadline is Thursday, November 20, 2008 for the German team, and is approaching for the other countries’ teams, too. Don’t miss it!

Reconstructing Washington

Yesterday, Thursday 6^th, Rep. Rahm Emanuel (R-IL) accepted president-elect Obama’s offer to become White House chief of staff. Emanuel is the fourth-ranking member of the House, and has worked on President Clinton’s first campaign, as well as served as his White House adviser. Though highly esteemed for his political skills, his Chicago-style has earned him a reputation on the Hill. “He is that rare breed who can engage in a back-alley fight but also understands that there’s a time to set aside bare-knuckle fights and attempt to move an agenda,” said Rep. Putnam (R-Fla.) to the Washington Post. This same quality has led some pundits to question the message of change, Obama had promised during his campaign. With Biden already on board as VP, who will bring “new” to the White House?

Obama and Biden have already announced the co-chairs of the presidential transition team, Obama-Biden Transition Project: David Axelrod, top adviser to Obama – first in his 2004 Campaign for US Senator, and more currently as chief strategist of the Obama 2008 presidential campaign; John Podesta, former chief of staff to Bill Clinton and trusted Obama adviser; Pete Rouse, a Capitol Hill insider, and chief of staff to Obama; and, finally, Valerie Jarrett, senior adviser, and long-time friend, to Obama and family, as well as a Chicago lawyer.

Appointments for the new Cabinet are still unannounced, and uncertain, but, so far, speculation about top positions indicate a mix of “Washington insiders and high-profile business executives”:

• Secretary of State: Sen. John Kerry (MA) is currently considered to lead the race; but the list also included Sen. Chris Dodd (CT), Governor Bill Richardson (NW), and U.N. Ambassador Richard Holbrook. Also, Sen. Chuck Hagel (NE) has been mentioned.
• Defense Secretary: Robert Gates, current defense chief, will be expected to stay for “a certain period”
• Secretary of Commerce: Leon Panetta, former Clinton White House chief of staff; Rick Parsons, Time Warner Chairman Dick Parsons
• Obama’s Business Brain Trust (aka “the economic team”): Warren Buffet, investor and businessman, and Forbes Richest Man in the World during first half of 2008; Robert Rubin, former U.S. Treasury Secretary; Larry Summers, Harvard University professor; Eric Schmidt, CEO and chairman of Google; Indra Nooyi, CEO and chairman of Pepsi

The news today of rising unemployment rates puts pressure on Obama to appoint an administration that will instill trust in the new government’s ability to tackle the problem.

Note: Barack Obama has just given his first briefing as president-elect, and did not expound on further appointments, nor answered questions about possible candidates

No Recovery Till 2010?

Today, Friday, the U.S. government announced the highest unemployment rate (6.5%) since 1994. October marked the 10^th consecutive month of decline on the job market. Since August, the U.S. economy has lost 651,000 jobs, October accounting for 240,000 jobs alone, totaling 1.2 million lost jobs so far this year.

Meanwhile, “[wages] have effectively shrunk for most workers, as rising costs for food and fuel have more than absorbed meager increases in pay. That has further crimped American proclivities to spend,” the New York Times reported today.

On Monday, Nov. 3, Marketwatch.com reported that the auto industry had its darkest day in 25 years, making October, “probably the worst industry sales month in the post-WWII era.” A possible merger with Chrysler on the horizon, General Motors have announced massive cuts to contain financial losses. But even with new and more eco-friendly cars slated for a 2009 release, credit still remains tight despite the taxpayer-financed $700 billion bailout.

However, it is not just the stagnation on the big-items market that has taken its toll on unemployment rates. As consumers have become more budget-minded, even general merchandise stores laid off 18,000 workers last month. And though the season for Christmas shopping is fast approaching, skeptics believe, those numbers are not looking to improve.

Facing almost unreasonably high expectations, this is sure to pose one of the biggest immediate challenges to President-elect Barack Obama’s new administration, which is bound to disappoint some high-hope voters. President Obama has laid out a detailed plan to stimulate growth, anticipating to generate 5 million so-called “green collar” jobs over the next 10 years. However, experts predict that the short-term effects of his plan will be minimal, and that the US will likely lose another 500,000 jobs between now and inauguration day, January 20th, 2009, ascending unemployment rates to 7% – numbers not seen since 1993. Some experts warn that the US will not see a recovery until 2010 – alarming news for the world’s most important economy. “Superman couldn’t change what’s in store for the U.S. economy. It’s going to be ugly,” said Rich Yamarone, director of economic research at Argus Research, to CNN on Wed. 5^th.

In comparison, EU (EU27 ) unemployment rates remained stable at 7%; while the so-called Euro-zone (countries using the Euro) saw rates stabilize at 7.5% – a .2% increase since September 2007. In Germany, a 15-year low was reached in October, when the unemployment rate fell to just under 3 million people, despite the financial crisis. This is a 2 million decrease since 2005, when Chancellor Angela Merkel took office.

Peter Dahl

As we now hear Starbucks will be closing more than 600 stores in the US alone, which probably no one will even notice because they have more than 10,000 of them over here.

That said, I have to add that I really feel for the 1000 people losing their already underpaid jobs. But it also shows that there is not unlimited demand for ever the same products. I admit that it gereally makes sense to have chain stores in some respect. But it also makes traveling (and living) so not exciting at times, because it kills cultural particularities.

Her comes a sermon by Reverend Billy, founder of the Church of Stop Shopping, getting the word out to the masses on Fox Biz News:

“Capitalism isn’t necessarily the same as Freedom.”…eat this Sister Rebecca! Although my favorite part is when he says that their coffee “isn’t that great”. That’s a good one.

So you can argue if Rev. Billy is taking it all a bit too far, or if Rebecca Gomez has ever given anything she said a thought – at all. Yet, one thing is for sure: supporting independent businesses is a thing we could probably all agree on.

If you do, then you can start on Sunday by showing up in New York’s East Village:

AuH2O is not only local and independent – it’s fashion with an attitude. Kate Goldwater (hence the name: Au=gold H2O=water) is a feminist, a friend of the environment, a soccer player and a sweetheart. Learn more about her store, her fashion and herself on her new blog: blog.auh2odesigns.com and come out for fashion coffee and music this weekend. I’ll be there…

By Semir (double post)

During the last weeks, the looming take-over has created a storm in the teacup, with the website savebudweiser.com at the center of it. So far, over 65,000 people have signed their online petition. Not enough to convince the owners of Anheuser-busch not to sell their stock. The deal became possible because the family behind what used to be Americas largest beer brewer was in a clinch over how to avert the offer and ended up accepting it.

“America is not for sale, and neither is her beer,” sings Philip McClary in his song “Kiss Our Glass,” knowing that every penny spend on Budweiser will now foster the Belgian beer giant InBev. The beer will still be brewed in St Louis none-the-less. But this hardly seems to matter in a debate which has already left the realms of business news and now revolves around American culture and it’s emblematic parts today. “All you hard-working Americans stand up and show some class,” the song continues, “Have a drink with Mother Freedom, and tell InBev to kiss your glass.”

Maybe this is what German beer fans should be doing since the 2004 take-over of the Beck’s brewery by InBev, now the biggest beer supplier to the German market. But nobody seems to care, it’s not like the beer tastes any different. To see the Americans whine about the, from a German point-of-view, watery Budweiser falling into foreign hands is a somewhat strange experience. If it was Coca-Cola, Walt Disney or McDonald’s, yes – but Bud? Beer is nothing America is famous for.

Also, this isn’t about Europe vs. the US fighting for global dominance. There is a point in fearing that EU sponsored plane maker EADS wins a contract to supply planes for the US Military; there is no point in believing that a Belgian – or rather global – company will harm American interests if they brew the favorite beer of Americans.

And there is another point the debate fails to touch upon – it is still unsettled who owns the right to name a beer Budweiser. A Budweiser beer in Germany is imported from the Czech Republic. If you want to quench your thirst with a real American Budweiser, you will have to ask for a Bud, as the beer was called when Anheuser-busch sponsored the FIFA Football World Championships in Germany in 2006. Did the Europeans complain back then? Yes, but the Americans didn’t care.

Finally, did someone mention that Budweiser (the American one) was created by a German immigrant? Never mind.

By Kolja Langnese