As I read David Leonhardt’s take on the lessons of German economic policy, I was impressed. It is a reasonably fair-minded assessment of the evolution of German economic policy over the last decade and a half, though it smuggles in one assertion regarding the virtues of organized labor and a portrait of the German income distribution I found misleading.

Unlike what happened here, German laws and regulators have also prevented the decimation of their labor unions. The clout of German unions, at individual companies and in the political system, is one reason the middle class there has fared decently in recent decades. In fact, middle-class pay has risen at roughly the same rate as top incomes.
The top 1 percent of German households earns about 11 percent of all income, virtually unchanged relative to 1970, according to recent estimates. In the United States, the top 1 percent makes more than 20 percent of all income, up from 9 percent in 1970. That’s right: only 40 years ago, Germany was more unequal than this country.

Recall that incomes at P90 are much higher in the United States than in Germany. Would we be better off if the top 1 percent of U.S. households earned a smaller share of total income, yet the pie were far smaller? Leonhardt does acknowledge this in a sense:

I’m not saying that the United States should want to become Germany. Americans remain considerably richer. We have the innovative companies — Wal-Mart, Google, Apple, Facebook, Twitter — that make other countries swoon. We remain the world’s immigration Mecca.

The remarkable gains for the top 1 percent in the U.S. and the success of innovative young firms is not a coincidence. There are enormous gains to coordination among the most productive workers in the most productive regions. Through a trial-and-error, evolutionary process, so-called “digital organizations” have embraced pay-for-performance schemes that have increased wage dispersion and enhanced productivity. It would be strange if the country with several of the world’s most productive agglomerations, low MTRs, and flexible labor markets didn’t see bigger income gains for the most productive workers and smaller gains for workers in the middle of the pack. I think we should do everything we can to facilitate productivity gains across the economy, the surest way to spur sustainable wage growth for all U.S. workers.

One thing I found odd: Leonhardt focuses on wage growth since 1985, yet it is widely recognized that wage restraint has been a big part of Germany’s success in maintaining employment levels, a phenomenon Michael Spence describes at length in his excellent book The Next Convergence. German offshoring to eastern Europe has also played a critical role, as Dalia Marin observed last year.

In making the case for more aggressive government intervention, Leonhardt goes in a funny direction:

But the German story is not merely about making government more efficient. It’s also about understanding the unique role that government must play in a market economy.
That role starts with serious regulation. American regulators stood idle as the housing bubble inflated. German banks often required a down payment of 40 percent.

It happens that mandatory down payments are championed by many if not most right-of-center American thinkers, including critics of Dodd-Frank. Bluntly, conservatives have tended to care less about access to credit. Rather, many were and are concerned about the role of American regulators and politicians in heavily subsidizing homeownership.

I did, however, appreciate Leonhardt’s reference to Germany’s success in overhauling its benefits system, which was indeed crucial to the relative health of its labor market in later years. A deeper look at Schroeder’s Agenda 2010 reforms might have yielded a somewhat different, and by my lights more congenial, piece.