Tuesday, September 1, 2009

The rise of Germany's supply siders

BERLIN—Even in the best of economic times, Germany's relationship with capitalism is ambiguous. Calling investors "locusts"—particularly if they are Anglo-Saxon—doesn't make one a radical here. And yet, in the midst of a global financial crisis, the country's free-market party is heading toward its greatest political success. Less than one month before general elections, polls suggest the Free Democratic Party could get a record 15% of the vote—putting them in a strong position in a future government with Angela Merkel's Christian Democrats. Meanwhile, the chancellor's current coalition partner, the Social Democrats, can't catch a break from the global banking failures. With their numbers in the low 20s, some 12 percentage points behind the leading Christian Democrats, they are heading toward their worst defeat in post-war history.

For the FDP's secretary general, though, there is nothing counterintuitive about this development.

"It is obvious that especially in difficult economic times, people have a gut feeling for who has an understanding of economics and who hasn't," Dirk Niebel told me in his office. Put differently, when the economy is humming along just fine, Germans think they can afford expansive welfare policies. But when the order books are empty, they quickly realize that wealth must be created first before it can be distributed. And in this global crisis, Germany's export-oriented economy is among the hardest hit in the industrialized world. Gross domestic product is expected to shrink by about 6% this year. Ideal circumstances, in other words, for the FDP's supply-side policies

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