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Sunday, August 29, 2010

Obama Economic Advisory Member Calls For Another Stimulus Package Refusing To Learn From Germany's Success With Less Spending

"This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth. If we want to learn from that, the answer is not to repeat the mistakes of the past." --German Chancellor Angela Merkel

Merkel said that in March of 2009 when she rejected calls to spend more public money in Germany as part of a coordinated stimulus for the global economy. (Source)

Instead, Germany created a short term small stimulus spending approximately 1.5 percent of G.D.P (gross domestic product)and took measures to balance their budgets and restore confidence.

Barack Obama and his team of economic advisors chose to go the opposite route and borrowed 6 percent of G.D.P and passed a massive stimulus plan costing $787 billion, extended unemployment benefits and passed the trillion dollar Obamacare healthcare package.

David Brooks called the difference in the handling the economic situation a "natural experiment" and compares the two countries and the results of that experiment over a year later.

The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels.

Results from one quarter do not settle the stimulus/austerity debate. Many other factors are in play. For example, Germany is surging, in part, because America is borrowing. Essentially, we Americans borrowed from our kids, spent some of that money on German machinery, and ended up employing German workers.

But the results do underline one essential truth: Stimulus size is not the key factor in determining how quickly a country emerges from recession. The U.S. tried big, but is emerging slowly. The Germans tried small, and are recovering nicely.

America's growth is crawling at 1.6 percent and unemployment is up to 9.5 percent and a member of President Obama’s Economic Recovery Advisory Board, Laura Tyson, claims a second stimulus is needed and unemployment would be up to over 11 percent without the original stimulus.

Yet, her opinion of what it "could" have been without the stimulus is just that, theory and opinion, yet the cold hard reality of what Germany did and how their method truly did stimulate their economy by lowering their unemployment numbers and a 9 percent growth is ignored by Tyson and team Obama.

As the graphs above show, Merkel was right. Massive spending is a temporary fix and proved to be unsustainable.

This is a lesson Team Obama refuses to learn and their refusal to admit they were wrong and instead want to double down their bet using our money, our grand children's money and even our great grand children's money, is unacceptable.

Obama's economic advisors need to be replaced immediately if this is the type of advice they are giving him.