Germany reparations at 200% of GDP were unpayable; national debt of 200% is no problem

An Economic History of the World since 1400 by Donald J. Harreld takes the conventional view that the reparations Germany was obligated to pay following World War I were so large that they forced the company into an economic death spiral. The professor says that Germany was to pay $30 billion over a 70-year period that this was roughly 2X the German national income (a book that I reviewed in 2011 puts the number at 83 percent of GDP) at the time. Germany could “never hope to pay” this amount and the debt made World War II more likely.

The lectures also say that Germany made things worse by printing money to meet government expenses. [Though the Germany government stopped making reparations payments in 1933 after Hitler was elected.]

What are Americans’ best ideas in the econ department lately? Pushing government debt from its current 106 percent of GDP (already more than the Germans owed, according to the 2011 book) up and over 200 percent so that we can pay for things we want such as the Green New Deal. At the same time we will apply Modern Monetary Theory so that we can simply print more dollars whenever we need to buy something. (I like this idea, but I think it would work even better if we ask Zimbabwe to print Zim Dollars to pay for the stuff that we need/want. They’re already doing a lot of printing so if we send them some paper and ink they shouldn’t mind printing more.)

The professor himself seems unaware of this apparent contradiction. He is a Big Government, Keynesian Spending, and Welfare State enthusiast. He does point out the Keynes said that governments should spend less during boom times and that modern governments never implement this part of the theory. But he never explains why it is obvious that Germany could never pay an amount comparable to its GDP while it is simultaneously obvious that modern Welfare States can meet their debt and entitlement obligations (closer to 500 percent of GDP for the U.S. when you add in Medicare and Social Security; see this 2010 chart in the New York Times in which Greece owed 875 percent total while the U.S. was at 500 percent (i.e., the U.S. owes 5 years of GDP)).

Separately, the professor notes that the U.S. and Germany had the longest and deepest economic depressions during the 1930s and pursued similar economic policies:

The two countries hardest hit by the Great Depression were the United States and Germany—countries that hadn’t left the gold standard. And both Germany and the United States adopted several practices to stabilize their domestic economies in the 1930s that were amazingly similar. … Both countries used similar strategies to combat unemployment and poverty in their populations, including poor relief and public works programs. Both governments also set up work camps for young men from rural areas, primarily to keep them from migrating to the industrial workforce.

Countries such as England that relied on market economics came out of the Depression much faster, according to the class.


12 thoughts on “Germany reparations at 200% of GDP were unpayable; national debt of 200% is no problem

  1. A government can only print money and create debt to the extend that trading partners and lenders will allow it. Right now, the rich in Europe and other countries are buying because their options in Europe are worse (less or even negative interest). What the MMT folks including AOC fail to realize is that the Green New Deal, and Socialists in power in the US mean that our trading partners no longer trust the US, and then interest rates soar, shelves empty, and we are Venezuela, unable to pay our debts. Debts and money printing CAN be done, but should only be done in concert with other developed countries. Debt is all about TRUST and what AOC and other MMTs advocate violate that trust.

    • the Green New Deal means diminishing US GDP sans new debt and bureaucratic, not creative, destruction of amortized assets. Real GDP would fall if it is enacted.

  2. Oh, boy. MMT at Philip Greenspun’s weblog. I realize this is widely considered to be a pertinent and timely discussion to be having, but I think it’s more like a debate about what brand of gasoline it’s better to douse oneself with while lighting the bonfire. I hope it never comes to pass. If it does, we’re finished. So I’m going to stay out of this one and Just Say No.

    “Bureaucratic, not creative, destruction of amortized assets.” That’s the long way of saying: “Armageddon.”

  3. The two countries hardest hit by the Great Depression were the United States and Germany—countries that hadn’t left the gold standard.

    Countries such as England that relied on market economics came out of the Depression much faster, according to the class.

    It sounds like that gold standard was big drawback. The British allowed their currency to decline in value and enjoyed increased employment as a result. Your summary of the American experience leaves out the change in course that occurred in 1937. The deficit spending was working pretty well during FDR’s first four years. In 1937 there was a concern about the deficit and president cut spending and caused growth to go negative again. It’s also well known that prosperity truly arrived with the massive deficit spending that occurred during the war.

    • What are properties of “The deficit spending was working pretty well during FDR’s first four years”? Proliferation of train hobos that searched unstable employments at outfits not touched by FDR policies? “On May 6, 1939, Henry Morgenthau, Roosevelt’s treasury secretary, confirmed the total failure of the New Deal to stop the Great Depression: “We are spending more than we have ever spent before and it does not work. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!” And if green deal is passed total destruction is likely to follow. Why new “best and brightest” need special pre-conditions that require destruction of good things? The Green New Deal just produce Hot Air, not even able to put few line of code or approximations together unlike their funders. Why Wright Brothers, Edison, Singer, etc did not need uncle Sam walking around with a stick and whacking existing infrastructure.

    • Interesting. According to unemployment statistics at your link 1931 unemployment rate was smaller than one cited in foundation for economic education article that was linked previously. If the article stats are correct how do you explain FDR Secretary of Treasury statement? He would be the best person to know FDR time unemployment rates and considered very accomplished and masterfully guiding US economy through WWII and not specifically interested criticize FDR as his only power was personal friendship with FDR (childhood next door neighbor). I think that resolution to this paradox is on home page of main article is : “States Where Pot Is Legal”. Other titles: “Are You Protecting Your Rental Track” (with staff from first article?) ,”9 Tips To Prevent Fire in Your Home” (again, is staff from 1st article involved?), etc… I am afraid that economics stats there too overlap with their major topic.

  4. We are doing fine on time.
    We already elected a Hitler. The heroes of our Resistance are risking their lives daily by sneaking into gender-biased bathrooms and televising those on CNN.
    Therefore we won’t be like Zimbabwe!

    The national debt is so much less exciting than the bathrooms: just ask any teenager (or a registered Democrat, FWIW).

  5. MMT level debt isn’t something we can avoid, we are getting there under both Democratic and Republican administrations. MMT proponents say debt is delightful, opponents in power say it’s horrible but vote for it anyway. It’s like a bunch of alcoholics discussing what and why they drink, the commonality is they keep drinking.

    The comments to the earlier post on German debt were interesting. Several people thought the difference was that German debt was imposed on them by outsiders instead of being the choice of the Germans. How would this apply to a divided country where a large fraction don’t want more debt and taxes but they are still imposed by a larger group that benefits from them?

  6. There’s an important distinction between Germany during the Weimar period and America today. Back then the French and Belgians, etc. wanted that debt to paid off. No creditors appear to be demanding that America pay off its debts. There was a period around 20 years ago when the debt was declining. The great anti-government economist Alan Greenspan declared that it would be a problem if the debt were to be paid off completely because the Federal Reserve buys and sells US debt as part of it operations. The great conservative thinker Rush Limbaugh chimed in to say that surpluses are outrageous because they occur due to the government collecting more tax than it needs to pay its bills.

    • And, as you mention above, it’s easier to pay off your debts in paper you print yourself than gold. Or, as numerous third world countries have found out, debt denoted in US dollars.

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