Saturday, May 26, 2012

Germany Resists Stimulus because of Costly Re-Unification

Today's article in the New York Times brings up Germany's lessons learned with their 2 trillion dollar re-unification effort.  Huge money was thrown at East Germany yet parts are sill depressed. Paul Krugman aside, throwing money at the problem is not a guaranteed fix. An entrenched Greek bureaucracy hampering private initiative is the most damaging factor to it's economy. It was reported in the Times how a Greek olive oil venture selling on the internet to others in the EU  took months with various agencies to get the required permits, one which required the owner's stool sample before getting approval.  Another report about a Greek American trying to start a beer company battling bureaucrats intent on keeping Heineken's, a Dutch company, dominance in the Greek beer market.  Finally the report on the $100,000 a year train conductors and a economist's conclusion that using taxis would be cheaper than transporting passengers on the government run train system are examples of money thrown at such an  inefficient and corrupt government would only add fuel to the fire of it's economic destruction.
Free markets are efficient at correctly directing capital.  Promoting an entrepreneurial economy is the best stimulus a government can provide.  Germany found out it takes time to change old East German attitudes that were such a dead hand on the economy when it was on the other side of the iron curtain. Until the austerity plan in Greece dismantles offices that keep a dead hand on the tiller, then I agree with Germany's reluctance to maintain the status quo.  

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