The German emphasis on competitiveness and the Obama Administration’s obsession with demand management captures well why these economies are moving at such discrepant speeds. The Obama Administration proposes significant tax increases on consumers and small business owners (most small business income is reported by taxpayers in the top two personal income tax brackets that are set to rise substantially in 2011), but is willing to spare no expense to prevent any contraction of state and local payrolls. Rather than focusing on public support for consumption expenditure, the Obama Administration should be more concerned about U.S. competitiveness and productivity. As former IMF Chief Economist Ken Rogoff recently wrote, the Obama Administration’s preferred narrative of the Great Depression – where premature end to stimulus resulted in the 1937 double-dip – totally ignores how the increase in the “role of the state in an often chaotic and unpredictable fashion” suppressed private sector spending and investment. The monomaniacal focus on demand stimulation inures Administration officials to policies that sow uncertainty and slow the private sector’s recovery.
But not on purpose, I don’t think.