Indirect Studying

I don’t know what it is about a little box to type in in a Safari window, but this is so much more fun than typing in a Word document. Therefore, I’m going to tell you everything I know about Germany’s economy so I don’t fail my Comp Econ Exam.

This class is pretty interesting, you just really have to get into it and focus (which I’m really bad at).

Germany is like one of those people you grew up with that went through a really weird phase in middle school, then got semi-normal in high school, but you still won’t talk to them because you’re still a little bit scared of them.

And when I say that, I mean it. First of all, Germany in the beginning wasn’t even a Germany, it was a bunch of little tribes hellbent on ruling all of Europe. I’m sorry, but if you want to rule an entire continent, you should at least get your tribes together into one uniform state first, I mean am I right. Otto von Bismark was just that guy. He got all of the little tribes together to make the German Kingdom in 1871.

After 1871, it was pretty much smooth sailing, that is up until WWI (oh lord). Germany grew astronomically after that, mostly because the Germans are pretty awesome with science and technology.

Moving on to 1919. The Versailles Treaty was just signed. Germany’s got a lot of debts to pay, and a lot of land being taken from them. The government thought it would be a good idea to start printing money to pay these debts. Hint: never do this if you are pres of the Fed. It will basically devalue your currency. The country went into a huge hyperinflation, with the currency decreasing in value almost by the hour in the really intense bouts. Luckily this was brought under control by 1923 – just in time for the Great Depression to take over the assault of Germany in the 30’s.

The Great Depression hit Germany, and hit it hard. Things were so bad, the people were looking for anyone that could fix their situation. Who could blame them? Hitler came in, and was all “I can totally fix this guys, chill”, and instead took power, outlawed all other political powers, and oversaw the Holocaust. Seriously, worst person ever.

It hurts me to say this, but Hitler’s economic choices did help Germany out of the Depression. Germany’s GDP doubled between 1932 and 1938. Hitler imposed a command capitalist system, and held corporate state standards (basically, Hitler made corporations and workers get along, no matter what). He imposed price controls, dumped a ton of money into the war, created a ton of cartels to keep people employed, controlled trade with other countries and tried to dampen that to become more self-suffiicent as a country, and built a lot of highways and bridges and stuff.

World War II happened, and Germany was split up faster than you could say “Ya lost, Nazis.” The country was split up into 6 zones. West and East Germany was created. The West, called the Federal Republic of Germany, was helped by the US, and the East, called the German Democratic Republic, was owned by the Soviet Union.

It’s sad really, because the FRG focused on becoming for of a laissez-faire economy, but with a huge sector for helping people out (technically speaking, a social market economy), and the GDR was basically stripped of it’s factories, infrastructure, and resources, and kept it as more of possession than an area to be fixed and you know, not repressed. Compare to: Dudley as FRG, Harry Potter (pre wizarding world) as GDR, and the US being Dudley’s parents.

Let’s ignore our poor wizard for a second, and talk about Dudley. Some great things happened to the FRG after the split. First of all, Ludwig Erhard is the man. He believed in a strong government that could split up cartels, and support free markets, and large social safety nets. Basically, the best of both worlds.

Erhard had this crazy idea, to create a new currency which was equal to previous wages, but basically devalued all debts, to remove all but a few price controls, all in the span of a few days, and without telling anyone. Now that is power. And guess what? It worked. Boo yah. This was deemed the Big Bang approach (in german words – Wirtschaftswunder), and the economic awesomeness and growth that ensued was called economic miracle. 

With that much growth all at once, there was bound to be a slowdown. Unemployment is rising again, and some problems are starting to surface, which could be blamed on a number of things, including the global slowdown, or the European Union slowdown.

Meanwhile, poor little Harry Potter was stuck in the cupboard under the stairs, AKA the GDR was being ransacked by the Soviet Union and basically left for scraps. The GDR adopted a command socialist system, so basically the state owned everything. They had these things called Kombinats, which were started in 1979. The Kombinats were huge combines owned by the state that were directed by steering mechanisms, which were not focused on gross output.

Let’s stop and think for a second. Germany was split in two. One was taken over and made into a command socialist economy, with the state owning basically every part of production, and the other was taken over by a guy who believes in the invisible hand. Two very systems, two very different outcomes.

The GDR had really low unemployment, greater large-scale economic stability, a little more extensive social safety net, and greater income equality. The standard of living was lower, and productivity was lower. The FRG was way more efficient, had a higher standard of living, and took care of their environment more. Comparatively though, both the FRG and GDR had pretty similar social safety nets.

In 1990, the two parts of Germany were unified. Yay right? Nope. This was really expensive and complicated since one was socialist and the other was capitalist. The tried the big bang economic transformation again, to try and get the socialist part to become capitalist. This was really lame and difficult, because they adjoined currencies, and they were SO not worth the same amount in either area. The GDR currency was overvalued, and the FRG became undervalued. The output of the GDR collapsed. Unemployment rose in the East. The THA was created to privatize in the East what the Soviet Union messed up. Germany reluctantly gave up their own currency and now use the Euro through the ECB, which is located in Germany.

Germany’s labor market is a littler weird too. They do what’s called codetermination. The workers are elected to both an advisory board that overlooks worker’s day to day worries, like wage, hiring, firing, etc. Workers are also elected to a supervisory board which oversees higher management things in bigger firms (500+ employees).

Nowadays, Germany is trying to spur growth again, but is also scared of the impending shrinking of their skilled engineer pool. They still have a pretty extensive social safety net, and pretty high taxes, but not anywhere close to Sweden’s burden. They rely heavily on exports, and manufacturing. Bonus points for: having the biggest economy in Europe, and having the highest  GDP per capita (even higher than the US, good on you!), having the smallest government deficit, AND having the highest growth than most of Europe, even though their growth rate is slowing a little.

Good job Germany, you go. I will not be judging you for your awkward weird phase back in middle school (AKA the Holocaust and Nazis). 



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