According to figures released recently by the U.S. Labor Department, labor productivity declined at an annual rate of .6% in the first quarter of 2016. Productivity grew an average 2.2% since World War II, but just .5% over the last five years. That's the slowest five-year growth rate since the late 1970s.
Over the past 55 years, the U.S. government has focused on maintaining high employment. It has used budgetary deficits and monetary easing, a policy I have called credit inflation, to achieve this goal. But that's led to a slowdown in the rate of labor productivity growth and a subsequent reduction in the rate at which the U.S. economy has grown.
The compound annual rate of growth during the economic recovery of the past seven years has been a sluggish 2.2%. The governmental economic policies behind this mediocre performance must be changed.
Not everyone agrees with this. Peter Bofinger, a professor of economics at Würzburg University and a member of the German Council of Economic Experts, argued in the Financial Times that Germany, a country that has followed the kind of policy I am advocating, needs to move to an economic policy more like that in the United States.
Professor Bofinger argues that the last thing Germany should do is export its current philosophy of governmental economic policy to the rest of the world.
He contends that German economists and policy makers have "the strong conviction that problems of aggregate demand are of secondary importance as long as prices are sufficiently flexible" and "this explains the country's insistence on structural reform as the solution to almost all economic problems and the quasi-religious fixation on the 'black zero', the balanced fiscal budget with no red ink."
Germany has the biggest, strongest economy in the Eurozone and has had practically no inflation in years. The German unemployment rate has been low, and German workers have tended to receive frequent wage increases. German goods are competitive in world markets, its ratio of exports to gross domestic product is 46%. In the United States this figure is 13%.
The question Professor Bofinger raises is "How has such a narrow economic paradigm (such a narrow concept of economic policy) survived for so long in Germany?
He says "the answer is simple: Its economic policy using this approach has been quite successful." He says that Germany can take advantage of all the other countries that pursue "demand-side policies."
This accounts for the large number of exports to the rest of the world.
Bofinger writes "About 60% of the German current account surplus is with the U.S., the UK, France and Italy, which all have relatively high fiscal deficits."
In other words, German policy makers take advantage of the stupidity of policy makers in other countries.
Germany also has high and growing labor productivity, which accounts for much of its competitiveness.
This is where Professor Bofinger gets his conclusion wrong. He says that "the German approach becomes dangerous when politicians try to apply policies which can work in isolation in a very open economy to a large and not very open currency area like the eurozone."
What he doesn't add is that much of the Eurozone, like Italy and France, lags in labor productivity and needs substantial reforms. But these are not forthcoming because there is no political union in Europe that works in a consistent manner with the currency union.
Furthermore, with labor productivity lagging in the United States and showing little strength in the UK, Germany can remain successful with its economic policy for some time.
Rather than condemn Germany, maybe Professor Bofinger should call attention to the self-created problems of these other countries.
Maybe leaders in the United States should pay attention to its self-created problems, as well.