I hear a lot that the US economy is doing great and the German economy is doing badly. On the anecdotal evidence I have, living in California and visiting Germany once a year, the median German is doing much better than the median American in terms of quality of life and even wealth. I am wondering: Is it possible that our economic data measure the wrong proxies?
I have friends in Germany and I agree with this. Like Paul said personal anecdotes are not a good basis for an argument, but my friends in Germany get a wild amount of parental leave and have a great quality of life. My (German) pregnant friend was really stressed. After telling her doctor about it, she’s now on a government sponsored 6 hour work day at her job as a consultant and feels wonderful (and gets to take home the same pay). Money can’t buy these things in America. Our only option is quitting and losing our health insurance if we do.
I agree. And my point was not to make an argument but rather to raise a question, hoping that somebody more qualified in economics would know whether this can be made into an argument.
Oh for sure. I was mainly saying that in reference to my own personal anecdotes. I wasn't trying to criticize yours! :) I too would like to know if there's an economic angle that would represent what we've both noticed.
All you have to do is look at measures of wealth inequality. (The famous Piketty book, “Capital in the 21st century,” is full of graphs for different western countries comparing wealth distribution.
The US has far outstripped any other western country in inequality and, as far as I can tell, can tell, continues to get worse. It’s no accident that we have billionaires being representative of “the people” in the Trump administration.
I think it’s a valid criticism of looking only at GDP.
Joel, well yes, but Piketty’s Inequality has been parsed to reveal that most if not all of the inequality (of net worth, not of income) in Anglo-Saxon countries arose from soaring real estate values. Those who owned their own homes (or multiple homes) profited hugely; in countries such as Germany (& Italy and France) where many people rent and where RE prices have risen modestly or not at all (eg, Spain), inequality looks less egregious. A better metric is to look at net incomes after government transfers.
It’s been a long time since I read Piketty’s book but it seems that the point is to measure “wealth”, whatever its source. Elon Musk is obscenely wealthy largely because of “unrealized gains” in the form of holding the majority of Tesla stock.
It seems that even if there is significant inflation of the economy in general, differential holding of real estate value must be a reflection of differences in “wealth.”
Getting away from Piketty, Krugman himself has published opinion pieces where he shows massive and growing inequality in the US, especially at the top levels.
As long as an investor did not sell a stock/index fund, he/she had not lost anything (yet). Even a day trader can make money on that day by selling shorts or buying/sell PUT options. The sell-off only highlights the disproportionate influence of the magnificent seven on the indexes. Actually on Monday, 70% of the stocks in the S&P 500 closed in green. Nvidia was the biggest loser on that day. Even then, Nvidia has already regained some of the loss. In the short term, Nvidia, selling the hardware (GPUs), will still have a very healthy earning. DeepSeek had stockpiled 10,000 Nvidia A100 GPUs according to an interview in 2023. In the long run, I agree with Tim that it will probably be beneficial to AI development because of DeepSeek's efficient algorithm and thus, potentially (have to qualify this, sorry) less hardware and less power consumption. DeepSeek only brought forward Nvidia future challenges to light sooner. There are other challenges like emergence of even more efficient algorithm, use of quantum computers to replace GPUs, etc. Stock price of Nvidia will therefore be readjusted based on the change of its earning potentials. This is just the nature of the beast.
I have my own personal concerns and bias toward AI impact on the economy and humanity. But I am not sure that will answer your questions.
The Chinese communists are poking the bubble on the capitalist delusion and for that are probably going to find an aggressor rattling it's cage here shortly.
DeepSeek saved us from future deep trouble. Pulitzer Prize winning economist ‘24 Daron Acemoglu and Goldman Sachs’ Jim Covello have been trying to warn investors, the general public, and the big power brokers who were being taken advantage of by the Big Tech brass who have all backed Trump recently.
In short, the reports of human labor’s death via AI have been greatly exaggerated. Heck, even TSMC called Sam Altman a podcast bro because he said super intelligence AI could not be reached without 7 trillion dollars of investment.
Notice how the man, whose business model relied upon claiming intellectual property laws are antiquated, is now trying to claim DeepSeek “stole” from him. Nevertheless, OpenAi remains closed source whilst deepseek is wide open. DeepSeek cannot distill from a model it cannot see.
Any successful legal action against DeepSeek admits that all legal action against OpenAi is valid.
You are talking to the internet here—caveat emptor.
I couldn't be more excited about the algorithm that is driving DeepSeek. This is a game changer for humans everywhere. I'm an indexer, not a stock picker. This is very good for AI in the long run. The fact that the core difference between DeepSeek and US AI efforts is algorithmic efficiency and that the DeepSeek model is relatively open source means that considerable investments in AI will pay off sooner and at a lower cost.
The core of my excitement is not in LLM's success, which is showy and cool, but in what this means for AI, addressing math, science, and the idea of a singularity. It's unclear if this impacts that. We must focus on the non-LLM projects, and I daresay control them. But I'm getting off your point.
Am I buying NVDA - yeah, I am, but only as part of my index funds. This is not great news for the Semiconductor trope of the next node being worth the investment. Materials science is where we need to focus our long-range funds and interests in that sector.
To your question...
The stock market is a fundamental and speculative investment. The speculative side is not a good measure of value. I know that doesn't answer your question, but most ultra-rich people never visit an ATM. The Macro is greater than the moment if that is an answer.
I mean all this may be true (however, you can still buy healthcare in the Marketplace.... for now) but you are talking about quality of life and not economic output. And these benefits exist throughout most of Western Europe. I think the Great Kruggy's argument is there is a better balance between debt and economic growth and not that Germany has nothing. Basically if you invest in your economy utilizing debt up to a point your economy will grow and empower you and Germany isn't doing that to its full extent. It's not poor, just under-performing.
This is a very interesting point. Perhaps economic inequality in the US means much of that economic growth goes to oligarchs? And the stress of our (lack of a) healthcare system also feeds into the hidden wealth of Germans.
I agree. Much of the wealth in Germany is in public goods. Health care, transport, education, etc is all cheaper in Germany, hence contributes less to GDP but more to real wealth.
"The only way to maintain racism is to weaken institutions. It’s hard to have a clean system of apartheid justice, because then the oppressed minority can simply demand the state treat it the way it treats the herrenvolk. A state that attempted to impose apartheid with clean government would not be able to credibly promise to the racists that the system would stay as is. Instead, it would need to engage in arbitrary justice, giving individual cops, judges, and juries broad latitude to make decisions, which could survive the end of formal apartheid to some extent."
The New Deal happened at a time when (afaik) racism was more prevalent than now and during those time there was a lot of expertise in creating public goods. Btw, much of this American expertise was exported to Europe after WWII and in particular to Germany.
I find it ironic that Germany owes much of its success after WWII to expertise, knowledge, and culture from the US, much of which has been forgotten by now in the US.
U Bahn/S Bahn/bus fares in Munich and Berlin are more expensive than NYC fares, and NYC subway is not zoned. Vienna is cheaper than NYC. London is a little more for the Tube (also zoned) and cheaper for buses (not zoned).
When I'm in Germany/Austria I buy a week pass and forget about the money, but I'm a tourist and not living there. Tokyo/Osaka/Kyoto fares are significantly less than NYC, but Japan and the Japanese economy is something different given years of deflation.
But rent requires a far lower % of income in many large European cities than does rent in even moderate-sized US cities (and of course rent is prohibitive in NYC, and almost as bad in LA and Chicago). My understanding, from articles in The Guardian, is that social housing in Europe not only keeps apts./flats affordable but also enables permanence for who want it (bc landlords can't price-gouge you out of a unit with huge annual increases).
If one has to pay an extra $200 (or its equiv.) per month for public transport but is paying at least $700 less (or its equiv.) per month in rent, then one is coming out ahead.
By definition the demand for any kind of below-market-rate housing (whether public housing or rent-controlled private housing) will always exceed supply, so it must be allocated by a means other than price.
Usually priority goes to long-term residents in a city, so taking housing outside the market benefits the existing population of the city at the expense of people who would like to move there (who must instead depend on the remaining market-rate housing that is scarcer and thus more expensive).
I always liked the idea of distributing (some of the) housing via waiting time and not market price. This happens in many cities in the Netherlands. One positive consequence is that it slows down gentrification.
To an extent, yes. But the main reason is the way the country's economic gains have been distributed and the quality of our country's social insurance programs. Virtually all of the economic gains this country has made since the 1980's have been captured by the wealthiest 10% of the population - and most of that by the wealthiest 2% to 3%. So there's been no real improvement in real wealth or income for the vast majority of Americans for decades. Moreover Germans have universal healthcare and all sorts of benefits like parental leave and longer vacation time that they can actually use. We don't. That's why the median German is so much better off economically than his U.S. counterpart.
And these gaps between our social safety net and Germany's aren't unique. They're basically the same for any comparison between the U.S. and any other developed country. The U.S. middle class is the most under compensated and underserved in the developed world. And most of us are completely unaware of it or why any of it is so.
That's a problem of our redistribution model rather than our economic data. This article is about the total pot of money that America has vs Germany, while what you're observing is that normal Germans are better off than normal Americans.
The big difference is that rich Germans (not just ultra-rich Germans, even your doctor/lawyer/banker types) are not anywhere close to as rich as their American counterparts. If we had the level of redistribution that Germany has with the same economics that both countries currently have, our median Americans would be richer than median Germans. We don't have that, so they're not. It's also not entirely clear whether our total pot would still be this big if we had German-style redistribution. I think it would, but reasonable people can argue differently.
German-style DISTRIBUTION, please -- not redistribution, which is a misleading and loaded word. US economic policies from 1981 through 2020 resulted in actual and massive redistribution of wealth *upward,* but no one ever uses "redistribution" to describe that occurrence -- only to suggest that Warren- and Sanders-style proposals to undo some of those problematic excesses are redistributive.
To be fair, I think a lot of the discussion is in directionality; the Biden administration was trying to improve on our unfortunate Reaganite inheritance, while the Germans have been seemingly trying to sabotage their own social market democracy for some time now.
Basically, social democracy requires a government willing to spend (including during downturns) and invest (whether it does the latter itself or gets private businesses to do to themselves) for the future, and German politicians have shown increasingly disinclination to do so. While German social services and the like might still be lot better than in America, their government seems less and less interested in making sure that remains the case into the future.
For example, though as an American I envy the Germans having a childcare system to begin with, it’s nonetheless had long-standing issues with both underfunding and understaffing.
"Basically, social democracy requires a government willing to spend (including during downturns) and invest (whether it does the latter itself or gets private businesses to do to themselves) for the future, and German politicians have shown increasingly disinclination to do so."
I agree. Our economic data does not seem to track or measure the quality of life factors. I think the once used market basket measurements more accurately reflected average American consumer status.
All things being equal—% below poverty level was the biggest factor in an American population’s Covid death rate. I guarantee you all of America’s ills have a strong relationship with poverty…and America has a lot of poverty! Btw, the poorest state is the whitest state with huge amounts of energy wealth—WV.
Same here. I visit my college roommate in Berlin once a year, and she could never, ever live life as well in a major American city if she were still in the U.S. It is like night and day.
Germany's comprehensive social programs means people live better on less money, and don't have to worry about an illness leaving them bankrupt and homeless. They also subsidize child care at about $23,000/kid/yr, so child care is affordable and high quality.
In Berlin, it's free. That plus denser cities, better transit and bike infrastructure means families can survive without a car or at least far less driving, which both saves money and makes ppl happier & more fit.
and it seem this is what many Orange Menace voters are rebelling against. Dems haven't reversed the 50 year slide, (though Biden caused some slight reversal) though we SAY we're the party of working ppl; they voted for TFFG & dramatic change because 2/3 of voters feel the US is on the wrong track (they're right on this.)
Nonetheless, Germany has found ANOTHER way to mess up their economy! Undoubtedly due to genetic memory of the 1920's hyperinflation, Germany's constitution requires balanced budgets; there is a very strict debt limit (Schuldenbremse), 0.35% of the country's GDP each year, which cripples them in terms of being able to use fiscal policy to recover from or prevent recessions. This recently broke up the governing coalition.
I would be interested, too, in hearing what Dr. Krugman has to say about this. A completely uneducated guess is that these policies aren’t sustainable if Germany pursues its current economic course. Your comment raises a similar question about France, which in my very limited understanding, tried, under Macron, to roll back some of the benefits, which did not work in his favor politically. I would like to understand what we need to do economically so that we can have and sustain the kind of benefits many European nations have enjoyed. One obvious thing, which Dr. Krugman has noted, is to tax the rich far more than we do.
Yep, GDP which is at the core of all the measures is an aggregate or total measure. Much of the USA's outpacing of Germany has come from "value added" in winner take all markets. That is growth in very large companies (Google, Meta, Amazon, Microsoft, Oracle, etc) that show value added that is in fact value extracted from others in the economy. This value add comes by using the privacy they take away from us and otherwise injecting themselves into our interactions. Take away these companies and the ecosystems that feed them and the USA's economic performance looks pathetic.
Is there a way to distinguish value created from value extracted? Is it possible, when creating measures such as GDP, to take such a distinction into account?
Do we know that the higher GDP of the US is not due to a combination of increased money supply and the appropriation of that money by Big Tech?
How much of the valuation of the Big Tech companies is due to anticipated future rents and how much is due to innovation and created wealth?
Which methodologies could be used to answer these questions?
I expect it is in part because the Euro is a base currency.
The investment in Germany is in infrastructure that doesn’t provide profit, but sustainability and cost savings. The public transportation infrastructure is a key component of the Euro and a quality of life boost.
It makes spending and income more freedom to choose rather than consumption for many corporate heirs’ profits here in the US.
You're right, but I think the more relevant point here might be that relative to other countries with comparable social insurance, urban fabric, family and parental supports, Germany is doing poorly. Germany has become a worse place to live in the period Krugman is discussing compared, as measured for example by HDI or wellbeing indices (the World Happiness Report is one) to France, Denmark, Australia, Sweden, etc. Even before accounting for the way German underinvestment is a drag on the rest of Europe. The austerity increases inequality and convergence to American quality of life rather than expansion of the qualities that made life in Germany better than GDP would suggest (Spain, Portugal, Uruguay, or Costa Rica are even stronger examples of GDP / quality of life divergence)
I think it would be worth your while to take a deeper look at Denmark. The country has not only found a way to finance infrastructure, it has also made a fundamental pension reform. Together it means that the government finances are very healthy. And pls have a look at the trend of the German work force. It is heading the wrong way.
Isn’t Denmark on the scale, the happiest place to live? I think I will immigrate soon. The pro in the US is that we have always been a corporate dominated nation from the planters to the oligarchs. We don’t have great health care. Personal example: I just moved from Advsntage plan to real Medicare. But I’ve been delaying going to an ED hospital on account of a serious neck pain. I don’t know if I will get wacked having a high deductible. This is how many Americans think.
I’m glad Paul explained the great influx of migrants that helped the German economy.i have used that and our issues on the southern border as examples of why we shouldn’t allow such massive amounts of illegal entries if only because it often creates a horrible backlash always to the right. I don’t know how we survive the 2nd Trump administration. We simply don’t want backlash to the right to occur even if it stagnates the economies. O e needs to take this into consideration.
I am really interested in seeing an assessment of the UK. They are tying themselves in knots trying to create growth while reducing debt. Thatcherism lives, at least when it comes to debt phobia.
As for the frugal housewife analogy, it would help if we substituted another one. Ordinary people borrow money wisely all the time for mortgages, car loans, student loans, etc. Some also run up debt by gambling which is as productive as running up our national debt by giving tax cuts to the rich. Our government is so warped by lobbyist money that gambling debts can be discharged in bankruptcy but student loan debt cannot.
Fear is what tyrants rely upon to control. I know, I have been born during a dictatorship, my family moved to another country, that not much later became another dictatorship. Americans need to react now to save its democracy.
From what little I know German tracks each immigrant and requires certain stuff along the way (I think including learning German, probably with age exceptions) in order to preserve their status in Germany for years before getting citizenship. Of course there were problems with a big influx of people from a religion based totally mysogynistic patriarchal culture but over time they learn and adapt or find they can't fit in and leave.
Of course they do. But that’s more of a historical aberration. I was thinking of the way Denmark has created separate entities to build bridges, companies with the state as majority shareholder build and operate the bridges, the state guarantees the 30 year bond issues, repayment via the bridge tolls and once the loans are paid back, the income goes toward maintenance and then some dividends to the shareholders. Result: the taxpayer does not pay 1 penny - except when they use the bridges. Who buys the bonds? Many of them go into pension savings. The pension system is largely privatised. Employee and employer share the untaxed contributions. About 20 pension service providers compete under strict regulation to secure they are able to cover future obligations.
In addition you could include a closer examination of the Danish 'Flexi-curity-model', which have promoted a very flexible workforce/labor market secured by af robust public unemployment benefit system.
What I have noticed about the GOP way of thinking about economics is that they do not see the interactive and circular nature of an economy when you look at it as a whole.
When I was debating issues with folks on conservative sites, I found that they had never considered that tax money, plus more, is put right back into the economy where it flows into paychecks and businesses - instead they think of it as "removed" or "stolen"
The government's role, is one of a VERY LARGE gear (or a series of gears) in an economy made up of millions interconnecting gears.
To tighten the government's belt too much is to put cogs in the gears or works of the economy, and cause many other gears to stop spinning and the economy shrinks and jobs are lost and revenue drops and the debt/GDP ratio rises as the denominator, GDP shrinks.
Many in the GOP look at things from a single point of reference like an individual pocketbook or business balance sheet.
However if you try to run our government like a business and ignore its role as huge part of our economic system, and the goal is to keep all the mechanisms spinning, then damage can he done.
Also, as you point out, you need a working age population to help spin all of those gears, as well.
We need to be focused on sorting out those who can stay not deporting millions of working age immigrants and fix the system.
We are becoming a bit top heavy with retirees, who can still consume, but often do not work, so we do need immigrants. This top heavy growth is supposed to level out in abt 10 yrs.
Growing the middle class also can help with overall growth, a great deal, as we saw after WWII, with the GI bill helping to create an educated workforce and home ownership, plus union growth, infrastructure, space race and even the MIC but once again, this increased purchasing power of the middle class requires workers or one will get inflation and less overall potential.
In a nutshell, what Trump is doing and what the GOP have proposed for decades is completely backwards.
A healthy population who can consume goods, services and entertainment drives growth, not those at the top with extra cash to stash in asset investments which balloons those prices rather than adding to growth and jobs.
There is no incentive for the wealthy or businesses, who get tax cuts, to hire more workers or grow a company without increased demand which comes from the bottom up (and as Biden like to put it - the middle out).
These businesses also need an educated workforce, infrastructure, RULE OF LAW in which to operate and a predictable government. They need some certainty.
Add to this that growth related expenses are not taxed anyway and are removed to arrive at profit which is then taxed, and one can see that tax cuts at the top provides little added incentive for growth.
This said, I would like to see a form of tax free savings for small businesses to be used for future expenses (expensed only once of course, kind of like a business savings version of an IRA, just in advance and used only for future expenses).
This does not mean that deficits should run wild, but where is the least harmful place for our economy to get money reduce them?
Taxing the rich. Once again the OPPOSITE of what the GOP claim.
In fact, taxing the rich and helping the poor and growing the middle class, like we did after WWII, makes the entire economy larger and yes, even if taxed more, the rich get richer under this scenario as the economy gets much larger.
The billionaires supporting Trump for tax cuts are actually harming their own ability to grow lasting non-pyramid wealth (pyramid caused by tax cut asset bubbles).
An economy is not zero sum. It can expand and contract.
"We are becoming a bit top heavy with retirees, who can still consume, but often do not work"...
There is a LOT to be said about the free labor retirees feed to the system/nation. Not measurable by the standard route. But possibly more valuable than CAN be measured.
Yes, many still contribute, and actually they are also a huge asset in that they participate in the economy when they spend, as well - this is huge - we need to make sure they are able to do this and live well, too.
I simply meant as a percentage for that age group there are fewer working.
There's an alt. take on what I posted – that is, alla these volunteers are takin' work from folks who need paid jobs. I can't refute that, but it assumes a great big "if the market and/or the gummint would only provide the salaries", which has shown holes thru its logic for centuries (which is of course why it is up to us individually and in community to do the work we can irrespective of pay).
Due to economy of scale, the government is needed and can do a lot, but on the other hand, as millions of individuals, we also can have a massive impact, as well and take the reins, we have to also take responsibility, as well.
More than 2% of carbon emissions are from things like lawn equipment, boats, ATVs etc, More than 1% is lawn equipment alone.
Honestly, what I have to say to people is get a fricken rake and push mower, I did. Less than 100 dollars.
I may be an old granny, but my granny mowed an extra lot with one until she was 83. Save one trip to the gym.
In addition, when I was researching solar for my roof as well as buying a watt meter (15 dollars), I discovered I could save a lot of energy very easily and did not need a huge system.
However, I am now making a lower watt system for my yard. I could not afford an EV, so now I simply consolidate trips and rarely drive. There are things people can do and it does matter - a lot.
“When I was debating issues with folks on conservative sites, I found that they had never considered that tax money, plus more, is put right back into the economy where it flows into paychecks and businesses - instead they think of it as "removed" or "stolen"”
Yes, and the anti-government ideologues seem to believe money is a natural phenomenon like gravity or tree leaves, although currency has depended on some form of government for it to be useful across large populations. Government produces currency and works to maintain its value, so without government the money they think is “stolen” from them wouldn’t exist. (Note: although the drug addled crypto bros another commenter mentioned may be trying to develop non-governmental currencies, they don’t (yet) have the coercive power government has to require people to use their currencies in economic exchanges. Crypto is still valued in state currency, as in Bitcoin is worth X number of dollars. It took centuries for common currency to develop in the West, so it’s unlikely the average person will quickly jettison government issued currency in favor of Crypto).
It seems to me that crypto should have been shut down by governments everywhere before it propagated. Even if only considering the absurd energy use - for what? But the rest is at least as bad.
I like this holistic view. It also means that we shouldnt talk about governments "redistributing" money. The economy as a whole distributes and the government should be just seen as part of this.
Thank you Professor. At least Germany still has their economic identity, strategy and destiny being determined for them by knowledgeable and careful tacticians.
The USA now has a group of drug addled CRYPTO boys (DOGE) running ours. I pray they don’t completely sink our economy with hubris and ignorance.
This is all well & good, Dr. K, but you're using logic & facts. We've moved beyond all that now - America chose "reality TV" over reality, so none of this is relevant to today's economy. What matters now is who shouts the loudest, who wields the biggest club, and of course the all-important "who you know." Everything is transactional. Charts & graphs like the above will soon be subject to instantaneous, "sharpie" editing by some governmental agency or other which, rest assured, will hew closely to the official narrative. Or else.
I'm old enough to remember when facts & logic dictated policy. So, from one dinosaur to another, I'm glad we can still have access to this sort of writing, but only a handful of us are paying attention any more. The rest are busy swooning over the great leader and how wonderful it is that a dozen eggs are still less than ten dollars.
I tried to explain to someone why my backyard eggs are $10/each right now. It’s simple economics: I have ten hens that produce one egg every couple weeks in the winter and food costs $10 to produce that one egg. And yes, that’s not sound economics, but come spring/ summer those girls pump out $0.10/eggs.
My greatest worry right now is that the great leader will crash the economy. Some MAGA folks might want to learn compassion before they end up as homeless as the people they spit on.
The blame game has already started. Yesterday the WH Press secretary, Karoline Leavitt, said the price of eggs continues to surge because the Bidden Admin ordered the killing of over 100 million chickens.
I find it always difficult to compare the USA against Germany. The average German living standard is imo higher. Public healthcare, social security, employee protection, and affordable public transportation (disregard the continuous delayed DB) is not captured in this substack. Isn't the German debt even more impressive if such points are considered?
Btw I'm German. Very subjective. Open for discussion.
I think you're missing theU point about stagnation vs growth. Stagnation, even in a wealthy nation, creates major problems: economically, socially, and politically. As the world advances, stagnating countries will find it increasingly hard to compete. You must invest, aggressively, to be a player on the world stage.
We may have avoided stagnation in the US - but my concern has more to do with how we have become ever more concentrated in financial services ( big banks & Wall Street ) . For the individuals that have the skills in finance- great
- but for so many others - the higher paying manufacturing jobs are gone .
The other problem that has me on edge is that
we get a big advantage from having the $ as the reserve currency of the world. No guarantee that lasts forever. Growth in China , India -
Brazil place a target on our dollar dominance of the global economy.
Actually higher paying manufacturing jobs not gone. But vast numbers of lower paying ones left or are replaced by automation. See: comparative advantage. In the past unions made sure that pay was more evened out.
Keep in mind that German austerity became de facto EU policy due (at least in large part) to Germany’s economic might, with mostly disastrous consequences for the EU’s economic basket cases. So German policy affects more than Germany.
The trade surpluses sucked capital out of other EU countries, somewhat like the old gold standard days. Germany for much of 2010s set new records for residents employed (i.e. real "full employment"). Germany needed ever more people to keep it going and so a welcome for refugees.
I agree with that. However, you would argue that germanys austerity is one of the main reasons for the poor situation (compared to US, and China) of the EU today? I don't know. Give me some reading material.
“Austerity” by Mark Blyth is an important book you might check out.
I think the broader problem in most of Europe is aging, declining population. It’s incompatible with the economic models of the various governments, and austerity is a maladaptive strategy as well.
There are gross economic measures like GDP, and then there’s quality of life. One way to measure the latter is that the average American is dying sooner than the average person in other “advanced” economies. We have barely any paid vacation relative to the rest of the world, and social security is nothing like the pension structures in other countries. We live to work rather than work to live, because we essentially have no other choice. Americans are seen as rich, but most of us simply are not; America has a much higher proportion of people without any savings at all. Germans have to pay for health care, but, again, it’s nowhere near as precarious as what exists in the U.S.
What would be helpful is if Dr. Krugman could get into a few of the exceptions that are unique to the U.S. For the moment, the global economy is dollar-pegged, not Euro pegged, and that influences borrowing costs. Certainly (warning: not an economist!) you’d guess that means the U.S. can “afford” higher deficits than Germany, but is this in fact gospel, or as he’s suggesting, strictly a policy question? Or am I entirely lost in a factor that’s off base?
“Public healthcare, social security, employee protection, and affordable public transportation (disregard the continuous delayed DB) is not captured in this substack. Isn't the German debt even more impressive if such points are considered?”
I think the idea is that this social bargain will not hold unless Germany’s economy can become more dynamic.
The US is responsible for several wars/conflicts....in fact, you might say that at this very point in time, we are going to get the attitude adjustment Europe received after Franco, Mussolini, & Hitler. Interesting little factoid from The Jacobin that shut me down on one of the FANG social media sites after I posted it, unless I am willing to give it my cc # just to log in and prove I'm "not a bot", haven't been "hacked"--which I WON'T do. The German companies which were involved with the Nazis lost 60% of their market value after WW II. However, up to the Covid era, the majority of those companies that still exist today under different names/orgs have been European power houses and the founders' heirs are some of the wealthiest Europeans today. Whatever German government debt the wealthy owned at that time was wiped out. Now, do you suppose that might have something to do with the elimination of my posting on that site? Consider that it's founding owner hosted an inaugural ball party recently for the king of bankruptcy and con man extraordinaire of all time that was just anointed our dear leader.
Of course you'd say that as a trolling conservative here who may be benefiting as a pundit for it somehow. It's the reason for banning knowledge and opinions they don't like or suing publications out of business.
As a young German it’s been more than disheartening seeing the direction this country is headed and all the negative press we’ve been attracting for our failing economy. I still distinctly remember all the adults around me raving about the supposed strength and resilience of our economy and the wisdom of our economic policies growing up as a teenager in the 2010s. I remember being told how we had weathered the 2008 financial crisis and subsequent euro area crisis better than almost any other country, how we were the “export world champion” because “made in Germany” was supposed to be this ultimate seal of quality, how our country was home to so many cutting-edge and world-leading industries and companies and how we had managed all of that while maintaining a strong degree of egalitarianism through our unique “social market economy”.
Fast forward to the 2020s where I and my friends finally reach working age and are supposed to start our careers and all of it has just been replaced with non-stop doom and gloom. All I read and hear anymore is that our economy and wages are stagnating, that we’re no longer innovative enough to compete with the US and China and that we’re increasingly being left in the dust when it comes to the development of new technologies, that our infrastructure is crumbling before our eyes and that our demographics are only going to further seal our fate of slowly declining into irrelevance all the while increasingly straining our public services like our pension system until the point where my generation will never get to benefit from any of it when we reach old age.
Sure, point to Germany as a cautionary tale and make sure to convince people not to follow into our footsteps with their own countries. However, as a young German whose future is implicated in all of this it really pains me that seemingly nobody has any solutions on offer for us. It feels like for years everybody has just been talking about the failure of this country’s entire economic model but nobody has any real ideas how to turn things around again. Not our own politicians, not journalists and commentators, not even any economists. Is it really just the case that not much can be done to steer this ship around anymore? Has the decline just become terminal and inevitable at this point? I knew I would be in for another depressing read when I clicked into this article but I was really hoping that there would be at least some glimmer of hope or some suggestion for a way forward. I know that for many younger people in Germany such as myself all these negative news for the past half decade or so have just been making us feel increasingly hopeless and worried for our future. Are things just over for us now? I can really feel myself getting more and more desperate for someone reputable to point out some kind of silver lining, just some spark of hope or a potential way out of this rut but all I get is ever more dire news and predictions. It’s so depressing.
Greetings from Berlin! I agree that the mood here is quite bleak, even for Berlin! I think, as Paul indicated, the solution lies in investment and hence no Debt Brake. In my opinion, Germany also needs to diversify - to see services etc as good rather than as tawdry and to worry less about manufacturing superiority. It's a shame the Ampel failed, as I felt the Greens were the most serious about modernising. Perhaps Merz will realise he has to get rid of the debt brake. If so, let's hope he invests wisely - not just in automobiles.
You raise a very important question @l3nnz. My short answer is two-part:
a. Have a look around at other North Atlantic countries, many of them are experiencing very similar issues at the moment. So whatever one might identify as Germany's woes, they are really just a regional expression of wider currents. The US is a cautionary tale, the UK is, France is, Italy is, Hungary is, so is Poland. Lo and behold, even Denmark, or Sweden, or Spain, or Austria, Canada .. Malta etc etc. The upside of cautionary tales are - for example - Schumpeter's gales of creative (economic) destruction out of which new industries are born. The trouble is we ar not alway very good at identifying those industries while they are nascent. Might AI be it? In the 1990s we knew that the web was 'it' but people were betting on Netscape, or MySpace, the Rolling Stones gave 'free email addresses for life' away, all of this and much more disappeared within a few years, and then suddently mobile phones caught on in a big way and hardly anybody saw that one coming in the way it did or that a company that almost went bust while it was still mostly a desktop PC business should become one of the biggest winner of the smart phone media revolution.
b. Have a look around how you and your peers are doing. If your generation in your region cannot find work to build a life, and you are young, pack your bags and seek your fortune elsewhere. That's what life was always about since the dawn of time, if it does not flourish here for a while does not mean that it's not flourishing there. We are all the children of migrants after all.
It isn’t just the North Atlantic countries. Look at reports from South Korea, Japan and China, where young people are also facing negative economic news. It seems any country that has achieved a level of modernity is dealing with similar problems for their youth. In the past there was enough developmental disparity among nations and people to make migration a plausible short term individual option, but if many countries are experiencing the same “malaise” at the same time, migration won’t produce the kind of relatively positive outcomes earlier generations experienced. For example, migrating from Ireland in the 1840s to the US, which was still agrarian and had virtually no labor protections, was a reasonable individual decision considering the potato famine and political situation. Migrating from Ireland to the US now when both countries have similar living standards wouldn’t as beneficial.
That's a fair point, on the aggregate level. And political economies are of course prone to lock into diminished expectations from time to time :)
For the individual, it depends I would say. Where you see a single one I probably see many kinds of country specific 'malaise' narrative, which may all be related but do not easily sum up to homogenously shared sentiment (unless one heavily abstracts from local motivating factors).
More generally though, and let us not forget that so many live in vastly less prosperous conditions and must regard our reflection as misguided navel-gazing, what I had in mind was the individually lived experience resulting from packing your bags to try your luck elsewhere. Leaving one relatively prosperous place to settle in a comparably prosperous one still makes you go through the experience of being a stranger to the new place at first, and to the old place eventually, i.e. a new vantage point for reflecting on how both places look at themselves and into the world.
Have had a brief look at the migration literature and it does seem that migration between socio-economically matched regions is under-researched, in particular (and unsurprisingly so) in economics, unless one simply looks at labour mobility. I am very mindful of course that we are in the stack of somebody who has studied this question closely over the years. Perhaps we manage to nudge him into sharing some insight on it in a future post??
Just a note about wage stagnation: The real value of 'average' wages in the US has not changed significantly since the late 1960's. There's been a little bump recently, but there's 60 years of flatline before that.
Virtually all wealth created by increased productivity in the US has gone to the wealthy not middle to lower incomes since Reagan, unlike in previous years.
The frightening thing about Germany is that the economic downturn exacerbates hatred toward immigrants (how soon it'll turn toward Jews as well, if it hasn't already?) and promotes the authoritarian mentality ripe for another right-wing takeover.
I sometimes worry Trump is trying to crash our economy, and also the global economy, for this very reason you mention, as a way to consolidate more power, as these autocracies have arisen out of bad economic times and a desperate populace.
Good grief, look at what Musk is doing and think about Bannon's comments in the past, as well.
They certainly are using the authoritarian rise recipe, or playbook, pretty much to the letter and this also requires scapegoats like immigrants.
I worry constantly, not just sometimes. But then, having grown up in a Soviet colony, I knew what to expect from drumpf, the first time and even more now.
This is concerning because it appears Elon Musk, DOGE, and Matthew Vaeth have plans to do the same. I'm not a passive reader. Please, if you're a passive reader, I urge you to do something with the information you get from Substack writers such as Paul Krugman, Ken Klippenstein, Robert Reich, Robert Hubbell, Heather Cox Richardson, and so on. These people are working their asses off and doing their part to protect our democracy and economy, and we should too! Please call your senators today, using the script at the bottom. TIP: Input all your elected officials' phone numbers and email addresses into your contact list so you can quickly contact them to complain/compliment. Their contact info, from sheriff to senators, is here: https://www.usa.gov/elected-officials
SCRIPT: Hi, my name is _____, and I’m urging Senator _____to fight Donald Trump’s illegal funding freezes, cuts, reorganizations, and terminations. I urge you to use every tool available to prevent the Senate from conducting business as usual, including:
Opposing all Trump administration nominees
Denying any requests for Unanimous Consent
Opposing all Cloture Votes
Requesting a Quorum Call at every possible opportunity
Now that we will "never have to vote again" and the wealthy oligarchs in control will not need to worry about those red state voters who lose their ag subsidies nor their representatives in congress, because they are going to vacuum up all of that ag land and stock share buy-backs of any company they deem worthwhile from the "losers" once the crash comes. Make America like Russia! Hungary!
I live in Germany, in Bremerhaven, a city with the 4th largest port in Europe and many problems. The dilapidated infrastructure hinders economic development. Many tasks have been imposed on the municipalities, the costs of which they cannot bear. Bremerhaven is actually on the verge of bankruptcy, like many German cities. The government has only now, in January 2025, decided to introduce a law to enable the state to relieve local authorities of debt. Given the current polls, it remains doubtful whether this will even be possible after the election. The current Federal Chancellor Olaf Scholz stands for the black zero under the Merkel government, but is the SPD's candidate for chancellor. The AFD is the second strongest party in the polls. The disenchantment of many people in Germany with politics is also due to the fact that they see the deterioration of the infrastructure in their communities. If people have contact with the “state”, then it is the municipalities. And all they see is a deterioration in their living conditions. This is the breeding ground for the right-wing AFD, which is a suspected far-right party in Germany. It is almost unbearable.
Dr. Krugman, Nicely written. The NY Times blew it, but you did not. You bobbed, wove, and resurfaced wonderfully on SubStack. Well done. Keep writing. I’ll start paying now.
Yes and no.. Germany began turning into a cautionary tale at around the time when a whole generation of academics left the country, many for good, when (badly needed) reforms of thewhole education system, at all levels, turned into many years of federalised chaos. That was one of the canaries in the coal mine and one can write books about it. High school education when from 13 to 12 then more recently back to 13 years, randomly sprinkled across the federal regions/Laender. Aspiring academics could, some place, ditch the (outdated) 'second doctorate' (Babilitation) traditionally required to secure a professorship, other place not, could become junior professor here, but not there etc etc.
More importantly however, Germany appears to have lost it's comparative advantage in SME manufacturing to the Chinese engineering sector. The whole Mittelstandsmodell, with its tight coupling between longstanding family firms, regional banks, and the political sphere, has been crumbling and it's not clear what will or can replace it. The fate of Volkswagen, who were the visionary firsts in locating car manafacture to China as soon as the Deng reforms made that possible, will become the historical metaphor of what has gone wrong with the German model.
This may sound overly pessimistic, but one can actually pick most sectors and find these metaphors of decay. Wirecard .. where even to begin? And we are not even talking yet about the fragility of German politics, which is sensitive of course to the economic fallout from the faiing model.
The bull case fo Germany is that as a whole, German society is sufficiently enlightened to pull through and come up with another Wirtschaftswunder that will amaze us all, or at least with something like the Schroeder reforms from not that long ago, for a bit of respite. I hope time is not running out for any of that, and I also hope that other readers can point me towards more optimistic takes on where Germany is headed these days :)
This is a terrific post even by Paul’s high standards.
Isn’t the difference in GDP growth essentially all due to the difference in population growth between the US and Germany from 2020 to 2024? Real wages seem to have grown at comparable rates. Unemployment trend (not level) is similar too except for the intense disruption in 2020.
Keep in mind that Germany and the US had very different approaches to guaranteeing incomes during the lockdowns. Germany paid employers to keep employees on the payroll, and thus keeping the unemployment rate down. The US allowed workers to be fired but paid them unemployment benefits. So taking out the big spike in 2020, the trends in unemployment are similar.
US population has grown at about 1% during 2020-2025. German population has declined. And then you also have the decline in working age population as shown in the chart in the post.
But the lack of infrastructure spending in Germany does not bode well for growth in the coming years. However, what is infuriating is that Trump is pissing away the dividends from Biden’s investments.
Disclaimer: my empirical assertions about wages, unemployment and population are entirely dependent on the accuracy of quick and dirty internet searches.
Great post as always, Paul Krugman, and you cracked me up with the German phrase insert. And while I love “King of Pain”, I personally would have inserted Nena’s “99 Luftballons” as musical coda for this Germany-focused post — especially since the Bulletin of Atomic Scientists just yesterday put the Doomsday Clock closer than ever before in history to the dreaded Midnight hour. Thank you so much for sharing your knowledge so generously. 🙏
Thank you Dr. Krugman. Here in the UK we are concerned that high levels of debt mean that debt service takes a growing proportion of our budget. Can you please comment on that?
There is technological goodness to be had. I lot of good that will do us if that too is not used to service the debt and the public good, instead of lining the pockets of the 0.01% who own more than the entire bottom half.
I share your concern, along with others who point to the GDP as irrelevant to human success.
The decline of Deutsche Bahn, from an admired railroad operator to almost national joke status in Germany, could be exhibit A for the lack of investment by the German government... per your article.
I hear a lot that the US economy is doing great and the German economy is doing badly. On the anecdotal evidence I have, living in California and visiting Germany once a year, the median German is doing much better than the median American in terms of quality of life and even wealth. I am wondering: Is it possible that our economic data measure the wrong proxies?
I have friends in Germany and I agree with this. Like Paul said personal anecdotes are not a good basis for an argument, but my friends in Germany get a wild amount of parental leave and have a great quality of life. My (German) pregnant friend was really stressed. After telling her doctor about it, she’s now on a government sponsored 6 hour work day at her job as a consultant and feels wonderful (and gets to take home the same pay). Money can’t buy these things in America. Our only option is quitting and losing our health insurance if we do.
I agree. And my point was not to make an argument but rather to raise a question, hoping that somebody more qualified in economics would know whether this can be made into an argument.
Oh for sure. I was mainly saying that in reference to my own personal anecdotes. I wasn't trying to criticize yours! :) I too would like to know if there's an economic angle that would represent what we've both noticed.
All you have to do is look at measures of wealth inequality. (The famous Piketty book, “Capital in the 21st century,” is full of graphs for different western countries comparing wealth distribution.
The US has far outstripped any other western country in inequality and, as far as I can tell, can tell, continues to get worse. It’s no accident that we have billionaires being representative of “the people” in the Trump administration.
I think it’s a valid criticism of looking only at GDP.
Joel, well yes, but Piketty’s Inequality has been parsed to reveal that most if not all of the inequality (of net worth, not of income) in Anglo-Saxon countries arose from soaring real estate values. Those who owned their own homes (or multiple homes) profited hugely; in countries such as Germany (& Italy and France) where many people rent and where RE prices have risen modestly or not at all (eg, Spain), inequality looks less egregious. A better metric is to look at net incomes after government transfers.
It’s been a long time since I read Piketty’s book but it seems that the point is to measure “wealth”, whatever its source. Elon Musk is obscenely wealthy largely because of “unrealized gains” in the form of holding the majority of Tesla stock.
It seems that even if there is significant inflation of the economy in general, differential holding of real estate value must be a reflection of differences in “wealth.”
Getting away from Piketty, Krugman himself has published opinion pieces where he shows massive and growing inequality in the US, especially at the top levels.
Elizabeth/Alexander,
I wish you two would stop being so civil. It's very un-American.
Here's a good link to drop from the St. Louis Fed that discusses alternate measures to GDP.
https://www.stlouisfed.org/open-vault/2023/apr/three-other-ways-to-measure-economic-health-beyond-gdp
Tim
Thanks Tim, will read that. In the meanwhile, what do you think about the following.
Some say that DeepSeek destroyed wealth because it sent the stock prices down. On the other hand, DeepSeek did do this by creating a lot of use-value.
Is this an exception that can be ignored or should it be taken as a hint that our current measures of wealth are not useful?
As long as an investor did not sell a stock/index fund, he/she had not lost anything (yet). Even a day trader can make money on that day by selling shorts or buying/sell PUT options. The sell-off only highlights the disproportionate influence of the magnificent seven on the indexes. Actually on Monday, 70% of the stocks in the S&P 500 closed in green. Nvidia was the biggest loser on that day. Even then, Nvidia has already regained some of the loss. In the short term, Nvidia, selling the hardware (GPUs), will still have a very healthy earning. DeepSeek had stockpiled 10,000 Nvidia A100 GPUs according to an interview in 2023. In the long run, I agree with Tim that it will probably be beneficial to AI development because of DeepSeek's efficient algorithm and thus, potentially (have to qualify this, sorry) less hardware and less power consumption. DeepSeek only brought forward Nvidia future challenges to light sooner. There are other challenges like emergence of even more efficient algorithm, use of quantum computers to replace GPUs, etc. Stock price of Nvidia will therefore be readjusted based on the change of its earning potentials. This is just the nature of the beast.
I have my own personal concerns and bias toward AI impact on the economy and humanity. But I am not sure that will answer your questions.
Caveat: I do not own any AI stocks or crypto.
The Chinese communists are poking the bubble on the capitalist delusion and for that are probably going to find an aggressor rattling it's cage here shortly.
DeepSeek saved us from future deep trouble. Pulitzer Prize winning economist ‘24 Daron Acemoglu and Goldman Sachs’ Jim Covello have been trying to warn investors, the general public, and the big power brokers who were being taken advantage of by the Big Tech brass who have all backed Trump recently.
In short, the reports of human labor’s death via AI have been greatly exaggerated. Heck, even TSMC called Sam Altman a podcast bro because he said super intelligence AI could not be reached without 7 trillion dollars of investment.
Notice how the man, whose business model relied upon claiming intellectual property laws are antiquated, is now trying to claim DeepSeek “stole” from him. Nevertheless, OpenAi remains closed source whilst deepseek is wide open. DeepSeek cannot distill from a model it cannot see.
Any successful legal action against DeepSeek admits that all legal action against OpenAi is valid.
Alexander,
Threadjack!
You are talking to the internet here—caveat emptor.
I couldn't be more excited about the algorithm that is driving DeepSeek. This is a game changer for humans everywhere. I'm an indexer, not a stock picker. This is very good for AI in the long run. The fact that the core difference between DeepSeek and US AI efforts is algorithmic efficiency and that the DeepSeek model is relatively open source means that considerable investments in AI will pay off sooner and at a lower cost.
The core of my excitement is not in LLM's success, which is showy and cool, but in what this means for AI, addressing math, science, and the idea of a singularity. It's unclear if this impacts that. We must focus on the non-LLM projects, and I daresay control them. But I'm getting off your point.
Am I buying NVDA - yeah, I am, but only as part of my index funds. This is not great news for the Semiconductor trope of the next node being worth the investment. Materials science is where we need to focus our long-range funds and interests in that sector.
To your question...
The stock market is a fundamental and speculative investment. The speculative side is not a good measure of value. I know that doesn't answer your question, but most ultra-rich people never visit an ATM. The Macro is greater than the moment if that is an answer.
Tim
Lol. Thank you!
I mean all this may be true (however, you can still buy healthcare in the Marketplace.... for now) but you are talking about quality of life and not economic output. And these benefits exist throughout most of Western Europe. I think the Great Kruggy's argument is there is a better balance between debt and economic growth and not that Germany has nothing. Basically if you invest in your economy utilizing debt up to a point your economy will grow and empower you and Germany isn't doing that to its full extent. It's not poor, just under-performing.
And I am wondering: Could it be possible that Germany has the better balance, but we dont see it because we measure wealth the wrong way?
The Great Kruggy! You’ve made my week!
Krugman could have said that Donald Trump is an example of using debt to leverage his jump into the presidency.
This is a very interesting point. Perhaps economic inequality in the US means much of that economic growth goes to oligarchs? And the stress of our (lack of a) healthcare system also feeds into the hidden wealth of Germans.
I agree. Much of the wealth in Germany is in public goods. Health care, transport, education, etc is all cheaper in Germany, hence contributes less to GDP but more to real wealth.
The US is bad at providing public goods because of its racist history: herrenvolk democracy is incompatible with competent governance:
https://pedestrianobservations.com/2018/02/02/civil-service-racism-and-cost-control/
"The only way to maintain racism is to weaken institutions. It’s hard to have a clean system of apartheid justice, because then the oppressed minority can simply demand the state treat it the way it treats the herrenvolk. A state that attempted to impose apartheid with clean government would not be able to credibly promise to the racists that the system would stay as is. Instead, it would need to engage in arbitrary justice, giving individual cops, judges, and juries broad latitude to make decisions, which could survive the end of formal apartheid to some extent."
Interesting point, but is it true?
The New Deal happened at a time when (afaik) racism was more prevalent than now and during those time there was a lot of expertise in creating public goods. Btw, much of this American expertise was exported to Europe after WWII and in particular to Germany.
I find it ironic that Germany owes much of its success after WWII to expertise, knowledge, and culture from the US, much of which has been forgotten by now in the US.
Perhaps the Great Depression itself crippled the power of the rentier elites that would otherwise have impeded the building of infrastructure?
Reminds me of Scheidel, The Great Leveler ... https://press.princeton.edu/books/paperback/9780691183251/the-great-leveler ... "How only violence and catastrophes have consistently reduced inequality throughout world history"
U Bahn/S Bahn/bus fares in Munich and Berlin are more expensive than NYC fares, and NYC subway is not zoned. Vienna is cheaper than NYC. London is a little more for the Tube (also zoned) and cheaper for buses (not zoned).
When I'm in Germany/Austria I buy a week pass and forget about the money, but I'm a tourist and not living there. Tokyo/Osaka/Kyoto fares are significantly less than NYC, but Japan and the Japanese economy is something different given years of deflation.
But rent requires a far lower % of income in many large European cities than does rent in even moderate-sized US cities (and of course rent is prohibitive in NYC, and almost as bad in LA and Chicago). My understanding, from articles in The Guardian, is that social housing in Europe not only keeps apts./flats affordable but also enables permanence for who want it (bc landlords can't price-gouge you out of a unit with huge annual increases).
If one has to pay an extra $200 (or its equiv.) per month for public transport but is paying at least $700 less (or its equiv.) per month in rent, then one is coming out ahead.
By definition the demand for any kind of below-market-rate housing (whether public housing or rent-controlled private housing) will always exceed supply, so it must be allocated by a means other than price.
Usually priority goes to long-term residents in a city, so taking housing outside the market benefits the existing population of the city at the expense of people who would like to move there (who must instead depend on the remaining market-rate housing that is scarcer and thus more expensive).
I always liked the idea of distributing (some of the) housing via waiting time and not market price. This happens in many cities in the Netherlands. One positive consequence is that it slows down gentrification.
I completely agree with you, having spent 17 years in Germany.
What Pr. Krugman is saying about Frankfurt Airport might be true, but for someone used to Washington Dulles here in D.C., it is not better.
I am in Arlington, Virginia, and I would say I need three times more money for the same living standard (or even less) as in Frankfurt.
Actually, Germany’s economic role model is Switzerland and Austria, not the U.S. That said, Germany lacks investment in new technologies.
Thank you for this Substack!
To an extent, yes. But the main reason is the way the country's economic gains have been distributed and the quality of our country's social insurance programs. Virtually all of the economic gains this country has made since the 1980's have been captured by the wealthiest 10% of the population - and most of that by the wealthiest 2% to 3%. So there's been no real improvement in real wealth or income for the vast majority of Americans for decades. Moreover Germans have universal healthcare and all sorts of benefits like parental leave and longer vacation time that they can actually use. We don't. That's why the median German is so much better off economically than his U.S. counterpart.
And these gaps between our social safety net and Germany's aren't unique. They're basically the same for any comparison between the U.S. and any other developed country. The U.S. middle class is the most under compensated and underserved in the developed world. And most of us are completely unaware of it or why any of it is so.
That's a problem of our redistribution model rather than our economic data. This article is about the total pot of money that America has vs Germany, while what you're observing is that normal Germans are better off than normal Americans.
The big difference is that rich Germans (not just ultra-rich Germans, even your doctor/lawyer/banker types) are not anywhere close to as rich as their American counterparts. If we had the level of redistribution that Germany has with the same economics that both countries currently have, our median Americans would be richer than median Germans. We don't have that, so they're not. It's also not entirely clear whether our total pot would still be this big if we had German-style redistribution. I think it would, but reasonable people can argue differently.
German-style DISTRIBUTION, please -- not redistribution, which is a misleading and loaded word. US economic policies from 1981 through 2020 resulted in actual and massive redistribution of wealth *upward,* but no one ever uses "redistribution" to describe that occurrence -- only to suggest that Warren- and Sanders-style proposals to undo some of those problematic excesses are redistributive.
Thanks.
I agree that it is important to say distribution instead of redistribution.
I agree that distribution of wealth is import, but my main point was a different one.
To be fair, I think a lot of the discussion is in directionality; the Biden administration was trying to improve on our unfortunate Reaganite inheritance, while the Germans have been seemingly trying to sabotage their own social market democracy for some time now.
What examples of "sabotage their own social market economy" do you have in mind?
Basically, social democracy requires a government willing to spend (including during downturns) and invest (whether it does the latter itself or gets private businesses to do to themselves) for the future, and German politicians have shown increasingly disinclination to do so. While German social services and the like might still be lot better than in America, their government seems less and less interested in making sure that remains the case into the future.
For example, though as an American I envy the Germans having a childcare system to begin with, it’s nonetheless had long-standing issues with both underfunding and understaffing.
"Basically, social democracy requires a government willing to spend (including during downturns) and invest (whether it does the latter itself or gets private businesses to do to themselves) for the future, and German politicians have shown increasingly disinclination to do so."
Well said, I completely agree with this.
I agree. Our economic data does not seem to track or measure the quality of life factors. I think the once used market basket measurements more accurately reflected average American consumer status.
All things being equal—% below poverty level was the biggest factor in an American population’s Covid death rate. I guarantee you all of America’s ills have a strong relationship with poverty…and America has a lot of poverty! Btw, the poorest state is the whitest state with huge amounts of energy wealth—WV.
Same here. I visit my college roommate in Berlin once a year, and she could never, ever live life as well in a major American city if she were still in the U.S. It is like night and day.
Absolutely!
Germany's comprehensive social programs means people live better on less money, and don't have to worry about an illness leaving them bankrupt and homeless. They also subsidize child care at about $23,000/kid/yr, so child care is affordable and high quality.
In Berlin, it's free. That plus denser cities, better transit and bike infrastructure means families can survive without a car or at least far less driving, which both saves money and makes ppl happier & more fit.
The US has siphoned the wealth of the bottom 90% to the top 0.1%; we now have substantially more inequality than in 1970. Dr K wrote an article about this way back in 1996 http://www.motherjones.com/news/feature/1996/11/krugman.html
and another in 2023:
https://www.nytimes.com/2023/04/17/opinion/plutocrats-power-trump.html?unlocked_article_code=1.hE4.rz8v.E3ga6wfxNLti&smid=url-share
It's killing ppl, tinyurl.com/NYT2020DeathsOfDespair
and it seem this is what many Orange Menace voters are rebelling against. Dems haven't reversed the 50 year slide, (though Biden caused some slight reversal) though we SAY we're the party of working ppl; they voted for TFFG & dramatic change because 2/3 of voters feel the US is on the wrong track (they're right on this.)
Nonetheless, Germany has found ANOTHER way to mess up their economy! Undoubtedly due to genetic memory of the 1920's hyperinflation, Germany's constitution requires balanced budgets; there is a very strict debt limit (Schuldenbremse), 0.35% of the country's GDP each year, which cripples them in terms of being able to use fiscal policy to recover from or prevent recessions. This recently broke up the governing coalition.
I would be interested, too, in hearing what Dr. Krugman has to say about this. A completely uneducated guess is that these policies aren’t sustainable if Germany pursues its current economic course. Your comment raises a similar question about France, which in my very limited understanding, tried, under Macron, to roll back some of the benefits, which did not work in his favor politically. I would like to understand what we need to do economically so that we can have and sustain the kind of benefits many European nations have enjoyed. One obvious thing, which Dr. Krugman has noted, is to tax the rich far more than we do.
Yep, GDP which is at the core of all the measures is an aggregate or total measure. Much of the USA's outpacing of Germany has come from "value added" in winner take all markets. That is growth in very large companies (Google, Meta, Amazon, Microsoft, Oracle, etc) that show value added that is in fact value extracted from others in the economy. This value add comes by using the privacy they take away from us and otherwise injecting themselves into our interactions. Take away these companies and the ecosystems that feed them and the USA's economic performance looks pathetic.
Thanks. This seems important.
Is there a way to distinguish value created from value extracted? Is it possible, when creating measures such as GDP, to take such a distinction into account?
Do we know that the higher GDP of the US is not due to a combination of increased money supply and the appropriation of that money by Big Tech?
How much of the valuation of the Big Tech companies is due to anticipated future rents and how much is due to innovation and created wealth?
Which methodologies could be used to answer these questions?
Alexander,
I expect it is in part because the Euro is a base currency.
The investment in Germany is in infrastructure that doesn’t provide profit, but sustainability and cost savings. The public transportation infrastructure is a key component of the Euro and a quality of life boost.
It makes spending and income more freedom to choose rather than consumption for many corporate heirs’ profits here in the US.
You're right, but I think the more relevant point here might be that relative to other countries with comparable social insurance, urban fabric, family and parental supports, Germany is doing poorly. Germany has become a worse place to live in the period Krugman is discussing compared, as measured for example by HDI or wellbeing indices (the World Happiness Report is one) to France, Denmark, Australia, Sweden, etc. Even before accounting for the way German underinvestment is a drag on the rest of Europe. The austerity increases inequality and convergence to American quality of life rather than expansion of the qualities that made life in Germany better than GDP would suggest (Spain, Portugal, Uruguay, or Costa Rica are even stronger examples of GDP / quality of life divergence)
Pure speculation
Very good point!
I think it would be worth your while to take a deeper look at Denmark. The country has not only found a way to finance infrastructure, it has also made a fundamental pension reform. Together it means that the government finances are very healthy. And pls have a look at the trend of the German work force. It is heading the wrong way.
Isn’t Denmark on the scale, the happiest place to live? I think I will immigrate soon. The pro in the US is that we have always been a corporate dominated nation from the planters to the oligarchs. We don’t have great health care. Personal example: I just moved from Advsntage plan to real Medicare. But I’ve been delaying going to an ED hospital on account of a serious neck pain. I don’t know if I will get wacked having a high deductible. This is how many Americans think.
I’m glad Paul explained the great influx of migrants that helped the German economy.i have used that and our issues on the southern border as examples of why we shouldn’t allow such massive amounts of illegal entries if only because it often creates a horrible backlash always to the right. I don’t know how we survive the 2nd Trump administration. We simply don’t want backlash to the right to occur even if it stagnates the economies. O e needs to take this into consideration.
The right will always find a way to create a backlash even if they have to lie to get one.
The right did lie to create a backlash. And they need to be punished for it.
I am really interested in seeing an assessment of the UK. They are tying themselves in knots trying to create growth while reducing debt. Thatcherism lives, at least when it comes to debt phobia.
As for the frugal housewife analogy, it would help if we substituted another one. Ordinary people borrow money wisely all the time for mortgages, car loans, student loans, etc. Some also run up debt by gambling which is as productive as running up our national debt by giving tax cuts to the rich. Our government is so warped by lobbyist money that gambling debts can be discharged in bankruptcy but student loan debt cannot.
Seems like the UK sacrificed a couple percent of growth because of Brexit. Trump is set to do the equivalent here only worse.
It’s the ironic - student debt and it’s cost to the welfare of our younger generations.
it's = it is
Fear is what tyrants rely upon to control. I know, I have been born during a dictatorship, my family moved to another country, that not much later became another dictatorship. Americans need to react now to save its democracy.
It’s ok to be wrong about immigration, as you clearly are. We NEED immigrants to avoid Germany’s situation.
From what little I know German tracks each immigrant and requires certain stuff along the way (I think including learning German, probably with age exceptions) in order to preserve their status in Germany for years before getting citizenship. Of course there were problems with a big influx of people from a religion based totally mysogynistic patriarchal culture but over time they learn and adapt or find they can't fit in and leave.
Feel free to correct.
"Backlash to the right," is the only thing that is going to save this country. And I'm only half kidding.
A look at Denmark+Sweden+Finland would be interesting. My native Norway has too much oil money to be comparable.
And it's got Greenland! Making it the most powerful country in the Universe~!!!!!
Of course they do. But that’s more of a historical aberration. I was thinking of the way Denmark has created separate entities to build bridges, companies with the state as majority shareholder build and operate the bridges, the state guarantees the 30 year bond issues, repayment via the bridge tolls and once the loans are paid back, the income goes toward maintenance and then some dividends to the shareholders. Result: the taxpayer does not pay 1 penny - except when they use the bridges. Who buys the bonds? Many of them go into pension savings. The pension system is largely privatised. Employee and employer share the untaxed contributions. About 20 pension service providers compete under strict regulation to secure they are able to cover future obligations.
In addition you could include a closer examination of the Danish 'Flexi-curity-model', which have promoted a very flexible workforce/labor market secured by af robust public unemployment benefit system.
What I have noticed about the GOP way of thinking about economics is that they do not see the interactive and circular nature of an economy when you look at it as a whole.
When I was debating issues with folks on conservative sites, I found that they had never considered that tax money, plus more, is put right back into the economy where it flows into paychecks and businesses - instead they think of it as "removed" or "stolen"
The government's role, is one of a VERY LARGE gear (or a series of gears) in an economy made up of millions interconnecting gears.
To tighten the government's belt too much is to put cogs in the gears or works of the economy, and cause many other gears to stop spinning and the economy shrinks and jobs are lost and revenue drops and the debt/GDP ratio rises as the denominator, GDP shrinks.
Many in the GOP look at things from a single point of reference like an individual pocketbook or business balance sheet.
However if you try to run our government like a business and ignore its role as huge part of our economic system, and the goal is to keep all the mechanisms spinning, then damage can he done.
Also, as you point out, you need a working age population to help spin all of those gears, as well.
We need to be focused on sorting out those who can stay not deporting millions of working age immigrants and fix the system.
We are becoming a bit top heavy with retirees, who can still consume, but often do not work, so we do need immigrants. This top heavy growth is supposed to level out in abt 10 yrs.
Growing the middle class also can help with overall growth, a great deal, as we saw after WWII, with the GI bill helping to create an educated workforce and home ownership, plus union growth, infrastructure, space race and even the MIC but once again, this increased purchasing power of the middle class requires workers or one will get inflation and less overall potential.
In a nutshell, what Trump is doing and what the GOP have proposed for decades is completely backwards.
A healthy population who can consume goods, services and entertainment drives growth, not those at the top with extra cash to stash in asset investments which balloons those prices rather than adding to growth and jobs.
There is no incentive for the wealthy or businesses, who get tax cuts, to hire more workers or grow a company without increased demand which comes from the bottom up (and as Biden like to put it - the middle out).
These businesses also need an educated workforce, infrastructure, RULE OF LAW in which to operate and a predictable government. They need some certainty.
Add to this that growth related expenses are not taxed anyway and are removed to arrive at profit which is then taxed, and one can see that tax cuts at the top provides little added incentive for growth.
This said, I would like to see a form of tax free savings for small businesses to be used for future expenses (expensed only once of course, kind of like a business savings version of an IRA, just in advance and used only for future expenses).
This does not mean that deficits should run wild, but where is the least harmful place for our economy to get money reduce them?
Taxing the rich. Once again the OPPOSITE of what the GOP claim.
In fact, taxing the rich and helping the poor and growing the middle class, like we did after WWII, makes the entire economy larger and yes, even if taxed more, the rich get richer under this scenario as the economy gets much larger.
The billionaires supporting Trump for tax cuts are actually harming their own ability to grow lasting non-pyramid wealth (pyramid caused by tax cut asset bubbles).
An economy is not zero sum. It can expand and contract.
For the black days ahead:
https://www.youtube.com/watch?v=ySzrJ4GRF7s
"We are becoming a bit top heavy with retirees, who can still consume, but often do not work"...
There is a LOT to be said about the free labor retirees feed to the system/nation. Not measurable by the standard route. But possibly more valuable than CAN be measured.
Yes, many still contribute, and actually they are also a huge asset in that they participate in the economy when they spend, as well - this is huge - we need to make sure they are able to do this and live well, too.
I simply meant as a percentage for that age group there are fewer working.
BTW, I am over 65.
For the black days ahead:
https://www.youtube.com/watch?v=ySzrJ4GRF7s
Yeah me too
There's an alt. take on what I posted – that is, alla these volunteers are takin' work from folks who need paid jobs. I can't refute that, but it assumes a great big "if the market and/or the gummint would only provide the salaries", which has shown holes thru its logic for centuries (which is of course why it is up to us individually and in community to do the work we can irrespective of pay).
Both are necessary, in my view.
Due to economy of scale, the government is needed and can do a lot, but on the other hand, as millions of individuals, we also can have a massive impact, as well and take the reins, we have to also take responsibility, as well.
More than 2% of carbon emissions are from things like lawn equipment, boats, ATVs etc, More than 1% is lawn equipment alone.
Honestly, what I have to say to people is get a fricken rake and push mower, I did. Less than 100 dollars.
I may be an old granny, but my granny mowed an extra lot with one until she was 83. Save one trip to the gym.
In addition, when I was researching solar for my roof as well as buying a watt meter (15 dollars), I discovered I could save a lot of energy very easily and did not need a huge system.
However, I am now making a lower watt system for my yard. I could not afford an EV, so now I simply consolidate trips and rarely drive. There are things people can do and it does matter - a lot.
It takes all of us.
“When I was debating issues with folks on conservative sites, I found that they had never considered that tax money, plus more, is put right back into the economy where it flows into paychecks and businesses - instead they think of it as "removed" or "stolen"”
Yes, and the anti-government ideologues seem to believe money is a natural phenomenon like gravity or tree leaves, although currency has depended on some form of government for it to be useful across large populations. Government produces currency and works to maintain its value, so without government the money they think is “stolen” from them wouldn’t exist. (Note: although the drug addled crypto bros another commenter mentioned may be trying to develop non-governmental currencies, they don’t (yet) have the coercive power government has to require people to use their currencies in economic exchanges. Crypto is still valued in state currency, as in Bitcoin is worth X number of dollars. It took centuries for common currency to develop in the West, so it’s unlikely the average person will quickly jettison government issued currency in favor of Crypto).
It seems to me that crypto should have been shut down by governments everywhere before it propagated. Even if only considering the absurd energy use - for what? But the rest is at least as bad.
Yes, it is a huge waste of energy for something that is noting more than a pyramid scheme and a tool to help promote for illegal activity.
It is completely absurd.
If it loses favor is simply evaporates back into the positive and negative ions it is created from, no more no less.
Its only value is that fools still buy in.
Huge waste.
I like this holistic view. It also means that we shouldnt talk about governments "redistributing" money. The economy as a whole distributes and the government should be just seen as part of this.
Thank you Professor. At least Germany still has their economic identity, strategy and destiny being determined for them by knowledgeable and careful tacticians.
The USA now has a group of drug addled CRYPTO boys (DOGE) running ours. I pray they don’t completely sink our economy with hubris and ignorance.
This is all well & good, Dr. K, but you're using logic & facts. We've moved beyond all that now - America chose "reality TV" over reality, so none of this is relevant to today's economy. What matters now is who shouts the loudest, who wields the biggest club, and of course the all-important "who you know." Everything is transactional. Charts & graphs like the above will soon be subject to instantaneous, "sharpie" editing by some governmental agency or other which, rest assured, will hew closely to the official narrative. Or else.
I'm old enough to remember when facts & logic dictated policy. So, from one dinosaur to another, I'm glad we can still have access to this sort of writing, but only a handful of us are paying attention any more. The rest are busy swooning over the great leader and how wonderful it is that a dozen eggs are still less than ten dollars.
“Reality tv” over reality. Great analogy.
I tried to explain to someone why my backyard eggs are $10/each right now. It’s simple economics: I have ten hens that produce one egg every couple weeks in the winter and food costs $10 to produce that one egg. And yes, that’s not sound economics, but come spring/ summer those girls pump out $0.10/eggs.
My greatest worry right now is that the great leader will crash the economy. Some MAGA folks might want to learn compassion before they end up as homeless as the people they spit on.
Nah. They'll just blame the dems because that is all they know.
The blame game has already started. Yesterday the WH Press secretary, Karoline Leavitt, said the price of eggs continues to surge because the Bidden Admin ordered the killing of over 100 million chickens.
I heard part of her performance on the radio last night. She is a piece a work.
Conspicuous gold cross is a clue.
That data did not come across on the radio.
Thanks.
Had to. Big BBQ comin’ up.
Maybe you can trick them with lights and heat?
I find it always difficult to compare the USA against Germany. The average German living standard is imo higher. Public healthcare, social security, employee protection, and affordable public transportation (disregard the continuous delayed DB) is not captured in this substack. Isn't the German debt even more impressive if such points are considered?
Btw I'm German. Very subjective. Open for discussion.
I think you're missing theU point about stagnation vs growth. Stagnation, even in a wealthy nation, creates major problems: economically, socially, and politically. As the world advances, stagnating countries will find it increasingly hard to compete. You must invest, aggressively, to be a player on the world stage.
Orin ,
We may have avoided stagnation in the US - but my concern has more to do with how we have become ever more concentrated in financial services ( big banks & Wall Street ) . For the individuals that have the skills in finance- great
- but for so many others - the higher paying manufacturing jobs are gone .
The other problem that has me on edge is that
we get a big advantage from having the $ as the reserve currency of the world. No guarantee that lasts forever. Growth in China , India -
Brazil place a target on our dollar dominance of the global economy.
Actually higher paying manufacturing jobs not gone. But vast numbers of lower paying ones left or are replaced by automation. See: comparative advantage. In the past unions made sure that pay was more evened out.
I should have said - higher paying relative to most of the service jobs they occupied after the
plants closed
It is a different angle than tackled in the post. True
Keep in mind that German austerity became de facto EU policy due (at least in large part) to Germany’s economic might, with mostly disastrous consequences for the EU’s economic basket cases. So German policy affects more than Germany.
The trade surpluses sucked capital out of other EU countries, somewhat like the old gold standard days. Germany for much of 2010s set new records for residents employed (i.e. real "full employment"). Germany needed ever more people to keep it going and so a welcome for refugees.
I agree with that. However, you would argue that germanys austerity is one of the main reasons for the poor situation (compared to US, and China) of the EU today? I don't know. Give me some reading material.
“Austerity” by Mark Blyth is an important book you might check out.
I think the broader problem in most of Europe is aging, declining population. It’s incompatible with the economic models of the various governments, and austerity is a maladaptive strategy as well.
Thanks!
There are gross economic measures like GDP, and then there’s quality of life. One way to measure the latter is that the average American is dying sooner than the average person in other “advanced” economies. We have barely any paid vacation relative to the rest of the world, and social security is nothing like the pension structures in other countries. We live to work rather than work to live, because we essentially have no other choice. Americans are seen as rich, but most of us simply are not; America has a much higher proportion of people without any savings at all. Germans have to pay for health care, but, again, it’s nowhere near as precarious as what exists in the U.S.
What would be helpful is if Dr. Krugman could get into a few of the exceptions that are unique to the U.S. For the moment, the global economy is dollar-pegged, not Euro pegged, and that influences borrowing costs. Certainly (warning: not an economist!) you’d guess that means the U.S. can “afford” higher deficits than Germany, but is this in fact gospel, or as he’s suggesting, strictly a policy question? Or am I entirely lost in a factor that’s off base?
A post on measures besides economic ones would be very interesting too! Also their relevance for policy decisions.
“Public healthcare, social security, employee protection, and affordable public transportation (disregard the continuous delayed DB) is not captured in this substack. Isn't the German debt even more impressive if such points are considered?”
I think the idea is that this social bargain will not hold unless Germany’s economy can become more dynamic.
Yes, its not directly related to the substack.
Thanks for two world wars.
What a weird insecure thing to say
Tell it to the millions dead for no reason.
Exactly. Why would you say smth like that?
The US is responsible for several wars/conflicts....in fact, you might say that at this very point in time, we are going to get the attitude adjustment Europe received after Franco, Mussolini, & Hitler. Interesting little factoid from The Jacobin that shut me down on one of the FANG social media sites after I posted it, unless I am willing to give it my cc # just to log in and prove I'm "not a bot", haven't been "hacked"--which I WON'T do. The German companies which were involved with the Nazis lost 60% of their market value after WW II. However, up to the Covid era, the majority of those companies that still exist today under different names/orgs have been European power houses and the founders' heirs are some of the wealthiest Europeans today. Whatever German government debt the wealthy owned at that time was wiped out. Now, do you suppose that might have something to do with the elimination of my posting on that site? Consider that it's founding owner hosted an inaugural ball party recently for the king of bankruptcy and con man extraordinaire of all time that was just anointed our dear leader.
seek serious help
Of course you'd say that as a trolling conservative here who may be benefiting as a pundit for it somehow. It's the reason for banning knowledge and opinions they don't like or suing publications out of business.
???
As a young German it’s been more than disheartening seeing the direction this country is headed and all the negative press we’ve been attracting for our failing economy. I still distinctly remember all the adults around me raving about the supposed strength and resilience of our economy and the wisdom of our economic policies growing up as a teenager in the 2010s. I remember being told how we had weathered the 2008 financial crisis and subsequent euro area crisis better than almost any other country, how we were the “export world champion” because “made in Germany” was supposed to be this ultimate seal of quality, how our country was home to so many cutting-edge and world-leading industries and companies and how we had managed all of that while maintaining a strong degree of egalitarianism through our unique “social market economy”.
Fast forward to the 2020s where I and my friends finally reach working age and are supposed to start our careers and all of it has just been replaced with non-stop doom and gloom. All I read and hear anymore is that our economy and wages are stagnating, that we’re no longer innovative enough to compete with the US and China and that we’re increasingly being left in the dust when it comes to the development of new technologies, that our infrastructure is crumbling before our eyes and that our demographics are only going to further seal our fate of slowly declining into irrelevance all the while increasingly straining our public services like our pension system until the point where my generation will never get to benefit from any of it when we reach old age.
Sure, point to Germany as a cautionary tale and make sure to convince people not to follow into our footsteps with their own countries. However, as a young German whose future is implicated in all of this it really pains me that seemingly nobody has any solutions on offer for us. It feels like for years everybody has just been talking about the failure of this country’s entire economic model but nobody has any real ideas how to turn things around again. Not our own politicians, not journalists and commentators, not even any economists. Is it really just the case that not much can be done to steer this ship around anymore? Has the decline just become terminal and inevitable at this point? I knew I would be in for another depressing read when I clicked into this article but I was really hoping that there would be at least some glimmer of hope or some suggestion for a way forward. I know that for many younger people in Germany such as myself all these negative news for the past half decade or so have just been making us feel increasingly hopeless and worried for our future. Are things just over for us now? I can really feel myself getting more and more desperate for someone reputable to point out some kind of silver lining, just some spark of hope or a potential way out of this rut but all I get is ever more dire news and predictions. It’s so depressing.
Greetings from Berlin! I agree that the mood here is quite bleak, even for Berlin! I think, as Paul indicated, the solution lies in investment and hence no Debt Brake. In my opinion, Germany also needs to diversify - to see services etc as good rather than as tawdry and to worry less about manufacturing superiority. It's a shame the Ampel failed, as I felt the Greens were the most serious about modernising. Perhaps Merz will realise he has to get rid of the debt brake. If so, let's hope he invests wisely - not just in automobiles.
You raise a very important question @l3nnz. My short answer is two-part:
a. Have a look around at other North Atlantic countries, many of them are experiencing very similar issues at the moment. So whatever one might identify as Germany's woes, they are really just a regional expression of wider currents. The US is a cautionary tale, the UK is, France is, Italy is, Hungary is, so is Poland. Lo and behold, even Denmark, or Sweden, or Spain, or Austria, Canada .. Malta etc etc. The upside of cautionary tales are - for example - Schumpeter's gales of creative (economic) destruction out of which new industries are born. The trouble is we ar not alway very good at identifying those industries while they are nascent. Might AI be it? In the 1990s we knew that the web was 'it' but people were betting on Netscape, or MySpace, the Rolling Stones gave 'free email addresses for life' away, all of this and much more disappeared within a few years, and then suddently mobile phones caught on in a big way and hardly anybody saw that one coming in the way it did or that a company that almost went bust while it was still mostly a desktop PC business should become one of the biggest winner of the smart phone media revolution.
b. Have a look around how you and your peers are doing. If your generation in your region cannot find work to build a life, and you are young, pack your bags and seek your fortune elsewhere. That's what life was always about since the dawn of time, if it does not flourish here for a while does not mean that it's not flourishing there. We are all the children of migrants after all.
It isn’t just the North Atlantic countries. Look at reports from South Korea, Japan and China, where young people are also facing negative economic news. It seems any country that has achieved a level of modernity is dealing with similar problems for their youth. In the past there was enough developmental disparity among nations and people to make migration a plausible short term individual option, but if many countries are experiencing the same “malaise” at the same time, migration won’t produce the kind of relatively positive outcomes earlier generations experienced. For example, migrating from Ireland in the 1840s to the US, which was still agrarian and had virtually no labor protections, was a reasonable individual decision considering the potato famine and political situation. Migrating from Ireland to the US now when both countries have similar living standards wouldn’t as beneficial.
That's a fair point, on the aggregate level. And political economies are of course prone to lock into diminished expectations from time to time :)
For the individual, it depends I would say. Where you see a single one I probably see many kinds of country specific 'malaise' narrative, which may all be related but do not easily sum up to homogenously shared sentiment (unless one heavily abstracts from local motivating factors).
More generally though, and let us not forget that so many live in vastly less prosperous conditions and must regard our reflection as misguided navel-gazing, what I had in mind was the individually lived experience resulting from packing your bags to try your luck elsewhere. Leaving one relatively prosperous place to settle in a comparably prosperous one still makes you go through the experience of being a stranger to the new place at first, and to the old place eventually, i.e. a new vantage point for reflecting on how both places look at themselves and into the world.
Have had a brief look at the migration literature and it does seem that migration between socio-economically matched regions is under-researched, in particular (and unsurprisingly so) in economics, unless one simply looks at labour mobility. I am very mindful of course that we are in the stack of somebody who has studied this question closely over the years. Perhaps we manage to nudge him into sharing some insight on it in a future post??
Just a note about wage stagnation: The real value of 'average' wages in the US has not changed significantly since the late 1960's. There's been a little bump recently, but there's 60 years of flatline before that.
Virtually all wealth created by increased productivity in the US has gone to the wealthy not middle to lower incomes since Reagan, unlike in previous years.
The frightening thing about Germany is that the economic downturn exacerbates hatred toward immigrants (how soon it'll turn toward Jews as well, if it hasn't already?) and promotes the authoritarian mentality ripe for another right-wing takeover.
Fortunately, things are not that bad there, yet.
I sometimes worry Trump is trying to crash our economy, and also the global economy, for this very reason you mention, as a way to consolidate more power, as these autocracies have arisen out of bad economic times and a desperate populace.
Good grief, look at what Musk is doing and think about Bannon's comments in the past, as well.
They certainly are using the authoritarian rise recipe, or playbook, pretty much to the letter and this also requires scapegoats like immigrants.
It is very scarry stuff.
I worry constantly, not just sometimes. But then, having grown up in a Soviet colony, I knew what to expect from drumpf, the first time and even more now.
This is concerning because it appears Elon Musk, DOGE, and Matthew Vaeth have plans to do the same. I'm not a passive reader. Please, if you're a passive reader, I urge you to do something with the information you get from Substack writers such as Paul Krugman, Ken Klippenstein, Robert Reich, Robert Hubbell, Heather Cox Richardson, and so on. These people are working their asses off and doing their part to protect our democracy and economy, and we should too! Please call your senators today, using the script at the bottom. TIP: Input all your elected officials' phone numbers and email addresses into your contact list so you can quickly contact them to complain/compliment. Their contact info, from sheriff to senators, is here: https://www.usa.gov/elected-officials
SCRIPT: Hi, my name is _____, and I’m urging Senator _____to fight Donald Trump’s illegal funding freezes, cuts, reorganizations, and terminations. I urge you to use every tool available to prevent the Senate from conducting business as usual, including:
Opposing all Trump administration nominees
Denying any requests for Unanimous Consent
Opposing all Cloture Votes
Requesting a Quorum Call at every possible opportunity
Shutting down the Senate
(end of script)
[insert wistful note: "Must be nice to have a senator" from every American citizen in DC, Puerto Rico, etc]
Now that we will "never have to vote again" and the wealthy oligarchs in control will not need to worry about those red state voters who lose their ag subsidies nor their representatives in congress, because they are going to vacuum up all of that ag land and stock share buy-backs of any company they deem worthwhile from the "losers" once the crash comes. Make America like Russia! Hungary!
I live in Germany, in Bremerhaven, a city with the 4th largest port in Europe and many problems. The dilapidated infrastructure hinders economic development. Many tasks have been imposed on the municipalities, the costs of which they cannot bear. Bremerhaven is actually on the verge of bankruptcy, like many German cities. The government has only now, in January 2025, decided to introduce a law to enable the state to relieve local authorities of debt. Given the current polls, it remains doubtful whether this will even be possible after the election. The current Federal Chancellor Olaf Scholz stands for the black zero under the Merkel government, but is the SPD's candidate for chancellor. The AFD is the second strongest party in the polls. The disenchantment of many people in Germany with politics is also due to the fact that they see the deterioration of the infrastructure in their communities. If people have contact with the “state”, then it is the municipalities. And all they see is a deterioration in their living conditions. This is the breeding ground for the right-wing AFD, which is a suspected far-right party in Germany. It is almost unbearable.
https://www.bundesregierung.de/breg-de/aktuelles/bund-hilft-kommunen-2331774
Dr. Krugman, Nicely written. The NY Times blew it, but you did not. You bobbed, wove, and resurfaced wonderfully on SubStack. Well done. Keep writing. I’ll start paying now.
Yes and no.. Germany began turning into a cautionary tale at around the time when a whole generation of academics left the country, many for good, when (badly needed) reforms of thewhole education system, at all levels, turned into many years of federalised chaos. That was one of the canaries in the coal mine and one can write books about it. High school education when from 13 to 12 then more recently back to 13 years, randomly sprinkled across the federal regions/Laender. Aspiring academics could, some place, ditch the (outdated) 'second doctorate' (Babilitation) traditionally required to secure a professorship, other place not, could become junior professor here, but not there etc etc.
More importantly however, Germany appears to have lost it's comparative advantage in SME manufacturing to the Chinese engineering sector. The whole Mittelstandsmodell, with its tight coupling between longstanding family firms, regional banks, and the political sphere, has been crumbling and it's not clear what will or can replace it. The fate of Volkswagen, who were the visionary firsts in locating car manafacture to China as soon as the Deng reforms made that possible, will become the historical metaphor of what has gone wrong with the German model.
This may sound overly pessimistic, but one can actually pick most sectors and find these metaphors of decay. Wirecard .. where even to begin? And we are not even talking yet about the fragility of German politics, which is sensitive of course to the economic fallout from the faiing model.
The bull case fo Germany is that as a whole, German society is sufficiently enlightened to pull through and come up with another Wirtschaftswunder that will amaze us all, or at least with something like the Schroeder reforms from not that long ago, for a bit of respite. I hope time is not running out for any of that, and I also hope that other readers can point me towards more optimistic takes on where Germany is headed these days :)
Look at the US today and count your blessings.
This is a terrific post even by Paul’s high standards.
Isn’t the difference in GDP growth essentially all due to the difference in population growth between the US and Germany from 2020 to 2024? Real wages seem to have grown at comparable rates. Unemployment trend (not level) is similar too except for the intense disruption in 2020.
Keep in mind that Germany and the US had very different approaches to guaranteeing incomes during the lockdowns. Germany paid employers to keep employees on the payroll, and thus keeping the unemployment rate down. The US allowed workers to be fired but paid them unemployment benefits. So taking out the big spike in 2020, the trends in unemployment are similar.
US population has grown at about 1% during 2020-2025. German population has declined. And then you also have the decline in working age population as shown in the chart in the post.
But the lack of infrastructure spending in Germany does not bode well for growth in the coming years. However, what is infuriating is that Trump is pissing away the dividends from Biden’s investments.
Disclaimer: my empirical assertions about wages, unemployment and population are entirely dependent on the accuracy of quick and dirty internet searches.
Great post as always, Paul Krugman, and you cracked me up with the German phrase insert. And while I love “King of Pain”, I personally would have inserted Nena’s “99 Luftballons” as musical coda for this Germany-focused post — especially since the Bulletin of Atomic Scientists just yesterday put the Doomsday Clock closer than ever before in history to the dreaded Midnight hour. Thank you so much for sharing your knowledge so generously. 🙏
Thank you Dr. Krugman. Here in the UK we are concerned that high levels of debt mean that debt service takes a growing proportion of our budget. Can you please comment on that?
Rachel,
This is fair. We have bought this economic glow with debt.
Some very basic stuff here but charts that make your concern real.
https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/
There is technological goodness to be had. I lot of good that will do us if that too is not used to service the debt and the public good, instead of lining the pockets of the 0.01% who own more than the entire bottom half.
I share your concern, along with others who point to the GDP as irrelevant to human success.
Tim
The decline of Deutsche Bahn, from an admired railroad operator to almost national joke status in Germany, could be exhibit A for the lack of investment by the German government... per your article.