I recently spent a week in Berlin, where the entire city seemed under construction. In every direction, cranes and other heavy equipment dominated the landscape. Although many projects are in the private sector, innumerable others — including bridge and highway repairs, new subway stations and other infrastructure work — are financed by taxpayers.
But wait. Hasn’t Germany been one of the most outspoken advocates of fiscal austerity after the financial crisis? Yes, and that’s not a contradiction. Fiscally responsible businesses routinely borrow to invest, and so, until recently, did most governments.
...The Germans are investing in infrastructure not to provide short-term economic stimulus, but because those investments promise high returns. Yet their undeniable side effect has been to bolster employment substantially in the short run.
Not all German public investments have met expectations. Berlin’s new consolidated airport, for example, has suffered multiple delays and cost overruns, and parts of the city’s recently constructed central rail station are to have major repairs. But private investment projects suffer occasional setbacks, too, and no one argues that businesses should stop investing on that account.
The Germans didn’t become bogged down in debate over stimulus policy, and they didn’t explicitly portray their infrastructure push as stimulus. But that didn’t hamper their strategy’s remarkable effectiveness at putting people to work. The unemployment rate in Germany, at 5.3 percent and falling, is now substantially lower than in the United States, where it ticked up to 7.6 percent last month. (By contrast, in March 2007, before the financial crisis, the rate in Germany was 9.2 percent, about five percentage points higher than in the United States.)
I have travelled extensively throughout Germany, including the eastern part (former DDR) in the decade following reunification. The German government in Bonn (and later Berlin) poured money into the East. The results? A stunningly beautiful infrastructure, but little real economic growth. I rode sleek, high-speed trains over smooth new track through decrepit villages full of abandoned houses and factories. I drove on the autobahns past abandoned farms and decaying towns. Many of the residents of eastern germany have moved to the west, where the jobs are.