Don't Underestimate The German Economy | Economics Explained

Germany is obviously an advanced economy but it does modern economics just a little bit differently from everybody else and that may be working to its advantage while the world has been struggling Germany has been on a slow but steady growth trajectory on the surface the country is not particularly remarkable Germany's not rich in natural resources it's not a trading Hub at the focal point of the world's oceans and its population is large but not huge compared to most economic superpowers despite this apparent mediocrity though Germany is the fourth largest economy in the world and if current trends continue it'll be the third largest by the end of the decade overtaking the stagnating economy of Japan it's also done this despite Global and Regional economic challenges which have all impacted its closest peers and neighbors far more than it has Germany that missing Factor might be a unique form of economic management that Germany has championed over the last 70 years which attempts to combine the best factors of capitalism competition the push renovation and the efficiency of the free market with strong social policies that don't necessarily come at the expense of those factors but actually complement them it's hard to argue with all of Germany's success that this hasn't worked well in the country and may work even better in other economies around the world unfortunately for Germany a lot of the challenges it's facing right now are going to be much more difficult to manage its way around the war in Ukraine brexit and the global slowdown in demand for things like new cars are all specifically going to hurt Germany more than basically any other Advanced economy around the world so the next decade could be the ultimate test of if their unique style of economic management just had a lucky run or if it really is something that we should be looking at in our own economies and to know for sure economists are going to need the answers to a few simple questions what has been the driver of Germany's economic output has it really found the right balance of social protections and market efficiency and finally all these recent challenges push Europe's largest and most influential economy into economic stagnation once we've done all of that we can put the fourth largest economy in the world on the economics explained National leaderboard this episode of Economics explained is brought to you by curiositystream curiosity stream is a platform offering unique award-winning documentaries across a range of subjects science nature history technology and more their subscription plan starts at less than five dollars a month providing access to a vast library of high quality documentaries and series you can enjoy curiosity stream on various devices your TV computer or mobile phone I thoroughly enjoyed their deep space collection to expand my knowledge of the universe in particular becoming Martian captivated me as it showcased how humans can adapt to Life on Mars with plans starting at under five dollars a month you can gain access to thousands of hours of high quality documentaries in series with both monthly and annual plans available you can choose the plan that works best for you and your budget go to curiositystream.com economics explained or scan the QR code for unlimited access to the world's top documentaries and non-fiction series and for our fans use promo code economics explained and you'll save 25 off so click the link below or go to curiositystream.com economics explained and save 25 right now all advanced countries in the world today have very similar systems of economic management they are primarily market-driven capitalist economies with uniform list of government interventions like taxes social welfare common good investment Market controls and international trade policies all advanced economies have some form of Taxation which goes to indirectly fund everything the government does and one of the best expenses is social welfare this includes everything from paying people who can't find work to those who can't work due to disability all the way to Target welfare like child allowances welfare payments tend to fill more than one single economic objective primarily they are there to well you know make sure that people don't starve or have to resort to Crime to support themselves and that's obviously very important but welfare is also an effective tool to control the economy if consumer demand is slowing down then upping welfare payments will increase it again all other things been equal even things like declining birth rates can be influenced through welfare programs that help to reduce the cost of raising children in highly industrialized economies some economies take this even further like Poland which is effectively paying people to have children because they know that their economy will end up much worse off if current population Trends continue we are going to make an entire video about that next month so I don't want to spoil too much here but make sure to subscribe to stay tuned for that one but by the way it serves as a demonstration that taxes and Welfare are as much about controlling the economy as they are about raising government revenue and making sure people are looked after this is true of all advanced economies no matter where you would place them on some arbitrary left right-wing Spectrum yes of course some countries have lower taxes and less generous welfare but all advanced economies still have them and they all use them to control supposedly free markets another thing that all advanced economies have in common is controls on how Market participants conduct themselves if someone agrees to pay someone else ten thousand dollars to build a fence around their house then the government should have systems in place to ensure that that deal is honored if the homeowner tries not to pay then the fence Builder should have systems available to them to get their money without having to resort to violence on the flip side if the fence Builder strings up a totally useless fence made out of duct tape and bamboo the homeowner shouldn't be forced to pay without controls like this in place even an economic action as simple as putting up a fence could be very difficult to achieve since advanced economies run off Corporation between massive companies working on projects that can sometimes last for years or decades it's vital that issues like this can be resolved quickly and fairly otherwise the industries that are responsible for adding all of the value to our modern world just wouldn't be able to function again even the biggest Advocates of free enterprise and free markets recognize the importance of these systems and again all advanced economies have them another common feature between all advanced economies is a strong focus on making investments into projects that benefit the common good this can be infrastructure that lets Industries and individuals conduct their business or it can be things like education and defense nobody would willingly pay to build a highway that anybody could use or spend their money on a military that keeps everyone safe if they had a choice because either someone will pay for it and they've saved themselves some money or nobody will pay for it and they would have been better off buying those services for themselves exclusively goods and services like a Defense Force and roads are what economists call non-exclusionary as in anybody can use them regardless of how much they contribute towards them but they normally all still have massive economic value taxes social welfare common good investment Market controls and international trade controls are all common features of all advanced economies and the reason we have looked at them in such detail here is because it's important to show that successful economies all run in much the same way with far more similarities than differences the reason that this is so important when exploring a country like Germany is because it shows that once all of this is managed effectively the country's circumstances have much more of an impact on what an economy looks like than even most economists would like to admit countless times on this channel we have mentioned Norway as an example of a perfect economy which is mostly just a joke yes of course Norway is a very prosperous economy with extremely high standards of living and a strong social welfare system but anybody that's actually watched the video from all the way back before I knew how to use Adobe Premiere will know that it's only really been able to offer a lot of these economic luxuries because it's sitting on huge reserves of fossil fuels and hasn't felt the need to turn those oil profits into man-made Islands comparing the way that a small oil-rich country like Norway chooses to fine-tune these controls when compared to a much larger more diverse and less specifically resource-rich country like the USA is not exactly Fair Norway could choose to spend more on social welfare without taxing as much and just fill in the difference with revenues from drilling rights in its state-owned oil company now specifically for Germany the question of how to balance these controls is really important the good news is that any economy where the biggest economic debate is how to fine-tune these factors is normally doing pretty well take economy a and economy b as an example they both have roughly the same land mass and a population of around 85 million people give or take economy a has these economic controls in place and and successive governments are either re-elected or voted out based largely on how they manage these controls economy B on the other hand applies these controls pretty haphazardly but it has some of the largest reserves of Natural Resources in the world all other things been equal economy B should be larger but if you haven't guessed by now these are actually real economies Germany and Iran respectively based purely on the advantages they started with Iran should be a much larger economy but it's actually 10 times smaller than Germany so it really matters that an economy has these systems in place but once they do they should be doing okay Germany's specific approach to this balance is something called Ryan capitalism the economy of Germany as we know today has only really existed for 33 years before that it was split East and West for almost half a century with the Soviet controlled region in the East and the capitalists in the west but even before reunification West Germany's economy was run by something that has come to be known by economists as Ryan capitalism this is still a free market system where most industry is performed by private Enterprise with a profit motive and people work hard to get paid more so they can buy more but there are a lot more interventions than we would typically find in more free markets like the USA or the UK which is one of Germany's closest peers initially it's believed that one of the main factors promoting this system was the need to make workers happy with a free market system as Europe was being divided up between the Socialists and the capitalists ride capitalism was a compromise that made sure that workers were still looked after and benefited from the market system so they didn't get any idea about seizing the means of production or any of that nonsense that however does not mean that Ryan capitalism or any social market economy is socialists and I get how that's confusing but it's actually not that difficult Germany's strong workers protections and Welfare policies are all in place to support its market system Germany may not be flush with natural resources but it has an incredibly well-educated population which has helped to build out all of the world-leading companies that have become much more valuable and much more sustainable Global exports the these companies include the obvious world famous automobile and sportswear manufacturers but it also perhaps even more importantly includes a lot of other companies that are responsible for building the capital Investments of our modern global economy capital in economics is just the stuff that makes stuff and Germany is full of businesses like Bosch Siemens sap and thyson crop that build the tools that every other economy around the world uses to build the stuff that we as consumers consume Germany also has a lot of Highly technical small and medium Enterprises which benefit more than they are hindered from the country's unique brand of capitalism starting a business is very difficult without some kind of safety net to fall back on the comfort that people are well looked after in the German system means that workers are both more likely to start a business and also more likely to be willing to work for a smaller riskier company despite some people mistaking the German system for some kind of diet socialism Berlin is widely considered to be the startup capital of Europe and a lot of those businesses will one day be the global companies driving the development of the German economy a heavy focus on making their people as productive as possible even if it was originally just to stop them from changing to team red has today given Germany a very strong economic Foundation the country has smart workers and it holds its companies to very high standards so it benefits from the reputation that has built for it people assume that everything designed and made in Germany is of higher quality than stuff made almost anywhere else in the world if a random person was asked what Germany is best known for today engineering would probably be right up there with beer and big pretzels even if German Goods aren't necessarily a higher quality people are willing to pay a premium for them and that alone is more valuable to the economy than any natural resource ever will be but that doesn't mean that the German economy has had it easy in fact quite the opposite it's had almost endless challenges the reunification of Germany was perhaps one of the most difficult economic procedures ever performed the challenge was combining the two very different economies and bringing the East up to speed without slowing down the West that was by this point doing very well for itself early on despite best efforts the West boomed as the East fell even further behind because existing competitive companies in the west were able to buy up plants and Equipment as they were privatized after previously been owned and controlled by the Socialist States the West also got access to more workers anybody with any skills could earn a lot more on the existing Industries in the west so as many as half a million Germans would commute back and forth every day to work there instead the rapid growth in the west mixed with the increase in the money supply caused by linking the two economies in addition to the extreme cost of transitioning the economy of the East started to cause inflation and forced the German central banks to raise interest rates to slow the economy down until everything normalized even today East Germany has still not fully caught up with the west and up until around 2008 the this difficult economic situation earned Germany the title the sick man of Europe after 2008 when almost every other Advanced economy in Europe suffered far worse through the GSC and the following Eurozone crisis most people dropped that nickname through this all Germany has been able to rely on its massive export Industries to keep everything operating but it's now facing a new round of challenges with global trade becoming more fragmented and a Slowdown of consumer spending and business investment into all the goods and services that Germany has become famous for but if there is any economy in the world that can ride out disruptions like these Germany has surely proven itself to be a top contender if you're a German viewer watching this video our German research team has been working on a new German economics explain Channel they're starting out by translating some of our most popular videos but if you all show them enough support they hope to start making videos exclusive to the German economy as well I'm personally not even going to try and pronounce the channel name but we will leave a link to it on screen and in the video description below okay now it's time to put Germany the fourth largest economy in the world on the economics explained National leaderboard starting as always with size Germany has a GDP of 4.26 trillion US Dollars putting it just behind Japan and just ahead of the UK as the fourth largest economy in the world it's still a significant gap between these countries and the true economic superpowers of China and the USA so Germany gets a 9 out of 10. GDP per capita is very strong thanks to the emphasis that Germany as a country has put on maximizing the quality of its workers despite being a large economy with a diverse industrial base Germany still boasts the GDP per capita of 51 204 which puts it ahead of the UK and only behind its truly outstanding European peers like Iceland Norway and Switzerland which are all much smaller and more focused around specific Industries Germany gets an 8 out of 10. stability and confidence is high but not perfect Germany For Better or Worse has become The Unofficial Capstone of the European Union and while the collective economic region provides many advantages it also means that a lot of individual National problems become a problem for anybody that combined with the German economy's heavy Reliance on exports means that it only gets an 8 out of 10. but to be clear that's still a very strong score growth has been slow but steady despite all the economic challenges it has had to contend with the German economy is now around 20 larger than it was a decade ago certainly not strong growth by any means but a lot better than a lot of other European countries that are going nowhere or even going backwards Germany gets a 4 out of 10. finally industry Germany has dozens of world-leading companies at The Cutting Edge of what they do the country has built a reputation that lets it add value to products just by having it made within the country's borders what's more is that it doesn't have the same overdependence on a small group of massive companies as countries like South Korea which also had a similarly strong export economy Germany gets a 10 out of 10. altogether that gives Germany an average score of 7.8 out of 10 which puts them all the way up here on the economics explained National leaderboard now if you want to know about a problem that is very likely to affect Germany's economy watch this video about France's pension protest because Germany will eventually be facing down the exact same issue thanks for watching mate bye

Channel: Economics Explained

Views: 611,925

Keywords: economics, economics explained, german economy, germany, rhine econo, rhine economy, germany economy, economy in germany, german economic miracle, german economy explained

Id: XXI6AoOGEmU

Length: 16min 30sec (990 seconds)

Published: Tue May 30 2023

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