September 5, 2011--The German Wirtschaftswunder

For some time I have been attempting to understand the nature of the German Wirtschaftswunder. Their current economic miracle.

While the U.S. and the rest of Europe struggle desperately with debt crises, unemployment, GDP stagnation, and social unrest, the Germans, who were also hit hard at the end of 2008, appear to have bounced back. Unemployment there is less than 7.0 percent and sovereign debt does not appear to be too much of a problem.

Great Britain, by contrast, has a 7.9 percent unemployment rate, France 9.5, Greece more than 15 percent, and Spain has the highest EU rate of about 22 percent. And in the U.S. at least 9.1 percent are unemployed.

How then, has Germany done so comparatively well?

Traditional explanations are not unlike the one offered by the IMF:

Germany’s strong export orientation stems from the openness of its economy, its long-standing manufacturing traditions and its competitiveness in global markets. After enduring nearly a decade of slow growth and low inflation, Germany has disinflated its way to an extremely competitive position thanks to painful labor market reforms. The cost of one hour of labor in Germany is now extremely low relative to the economic value added in that hour.

There is yet another explanation--Germany has strategically adjusted some taxes. Republicans here are happy to note that German depreciation rates have been lowered and the hotel VAT tax has been reduced to 7 percent. On the other hand, Democrats cite that certain taxes have been raised. Including those for sex workers.

The New York Times, pun intended, is on top of the story. It is linked below.

Prostitution, of course , is legal in Germany and thus it is for the most part regulated and taxed. In some cities, sex workers are even unionized. In Bonn, the formerly sleepy city, about 10 percent of their 200 sex workers work the streets. The others are set up in bordellos. The latter are easier to monitor and tax. But the ones on the street up to this point have not been easy to track and tax though they are protected by a private security agency that costs the Bonn government $116,000 a year to deploy.

Using some of the same technological knowhow that results in high-end cars such as the BMW and the Mercedes, through a contract with Siemans, streetwalkers are now being taxed at rates equivalent to those in the sauna clubs.

Last week, Bonn officials installed ticket machines on the streets where the streetwalkers ply their trade. They are being asked to use them to pay a nightly fee of 6 euros (about $8.65) just as folks who park their cars on the street are required to buy tickets from meters.

In spite of the sophistication of the technology, we're probably more talking fairness than big bucks. In the first week of operation, the municipality collected the equivalent of only $382. But it's a start.

I suspect that when the U.S. Congress' super committee, its Gang of 12, begins to meet next week to look for places to cut spending and maybe "enhance revenues," they will look to Germany for inspiration. After all, 7 percent unemployment sounds a lot better than 9.1.