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We Did It Before ...

Americans eagerly await another “morning in America” moment.

12:00 AM, Aug 21, 2010 • By IRWIN M. STELZER
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American policymakers are also looking to Germany for ideas about coping with unemployment. Germany’s system encourages reducing hours of work (kurzarbeit, or short work) rather than laying off workers, with government subsidies to help employers and retained workers, and the creation of an hours bank: hours owed to employers by part-time workers are drawn down without overtime compensation when business picks up. This has some attraction to administration economists struggling to bring the unemployment rate below double digits, perhaps to Germany’s current 7.4 percent level. Conservative critics argue that this system encourages workers to stay in jobs in declining industries, rather than move on, and has as an important feature the strict limitation of immigration to preserve German jobs for Germans, a policy unlikely to win wide support among liberals here. To which those taken with the German system respond by saying that part-time work, rather than unemployment, permits workers to retain skills that otherwise would atrophy. All grist for the think tank mills here in Washington.

Even tiny Denmark is included among the models tramping the policy runway. Almost half of the first page of the New York Times business section earlier this week was taken up with a discussion of the that country’s “Trimming [of] Its Admired Safety Net,” admired, it seems, “as a progressive touchstone to liberals in the United States.” Europe’s financial crisis has driven the unemployment rate from 1.7 percent to 4.2 percent, and with it the cost of unemployment benefits, set for all save high earners at 80 percent of wages. To offset this cost in a country in which the government already accounts for 50 percent of GDP, Denmark has cut the benefits period from four years to two, which is close to the length of time to which benefits here have been extended (from 26 to 99 weeks) -- American policy moving closer to the social democratic model. The Danes now think that longer benefits periods reduce the urgency of the hunt for a new job, a view shared by some American conservatives and, lately, policymakers in Spain and Portugal. Here, too, American policy wonks will be watching to see just how the new governments in Denmark and other European countries affect work-seeking incentives, unemployment, worker flexibility and the social stability.

Some of this hunt for policy ideas and guidance overseas is a healthy intellectual exercise, just as visits by foreign policy makers to U.S. think tanks and universities have enriched policies abroad. British thinkers have benefited from American experiments with welfare reform and with charter schools, while left-leaning American policy makers, including Dr. Donald Berwick, Obama’s choice to run the “reformed” health care system, claim to have benefited from their study of the NHS, which Berwick professes to “love.”

Unfortunately, the search for new models also reflects the most recent of our occasional losses of confidence in our economic system. Just as American confidence was shaken when the Soviet Union beat us into space, and later when the Japanese, then the new owners of Rockefeller Center, seemed about to overtake us as the world’s number one economy, so it has been shaken by the current recession, and aggravated by the rise of China. This week we learned that China had jumped over Japan as the economy second to America’s in size (but, crucially, not in per capita GDP), and is now also considered by the Pentagon to be a military threat. Worse, it has survived the current recession in good order, and is swamping American shops with its goods and “stealing jobs” from an administration as incapable of persuading it to abandon its currency manipulation as it is of persuading Iran to abandon its nuclear ambitions or Russia to keep its promise to withdraw from Georgia. Might it be that ministers are wiser than markets, that a touch of economic direction from the center is a better answer to the business cycle than the free markets, even as newly regulated and reformed?

When we were rattled by the Soviet’s conquest of space, President Kennedy restored our confidence by proving that we could regain the lead if only we chose to do the “hard” rather than the easy thing. And when Japan’s success contributed to American “malaise,” President Reagan proved that it could indeed be “morning in America” again. The Soviet Union has since been consigned to the dustbin of history, and Japan has suffered decades of economic stagnation. Meanwhile, we can continue learning from policy successes and errors by our foreign friends and, yes, enemies, while we wait for our next president to rally us to meet the economic, political and military challenges that now seem so overwhelming, as did those we overcame in the 60s and 80s. 

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