Trouble for cradle of social welfare state policies

Germany, whose welfare state model inspired the "progressive" movement of which Obama and the American Left are so enamored, is in deep economic trouble. The new "poverty atlas," reported yesterday by Time/CNN, reveals that Germany is an economic failure even by "social welfare" standards - poverty is deep and widespread and economic inequality is pervasive. What's more shocking, the reported is based on data taken before the recession hit.

According to the report:

... in eastern Germany, for example, the average poverty rate is around 20%, with up to 27% of people in one area, Vorpommern, living below the poverty line. By contrast, in southern Germany, in the states of Hesse, Baden-Württemberg and Bavaria, the poverty rate is around 11%. ...

Chancellor Angela Merkel's home state, Mecklenburg-Vorpommern, is the poorest region in Germany with a 24% poverty rate; one of the richest is the picture-postcard pretty Black Forest region, with a poverty rate of only 7.4%. According to the report, the massive gulf between rich and poor doesn't only exist between regions, but within them, too. The northern areas of the state of Bavaria have a poverty rate of 15%, more than double the 7% rate in Munich, in southern Bavaria. ...

The authors of the report conclude that Germany is a "deeply divided country in terms of income and wealth."  This in the country that gave birth, thanks to Otto von Bismarck, to the cradle-to-grave model of social welfarism, thought to be the "third way" between capitalism and socialism.

Of course, dreams die hard. The reports authors say that "targeted measures" are needed to tackle poverty and unemployment, "but they admit there's no magic bullet."

They may want to look to their own past. The German post-war boom, referred to as the German "economic miracle," was due in large part to free market measures undertaken by Ludwig Erhard. Erhard was Bavarian minister of finance in 1945 and later became the director of the bizonal Office of Economic Opportunity and, in that capacity, advised U.S. General Lucius D. Clay, military governor of the U.S. zone. Erhard's policies of currency reform, decontrol of prices, and across the board tax cuts led to astounding growth in the West German economy. Because of Erhard's success, the first chancellor of the new Federal Republic of Germany, Konrad Anedauer, appointed Erhard as Germany's first minister of economic affairs, a post he held until 1963.

Hans Hermann-Hoppe, associate professor of economics at the University of Nevada Las  Vegas, writing in The Review of Austrian Economics, Vol. 5, No. 2 (1991), noted that Erhard, whose economic philosophy had been influenced by the Austrian school of Ludwig von Mises, initiated a hard money policy combined with tax cuts and free market reforms:

[C]ontrary to the advice of American and British economic experts, who were taken completely by surprise, and against the prevailing public opinion in Germany ... Erhard implemented a radical - although by no means flawless - free-market reform.... [F]oreign experts and German public opinion had favored a policy of macro-economic management, of socialized investment, and a sector of nationalized 'basic' industries. Instead, with one stroke Erhard abolished almost all price and wage controls and allowed almost complete freedom of movement, trade and occupation, thus radically expanding the rights of private-property owners.

The German economic miracle effectively ended in the 1970s with the oil embargo, and never really resumed. Government policies drifted further Leftward, toward socialism and welfarism, with cradle-to-grave social policies and an inflexible labor market. It is now sinking under the weight of record debt.

Germany desperately needs the return of the free market policies of Ludwig Erhard. And so do we.
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