Howard Rich's Blog

March 31, 2009

Merkel’s Moxie

From Investor’s Business Daily:

Stimulus: British Prime Minister Gordon Brown’s idea for a “global stimulus plan” has met with resolute opposition from Germany’s leader, Angela Merkel. Good to see that common sense isn’t dead, at least in Europe.

Brown, who’ll be hosting the leaders of the G-20 nations later this week as they seek a way out of the global financial crisis, has pushed what he calls a “global New Deal” of up to $2 trillion in added spending.

But he’s had trouble selling his idea to others — to put it mildly. Czech Prime Minister and EU President Mirek Topolanek called it “a way to hell.” Even Bank of England Governor Mervyn King trashed the idea.

Now comes Merkel, who, as head of the world’s third-largest economy, has probably killed Brown’s big idea.

“I will not let anyone tell me that we must spend more money,” she said over the weekend. “We must look at the causes of this crisis. It happened because we were living beyond our means. . . . We cannot repeat this mistake.”

Precisely the point. The idea that global bureaucrats and politicians can direct $2 trillion in spending and tax shifts to the most productive sectors of the economy is a sick fantasy that only a socialist could love.

History has repeatedly shown that uncontrolled government spending is wasteful and fails to stimulate anything.

The EU has already dedicated some 4% of the region’s GDP to “stimulus,” yet nothing is stimulated. With EU budgets tight and rules requiring countries to limit their deficits to 3% of GDP, more spending simply isn’t possible now. Nor would it be wise.

The U.S., for its part, has been hoping that Brown’s plan would prevail. After all, we’ve already committed more than 8% of our GDP to stimulus, with more to come.

Merkel’s opposition to this is key. She has a perspective we don’t because of Germany’s tragic history in the 20th century.

After World War I, Germany tried to spend its way out of a recession brought on in large part by the onerous war reparations.

As Weimar Germany printed money, inflation soared (in 1918, $1 bought 4.2 German marks but by 1923, $1 fetched 4.2 trillion marks) and unemployment surged. In that fertile ground for mass economic discontent, Hitler’s Nazis were able to plant their seed.

We’re not saying we’re living through a reprise of Weimar. But the “stimulus” amounts now being bandied about are alarming.

World leaders would be wise to go back to what really works: Lower taxes, less spending, fewer regulations, freer trade.

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