Some pundits have argued that Germany should learn from the US and adopt a US-like investment plan (Biden’s American Jobs Plan). Interestingly, Germany has already started to implement such an investment plan. A Thread 1/11
The Biden proposal aims to increase spending by roughly $2.3 trillion over the next 10 years. Taking out the 0,4 trillion for elderly care leaves $1.9 trillion for investment spending. This amounts to an increase of $190 billion or 0.9% of 2019-GDP per year. 2/11
In Germany, investment spending of the federal government has increased from 1% of GDP in 2017 to 1.5% of GDP in 2020, and is expected to increase to 1.8% of GDP in 2021. Note: These numbers refer to federal investment spending taken from the financial statistics. 3/11
The reasons for the increase in public investment spending are threefold: i) A general push for more investment spending since 2018, ii) the climate package enacted in fall 2019, and iii) the fiscal stimulus package of summer 2020 (with about 30 different investment items). 4/11
So, Germany does not necessarily need a big boost to investment spending at the federal level. What it needs is to keep investment spending at currently high levels and to design a convincing plan how to spend the additional funds usefully/efficiently. 5/11
Now, a few disclaimers: i) There are some issues with the data, ii) there is lack of public investment spending at the local level in Germany, and iii) planning is not doing. I’ll take up these points in turn. 6/11
i) Data issues: The financial data on federal investment spending include spending that is not public investment spending according to NIPA. This is an issue (also for parts of the Biden plan), but wouldn’t change the big picture. 7/11
ii) Local public investment: Yes, Germany needs to increase public investment by even more than is already planned, but the major needs are at the local level. How the federal government can help local governments effectively is an important issue. 8/11
But the lack in public investment at the local level is an issue that goes far beyond the budget plan of the federal government. It requires a re-organization of parts of the governmental structure so that funds can be allocated faster and more efficiently. 9/11
iii) Planning is not doing: A government plan to increase infrastructure spending doesn’t by itself build new railway tracks and charging stations. But this is true for Germany as well as the US – successful implementation will be key for both countries. 10/11
In sum, there is a lot Germany can learn from the US, but the idea of an investment/jobs plan isn’t it. One thing Germans could learn from the US: Don’t think of the glass half empty, but rather half full -- and ask yourself how you can fill it up to the top. 11/11
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