Germany Fiscal Policy Provides A Great Example For The US

Germany recently announced that their government would be implementing a plan to cut spending but not raise taxes, in an initiative aimed at balancing their books.

"Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery.

Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”.

The comments appeared aimed at heading off international criticism that German fiscal austerity would hit Europe’s growth prospects."

This is in stark contrast to the US, where President Obama spent last week in Toronto urging fellow members of the G20 to continue running up budget deficits in order to create "growth".

It should be obvious to the reader that all spending by the government simply displaces either current or future private spending, because government spending involves taking money from private individuals (in the form of taxes) that would otherwise be spent or saved (and later spent, by those taking loans from banks).

Higher taxes and more spending are simply a means for the government to gain more control over the economy and, indirectly, our own personal lives without creating an appreciable difference in the overall economy or our own collective well-being.

Germany's approach here is the correct one, which demonstrates why it's been the stalwart of the EU since the latter's formation. Cutting spending and keeping taxes in check are a much better recipe for economic success than increasing spending and taxes, and will likely allow Germany to emerge from the economic recession in much better shape than its competitors.

On the other hand, it's ironic and yet sad and pathetic that just days before the 4th of July, which of course a couple hundred years ago saw the overthrow of a tyrannical government by the people of America, President Obama is out lecturing other countries that the path forward is for governments of the world to exercise even more state-control over their "subjects".