A Tale of Three Economies

This is a tale of three economies. Two of them are walking in the same direction, while the third chose a different way. They stand in stark contrast to one another, and show just how far out of whack economically America is getting.

The first two economies stood side by side in 1930; America and Germany. Both had been ravaged economically, but for different reasons. In a lot of ways, the problems in Germany were far worse, where at one point unemployment reached 30% and government revenues would fall by over 25%. Due to the crippling exportation of currency due to the Versailles Treaty, a dollar was worth over 4,000 German marks at times. There were stories of Germans burning money to stay warm.

But over the next decade, the economy in Germany, much like those in the rest of Europe would recover, while the economy in America did not. Understanding the difference is vital. Not understanding the difference could be fatal.

The general idea promoted to the public is far too simple-minded; a huge military buildup put all the Germans to work as soldiers. Yet this is not quite the truth. When Germany went to war in 1939, the German army was smaller than the British and French forces facing her. No, something more effective was at work.

First, Germany stopped the bleeding by cutting off the reparations payments to the Allied countries. Next, Germany did expand public works programs, but did so while keeping wages and taxes low. And, Germany focused on exports. Originally, Germany did so because it was believed that having a strong export economy would limit the ability of the other countries to complain when they stopped paying reparations.

However, it had another effect often overlooked. It allowed the German government to practice limited deficit spending because the increased money supply was covered at least mostly by the value of the incoming foreign currency. All of the European countries did a similar mix of stimulating the economy and limiting inflation. The depression was over in most of Europe long before it was over in America.

America was different. While most of the European nations acted cautiously in working the economic recovery and focused on limiting the inflation that began the problem in the first place (in Germany), FDR took almost the opposite tack.

While Europeans were working to keep inflation down, over three billion dollars were dumped into the American economy in the early 1930's. In Europe, real wages were allowed to fall, spreading economic activity out, while in America Roosevelt focused on raising wages during the depression, keeping economic growth from expanding outwards through excessive wages. While Europe recovered, Americans made propaganda about the wonders of inflation.

And while Roosevelt courted the unions, the Germans built an economic trading system across the eastern part of Europe, meant to benefit the Germans but ultimately benefiting all parties. By 1935, the depression was largely over in Europe--and not even close to being over in America.

Which brings us to the third economy: ours. With the massive changes taking place in the American economy, we must start to ask ourselves which pattern we are following today. While the "activity" of the Obama administration looks good to certain activists and ideologues who contain certain preconceived notions, we must ask ourselves if we are doing the right thing.

I would suggest that the current economic policies of Obama look a whole lot more like the failed economic pattern America followed during the 1930's than the far more successful policies followed in Europe.

During the great depression, the nations of Europe refused to follow the American Leftist pattern of economics. When they finally started to adopt those policies during the 60's and 70's they quickly got themselves into economic hot water. And now that the nations of Europe have started to free themselves of their self-imposed shackles, they are refusing to follow us back down that path again.

Perhaps it is time we learn something from that.

**If you would like to know more about this issue, please review the following links. They provide a great starting point.**

http://www.thetrumpet.com/index.php?q=5243.3532.0.0

http://en.wikipedia.org/wiki/Economy_of_Nazi_Germany

http://www.zum.de/whkmla/region/germany/wr19291932.html

http://www.fsmitha.com/h2/ch15wd.html

http://www.youtube.com/watch?v=99Dzdc1H0wM