To some in the U.S., Europe is a paradise of progress, with broad-based social welfare and a narrower gap between the wealthiest citizens and the poorest. These same people are also highly concerned about sluggish economic growth in the U.S., high unemployment and an increase in children living in poverty. The problem with this line of thinking is this: The U.S. economy is fairing much better than most of our European counterparts and, in an effort to correct this, European countries are reluctantly being forced to make reforms that move them from their decidedly socialist tendencies in the direction of free-market capitalism. Germany is the poster-child for failed economies (France is competing heartily for this position). In recent months, The Economist has been reporting on the state of the German economy and we in the U.S. should pay close attention.

Here is a summary of their reporting:

February 2, 2005: There are more Germans unemployed now than at the height of the great depression. As of February 2, the unemployment rate sits at a whopping 11.4%. At least one reason this rate is so high is that German unemployment benefits were so liberal. If you were out of a job (or, more accurately, if you were not working), you could get unemployment benefits. It was not means-tested, you did not have to show that you were actively looking for work and you could receive these benefits forever. In other words, unemployment was high because Germany provided such generous incentives for remaining unemployed. Finally, Germans are beginning to see the error in their ways and have begun to reform their unemployment benefits.

March 10, 2005: The International Monetary Fund estimates economic growth in Germany will be .8%. Also, according to The Economist, "poverty is up, particularly among children, for whom it is growing faster than in most other rich countries." And, in one month's time, unemployment has grown to 12.6% and is expected to climb even higher throughout March. Why is this so important? Germany represents the worlds third-largest economy, but per capita GDP has dropped below the EU average. Why? Taxes are "high and complicated" and "Meagre returns on investment, a legacy of the state-owned banks, also hinder growth, as does a system of consensus-led corporate governance."

March 21, 2005: In addition to reforming their unemployment benefits, Germany has now joined the bandwagon of nations who are cutting their corporate tax rate. Little known to most Americans, the U.S. has one of the highest corporate tax rates among European and North American countries. At this point, it's best to quote The Economist directly:

A LITTLE over a decade ago, Americans were being bombarded with books threatening precipitous economic decline if they did not drop their hypercapitalistic ways and adopt the German "stakeholder model", which allowed labour and capital to work harmoniously for economic growth. Nowadays, anyone coming across such a book could be forgiven for concluding that its authors were daft. German GDP growth has not broken the 2% barrier in four years, and unemployment is at levels not seen since the 1930s. In desperation, Germany seems ready to look to the hypercapitalists for ideas: Gerhard Schroeder, the chancellor, has proposed a cut in corporate income tax, to 19% from 25%. While many in the U.S. push hard for us to move to a more "European" economic model, Europeans, it seems, have been there and done that, and are now beginning to see the benefits of so-called "hypercapitalism".