Professor Krugman (P.K.) Would you please compare the economic situation between the USA and Germany which represent the Rhineland model?
In the USA the stock market is up , but the terrible employment situation where the “ real “ unemployment rate is close to 17 % when one includes the people who are too discouraged to look for a job is getting worse. Germany which took a bit hit to its G.D.P., when world trade collapsed, has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in the USA but it’s real, it’s striking , and it raises serious questions about whether the US government is doing the right thing to fight unemployment . In The USA the philosophy behind jobs policy can be summarized as “if you grow, they will come “: we have a G.D.P. policy. The theory is that by stimulating overall spending we can make G.D.P. grow faster, and this will induce companies to stop firing and resume hiring.

P. K. What do you propose as an alternative strategy?
The alternative would be policies that address the job issue more directly a type of “ NEW DEAL “ employment programs which at its peak employed millions of Americans at a relatively low cost to the budget . But is seems that this is politically impossible now in the country. Alternatively or in addition we could have policies that support private-public sector employment. Such policies could range from labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoff.

P.K. What strikes you in the German policy?
Germany came into the last Great recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme “which provides subsidies to employers who reduces workers hours rather than laying them off. These measures didn’t prevent a nasty recession with remarkably few job losses.

P. K. Should America be trying anything along these lines?
In a recent interview Lawrence Summers, the Obama administrative‘s highest –ranking economist was dismissive “It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work “. But we are not, in fact, expanding the total amount of work- and congressman doesn’t seem willing to spend enough on stimulus to change that unfortunate fact.

P. K. Why is there such an objection to European – style employment policies?
According to the last 30 years economic policies in the USA it would be bad for long term growth. For the last Administrations protecting jobs and encouraging work –sharing makes companies in expending sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. In normal times there’s something to be said for American –style “ free to lose “ labor markets , in which employers can fire workers at will but also face few barriers to new hiring .But these are not normal times . Right now, workers who lose their jobs aren’t moving to the jobs of the future; they are entering the ranks of the unemployed and staying there. Long – term unemployment is already at its highest levels since the 1930s, and its still on the rise. Long term unemployment inflicts long-term damage. Workers who have been out of a job for too long often find it hard to get back into the labor market even when conditions improve. And there are hidden costs, too- not least for children, who suffers physically and emotionally when their parents spend months or years unemployed.

P. K. What do you suggest the Obama Administration should do?
I believe that a large enough conventional stimuli would make it works. But since that doesn’t seem to be in the cards, we need to talk about cheaper alternatives that address the job directly. Should we introduce an employment tax credit directly, like the one proposed by the Economic policy Institute? Should we introduce the German-style job-sharing subsidy proposed by the Center for Economic policy Research? Both are worthy of consideration. The point is that we need to start doing something more than, and different from, what we’re already doing. It is time for a policy, taking into account the experience of other countries that explicitly and directly targets job creation.

Michel-François Clerin
524 Av. Louise
B-1050 Brussels - Belgium
michel_clerin@yahoo.fr