Sunday, August 14, 2011

Successful Wealth Redistribution and the German Model

With a hat tip to CaryGEE, I just finished reading the Age of Outrage by Roger Cohen at the New York Times, which led me to ponder the causes of the world's problems, and I asked: "What is the Proper Role of the Adult Population in Our World Society, Especially its Leadership?"

From my point of view, we live in a modern world where the prevailing political, economic, societal and religious leaderships are all primarily concerned with all kinds of theoretical and often totally unproven and unprovable dogmas, rather than concentrating on the practical exercise of leadership responsibilities, chief among which is making this world a better place for all of us to live in.

How can there be such a thing as unemployment, anywhere? There are enough goods, services and resources available to "redistribute" employment on a broad scale and make full employment universal, so why is it not done?

We do not have to look far for the answers. Let us try looking at our own doorstep. Cohen picks primarily on Europe in his op-ed, which is an unfortunate habit of Americans in focusing on the failings of other nations, rather than looking at the glaring deficits in their own country.

WHO in America is interested in "the general welfare" of the people of the great American nation? Almost no one. All that we see among politicians and supporters of the Republican and Democratic Parties are deeply drawn political trenches between haves and have-nots, between antiquated and outdated dogmas and ineffective economic strategy reruns.

No one wants to give up a dollar of what he has. Indeed, everyone is struggling mightily to add more dollars to their OWN accounts.

While a small group accumulates wealth and earns millions, another large and increasing group is without work -- unemployed, not because they do not want to work, but because there is no work to be had. Someone in China, for example, is doing that work for pennies an hour, making the wealthy even wealthier. THE SYSTEM has allowed that to happen. We could have done it differently. We could have retained people's jobs. We could have spread the wealth more equitably, but we have not. We allow salary caps in sports, so why not in "real life"? Because people are too greedy.

As a consequence, society as a whole, in the form of the government of the various nations, has the responsibility to redistribute the nation's wealth fairly, wealth that has been unfairly distributed for a long period of time. We wrote previously at LawPundit:
"There is in fact absolute empirical evidence that a judicious redistribution of wealth achieves the goal of a social minimum and we find that proof in a publication of The Century Foundation (TCF) entitled The New American Economy: A Rising Tide that Lifts Only Yachts (updated). This publication shows that equitable distribution of wealth is the only viable solution to poverty (we quote the original text of the study, published in 2004):
"When considering only household earnings (before taxes and transfers), the United States does not have an unusual proportion of its population living in poverty. However, as the figure illustrates, after considering the effects of public policies, the proportion of the population in the United States that remains in poverty is significantly higher than that for other nations.

[See Figure 7].
As the figure makes clear, other countries do not wait for economic tides to turn, but rely much more than the United States does on active tax and transfer policies to lift families out of low-income status....

Policy decisions affecting income and wealth distributions are complex, both politically and substantively. Some income and wealth inequality is necessary to provide incentives for efficient allocation of time, labor, and capital. But for most Americans, the prospect of these ever-widening income and wealth gaps, coupled with little improvement in the economic well-being of the majority of the population, surely must provoke unease. Is this really the America we want?"
Germany presents a real world example that wealth redistribution is possible and can be quite successful. Germany today is doing fine economically. Indeed, it leads Europe economically. How is that possible?

Only 20 years ago, an extremely wealthy West Germany "reunified" with a hopelessly poor East Germany that had been devastated by more than 40 years of dogmatically determined life under the theoretical and economically useless Communist doctrine of Marxism-Leninism.

Ca. 60 million "wealthy" West Germans suddenly took up the responsibility of bringing ca. 17 million "very poor" East Germans up to their Western standard of living. The policy was not popular everywhere in Germany, but the government pushed it through.

The Wikipedia summarizes various sources about the costs of reunification at New States of Germany:
"Reunification cost the federal government 2 Trillion.[9] At reunification, almost all East German industry was outdated.[7] The government had to privatise 8,500 state-owned East German enterprises.[9] Since 1990, between €100 billion and €140 billion a year have been transferred to the new states.[9] More than $60 billion were spent supporting businesses and building infrastructure in the years 2006-2008.[10]
A €156 billion economic plan, Solidarity Pact II, came into force in 2005, and provides the financial basis for the advancement and special promotion of economy of the new federal states until 2019.[7] The "solidarity tax", a 5.5% surcharge on the income tax, was instated by the Kohl government to restore the infrastructure of the new states to the levels of the western ones.[11] The tax, which raises €11 billion a year, will be maintained until 2019 at least.[11]
Ever since the reunification, the unemployment rate in the east has been almost twice that of the west, currently at 12.7%[12] (as of April 2010) after having reached a maximum of 18.7% in 2005. In the 1999-2009 decade, economic activity per person has risen from 67% to 71% of western Germany.[10] According to Wolfgang Tiefensee in 2009, the minister then responsible for the development of the new federal states, “The gap is closing.”[10] Eastern Germany is also the part of the country least affected by the current financial crisis.[13]"
Is a reconstruction of America and other debt-ridden European countries possible under a similar model of sensible wealth redistribution?

Of course it is possible, but the citizens of the United States and the debt-ridden European nations must be willing to raise their nations up by their bootstraps ... either that, or dangerous civil unrest on a large scale is inevitable down the road.

In the debt-ridden countries, increased taxation of those "who have" is inevitable, in their own long-term interest.

Germany has done it, successfully.

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