Chancellor Merkel visited President Bush in Washington last week, and economics were a large part of the conversation. American political leaders should look carefully at the German economy to see exactly what bad economic policy can do.

Although it is still the largest economy in a Europe that once ruled the world, Germany is now barely treading water while much of the rest of the world races ahead. Of course, the entire German economy is not hobbled. German income is still among the highest in Europe. Automakers such as Daimler-Chrysler and BMW and chemical manufacturers such as BASF remain world-class firms, but the underlying base of the German economy, the once proud German worker, has largely retired.

The German economy barely grew at 0.9% in 2005. It has been growing at anemic rates clustered around 1% or 2% for much of the past four decades. In the 1950s, West Germany was the “Economic Miracle,” growing at double-digit rates to surpass the economic level of all of pre-war Germany. When the economy began to slow in the late 1960s, the German government under Chancellor Brandt introduced some of the most expansive forms of social security, or government subsidies, in the world. As a result, the wrong part of the German economy – the governmental sector – resumed double-digit growth rates.

German efficiency persists in tax collection. More than half of labor costs go for government taxes. From value-added taxes to property taxes, the German worker, among the most heavily taxed in the world, is constantly reminded of the omnipresent German government seeking support everywhere.

The German government has countless misguided regulations, many of which were originally designed to protect the German worker. For example,it is practically impossible, because of regulations, for an employer to fire a German worker without paying substantial costs. Of course, a worker who can never be fired is one an employer may never wish to hire.

Unemployment today hovers around 9%, with much higher rates in eastern Germany, which has yet to recover from 45 years of Soviet-style authoritarian rule. More than half the country’s unemployed workers have been without work for more than 12 months. East Germans were once forced to work in meaningless jobs by the Politburo. Today no one forces them to do anything but collect government benefits. The other 91% of the German labor force, in comparison to America’s, works as little as it can. The average American employee works more than 1,820 hours a year. The average German employee works 1,440 hours a year. Americans work 10 more 40-hour weeks than their German counterparts.

Even more troubling, a great many Germans choose not to work at all. Fewer than 40% of Germans between 55-64 are in the workforce; fewer than 3% of those older than 65 are in the workforce. Many of the brightest young Germans are emigrating to other countries where working hard is more likely to be rewarded. With one of the lowest birth rates in the world (8.33 per 1,000 people), Germany is shrinking, and German workers are disappearing even more rapidly.

Not working is the antithesis of the once vaunted German work ethic. This is a fairly recent development. Since 1970, average hours worked per person in Germany has declined by nearly 20%. Since 1990, Germany alone among the G-7 countries has seen a decline in the number of workers.

Losses in two world wars did not destroy the German work ethic. German workers in the 1950s and 1960s were among the hardest-working and most efficient in the world. Today, high taxes punish those who work, and overly generous welfare plans reward those who don’t. Germans have responded rationally by retiring early or not working at all.

Max Weber’s 1904 work, The Protestant Ethic and the Spirit of Capitalism, argues that many forms of religious observance reinforce capitalism and a strong work ethic. Religion has declined in Germany and been supplanted by governmental institutions allied against the German work ethic. The way forward for Germany is to restore the dignity of work; that will take decidedly less, not more, government meddling.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.