I recently had the privilege to speak in Berlin at the 10th anniversary celebration of the Macroeconomic Policy Institute (IMK). (The talk I gave, on the Knowledge Transmission Mechanism, is here if anyone really wants to watch it.) I had known about the IMK for some time through reading incisive posts by Andrew Watt on the Social Europe website, but more recently I had been citing important papers by other IMK economists looking at the costs of austerity. You could describe the IMK group within Germany in various ways (see below), but one would be an island of Keynesian thinking in a sea that was rather hostile to Keynesian ideas.
As my talk, and this subsequent post, focused on how Keynesian ideas are pretty mainstream elsewhere, this raises an obvious puzzle: why does macroeconomics in Germany seem to be an outlier? Given the damage done by austerity in the Eurozone, and the central role that the views of German policy makers have played in that, this is a question I have asked for many years. The textbooks used to teach macroeconomics in Germany seem to be as Keynesian as elsewhere, yet Peter Bofinger is the only Keynesian on their Council of Economic Experts, and he confirmed to me how much this minority status is typical. 
There are two explanations that are popular outside Germany that I now think on their own are inadequate. The first is that Germany is preoccupied by inflation as a result of the hyperinflation of the Weimar republic, and that this spills over into their attitude to government debt. (The recession of the 1930s helped create a more serious disaster, and here is a provocative account of why the memory of hyperinflation dominates.) A second idea is that Germans are culturally debt averse, and people normally note that the German for debt is also their word for guilt. The trouble with both stories is that they imply that German government debt should be much lower than in other countries, but it is not. (In 2000, the German government’s net financial liabilities as a percentage of GDP were at the same level as France, and slightly above the UK and US.)
A mistake here may be to focus too much on macroeconomics. Germany has recently introduced a minimum wage: much later than in the UK or US. I think it would be fair to say that German economists generally advised against this. In the UK and US the opinion of economists on the minimum wage issue is much more balanced, largely because there is a great deal of academic evidence that at a moderate level the minimum wage does not reduce employment significantly. So here German economics also appears to be an outlier.
Many people have heard of ordoliberalism. It would be easy to equate ordoliberalism with neoliberalism, and argue that German attitudes simply reflect the ideological dominance of neo/ordoliberal ideas. However, as I once tried to argue, because ordoliberalism recognises actual departures from an ideal of perfect markets and the need for state action in dealing with those departures (e.g. monopoly), it is potentially much more amenable to New Keynesian ideas than neoliberalism. Yet in practice ordoliberalism does not appear to allow such flexibility. It is as if in some respects economic thinking in Germany has not moved on since the 1970s: Keynesian ideas are still viewed as anti-market rather than correcting market failure, and views on the minimum wage have not taken on board market distortions like monopsony. But that observation simply prompts the question of why in these respects German economics has remained isolated from mainstream academic ideas. 
One of the distinctive characteristics of the German economy appears to be very far from neoliberalism, and that is co-determination: the importance of workers organisations in management, and more generally the recognition that unions play an important role in the economy. Yet I wonder whether this may have had an unintended consequence: the polarisation and politicisation of economic policy advice. The IMK is part of the Hans-Böckler-Foundation, which is linked to the German Confederation of Trade Unions. The IMK was set up in part to provide a counterweight to existing think tanks with strong links to companies and employers. If conflict over wages is institutionalised at the national level, perhaps the influence of ideology on economic policy - in so far as it influences that conflict (see footnote ) - is bound to be greater.
As you can see, I remain some way from answering the question posed in the title of this post, but I think I’m a bit further forward than I was.
 The ‘Hamburger Appell’ of 2005, signed by over 250 German economists, is clearly anti-Keynesian. The intellectual rationale given there is unclear, but one theme is that a more effective way of increasing employment is to increase international competitiveness by holding down domestic costs. Now if you are part of a fixed exchange rate regime or a monetary union, and you have - for institutional reasons - an ability to influence domestic wage costs that other countries that belong to the regime do not have, then it may make perfect Keynesian sense to use that instrument. This is exactly what happened (deliberately or not) from 2000 to 2007, which of course is a major reason why Germany is currently not suffering the recession being experienced by the Eurozone as a whole. (Of course, unlike a fiscal stimulus, it is a beggar my neighbour policy, because demand increases at the expense of other countries in the regime: for the regime as a whole a flexible exchange rate will offset the impact of lower costs on competitiveness.)
 On this isolation see Tony Yates here. At the end of this post Tony also references an interesting discussion regarding ordoliberalism and other issues in comments on a post of my own: see here.
 On this isolation see Tony Yates here. At the end of this post Tony also references an interesting discussion regarding ordoliberalism and other issues in comments on a post of my own: see here.
when I see a blog on "-isms" in social sciences, it always reminds me of this http://www-personal.umich.edu/~econjeff/Papers/econ_soc_phrase_original.pdfReplyDelete
what is neoliberalism apart from a meaningless pejorative shortcut used in the IMF-bashing literature of the 90s? is ordoliberalism then the same thing in the Werner-(un)Sinn-hating literature of today?
Correct me if I'm wrong:ReplyDelete
"Beggar-my-neighbour policy " is just another term for competition, isn't it?
Not at all. Competition is providing the best offer from a limited set of resources. It should, at least in principle, be a positive sum game. Beggar-my-neighbour is by definition zero sum. It is exploiting the weakness of the labour market (in SWL's proposition) to bring more mercantililst rewards without increasing overall supply at all.Delete
"It should, at least in principle, be a positive sum game."
It "should", because you say so? Well, thing is that in the REAL world it largely isn't, whatever you think it "should" be. Quite by definition, in competitions there are winners and losers, I would say. And in competitions the wise things to do if you want success tend to be exploiting exploitable things, I would say.
In effect you are saying that because Germany did not have stagflation in the 1970s, its turn to Thatcher-Reaganism did not occur, so that its post-war consensus continues in that tense but real way it did, say, in 1960s UK and US?ReplyDelete
Sorry, so after Germany needed to take on debt to unify the country, its debt was not lower than other countries? Who would have thought? C'mon, this method of taking one data point from 15 years ago out of context and drawing some kind of grand conclusion is just methodologically inappropriate. There can be countervailing trends (in this case, Germany's unification). *Today* Germans are more debt-averse than Anglo-Saxons, and they surely were confirmed in this belief by the fact they avoided the worst of the financial crisis - unlike the Anglo-Saxon grasshoppers who built their houses on sands of debt.ReplyDelete
i hope you are aware that the sands of debt are to a significant extent German assets. so ex post (at possibly also looking ahead), it may have been a better idea if Germans had borrowed rather than invested. they might have been better debtors than investors :)Delete
It remains impossible to take seriously anyone who uses the term 'Anglo-Saxons' in anything other than an ironic manner.Delete
The prudent Germans have done worse in terms of GDP growth than the Anglo-Saxons in the US who elected for stimulus by electing Barack Obama.Delete
You can of course give per capita values of changes of PPP that support your statement. :-)Delete
"It remains impossible to take seriously anyone who uses the term 'Anglo-Saxons' in anything other than an ironic manner."Delete
No, there are a lot of similarities amongst the Anglosphere. They share similar capitalist systems for historical and obviously cultural reasons. The economics you studied at university if you were from these countries was almost entirely created in the Anglosphere. It is most definitely Anglo-Saxon political economy and that context is important to really understand it.
I concede the point about per capita GDP of the US versus GermanyDelete
"No, there are a lot of similarities amongst the Anglosphere. They share similar capitalist systems for historical and obviously cultural reasons."Delete
You have no understanding of the diversity of economic systems and people you are talking about. None whatsoever. The granular differences are huge such that any one description is meaningless.
In seeking to paint any opposition with such a broad brush you reveal your ignorance and bigotry.
"reveal your ignorance and bigotry."Delete
Such wise words. There are strong historical reasons why Germany has a centralised wage fixation system for inflation adjustment with rules that dictate its monetary and fiscal policies. This you will not understand with a model. You need to study the history. There are cultural reasons why this system is shared with Switzerland, Austria, and northern Europe.
There are historical and cultural reasons why these are not shared in the economic systems of the Anglosphere.
Of course there are differences between Germany and Austria, and between the US and Australia. But there are lot of similarities - which are traceable to historical and common socio - cultural factors.
Please resist your temptation for typecasting people that disagree with you, and think beyond models and start doing some history.
"Please resist your temptation for typecasting people "Delete
Do you mean by refraining from using ignorant labels such as 'Anglo-Saxon'? I'll take it under advisement.
@AllanW. You seem not to like the term "Anglo-Saxon." What term would you prefer? "America and the poodles"?Delete
I'm happy for you to use whatever terms you like; they make the job of recognising your particular bias easy for everyone. Thank you for that service.Delete
Yes, I agree. It is a somewhat unfair comparison because of the effects of German reunification.Delete
Also, the private debt of the "prudent" Germans is about 90% of GDP, 60 points less than in the UK and 100 points less than in the USA.
Could the difference between German and US, UK, and Commonwealth economists be the following:ReplyDelete
The latter - esp. SWL - usually believe that the money to .avoid austerity is always available because the central bank will monetize all government debt.
Germans, on the other hand, are afraid of sudden stops or a refusal of their central bank:
After all, in 1991, the German government hat to pay 9.25 % or more for 10year Bunds due to the Bundesbank's restrictive monetary policy.
Professor SWL is probably aware of this objection but what the heck.ReplyDelete
The usual explanation for the lack of a German minimum wage is that they have strong unions that negotiate and set minimum wages individually for each branch of the economy. This creates less of a need for a national minimum wage and the costs of coping with extra regulation become relatively larger. The same arrangement exists here in Sweden where the economics profession has certainly been more strongly influenced by the US/UK than by German economics.
One potential explanation for the peculiarities of German economics (Ordo etc.) is the aversion to what they call "anglo-saxon economics" and the desire of a large, culturally distinct population to have its own schools of thought.
Germany does have a minimum wage of 8.50€/h since the beginning of this year. This was forced bei the SPD when it joined the current government coalition. Trade unions here keep up wages only in their respective sectors, which created a large quantity of extremely low paid workers (last I heard it was about one fourth of all employees). Additionally, wage agreements between unions and employers are now often only valid for certain regions and not for all workers in the same sector in germany. This also pushed wages down a lot in some parts of the country, and at the same time weakened the power of the unions.Delete
We all live with our own national myths, but I would't call it "culture".
This explanation was relevant in the past, however collective bargaining coverage has dipped under 60 %, opt-out clauses apply to up to 20-25% of workers etc.Delete
Ofcourse a large German-speaking culture will have its own economic schools of thought, own academic journals and isolated debates, whereas this is less likely in the Swedens and Belgiums of this world, which will automatically look across their borders. However, size does not explain aversion nor the enduring dominance/influence of ordoliberal thinking (compare with the French regulation school f.e.)
1) Wasn't the German stimulus in 2009 about as Keynsian as policy comes? (This is a genuine question, not a gotcha-game: I'm not familiar with the technical details of the stimulus packet.ReplyDelete
2) I don't think that the polarization of economic think tanks has any relation to co-determination. I think across the board in Germany (both in the econ. establishment and in big business) you have strong support for co-determination today. it is seen as a way of strengthening the flexibiltiy of wage setting.
3) In light of the 2009 stimulus, maybe the differences are less great than imagined? Maybe the German economic mainstream is not anti-Keynsian as such --- it just argues that Keynsian measures cannot substitute for competitiveness-enhancing micro-measures. So you may well endorse a stimulus in a situation like in 2009 in Germany, when a basically competitive economy is faced with a sudden-stop type of crisis, but you would not endorse it in a situation like the Euro Crisis, where you are dealing with countries that massively lost competitiveness.
1) Its size and composition were smaller than in either the UK or US. I also do not know to what extent this move was endorsed by the Council of Economic Experts - anybody know?Delete
3) I think it is deeper than that. In the UK and US you would a majority of academics arguing against austerity, but not in Germany, I suspect whatever the context.
2) I think you have misunderstood my point. Yes, there is support for co-determination, but that puts conflicts between employers and unions at the center of economic debates, which then leads to polarisation on certain issues.
"I also do not know to what extent this move was endorsed by the Council of Economic Experts - anybody know?"Delete
You can take a look here:
Annual Report 2008/2009
published November 2008, page 9/10, "IV. Economic policy: what is to be done":
They did not see the effects of the Lehman shock and the extent of the global downturn. There forecast was zero percent growth of GDP for 2009 (take a look at table 1, page 8). GDP actually shrunk by minus five percent in that year.
Here you can see their forecast performance:
"The wise men are practically always wrong"
Annual Report 2009/2010
published November 2009, page 7
You have to note that they underestimated the upswing in 2010 by a wide margin. (Forecast GDP: 1.6 percent (see page 32) / Actual: 3.7 percent)
Here you can find summarys and selected chapters of the annual reports in english
Ceterum censeo: In 2009, when the global downturn hit with full force, Hans-Werner Sinn (via BILD) advocated an expansive stance for fiscal policy.
Thanks for the references. In their 2008 report:Delete
there is this (para 22):
"the German Council of Economic Experts is not in favour of short-term stimulus programmes but rather advocates that fiscal policymakers should initiate measures aimed at securing a growth-oriented policy aligned with short-term cyclical needs."
Or, undertake fiscal stimulus but do not call it a fiscal stimulus!
Thanks, that is very interesting. Would you also include the "Kurzarbeit" (basically, reducing working time and often pay for a defined period of time during the crisis to preserve jobs) in your definition of stimulus?Delete
Regarding the size of the stimulus, wouldn't you argue that it's size proved correct in the case of Germany (looking purely at German unemployment development, and ignoring the Eurocrisis question)?
No, because Germany needed to create inflation above 2% to make up for their below average inflation before 2007. In other words we needed a period of overheating in Germany.Delete
In other words, German industry should become less competitive, thus imperiling jobs. Small wonder that that is a hard sell in Germany, no? Especially as the main beneficiaries in terms of a reallocation of industrial activity might well not be other Eurozone countries, but Central/Eastern Europe, China, or South Korea -- all of which have increasingly capable manufacturing industries.Delete
I guess Germany's stimulus program was well-suited to its economic model, i.e. the protection of its highly skilled manufacturing sector. For example, the Germans came up with the concept that was copied by Obama's "cash for clunkers" program. The purpose was to save the car industry. Similarly, the increase of job flexibility was meant to preserve these jobs, to keep people working within these industries, to conserve the industrial structure. I guess this is the way to go with this economic model. It does not make sense for Germany, and quite possibly for most other countries, to emulate the American system of extreme flexibility, of seizing every opportunity and of disregarding the negative effects of "creative destruction" and disruptive innovations. The Americans can do it with their 300+ million consumers, their lax labour laws, and the power of their military and their lawyers. But hardly any other country can. The UK desperately wants to try, but fails at it, except for the financial "industry".Delete
Simon, I found myself thinking through the issue of co-determination and national economic thought further, and arrived at a hypothesis that sees co-determination playing an important role, but through a rather different mechanism to the one you propose.Delete
You suggest, if I understand you correctly, that the relatively powerful position the trade unions have in the economy (esp. via co-determination, but also other things), puts the labour-capital conflict at the heart of economic debate, and as a sort of counter-reaction you get a lot of very orthodox neo-classical, anti-Keynesian economic think-tanks and university faculties.
Another hypothesis could run like this, placing the centrality that the notion of (export-) competitiveness plays in German economic thought and policy at the heart of our analysis, too. Co-determination involves organized labour quite deeply in management decisions. By definition, firm-level competitiveness is a major concern in these decisions, very much including among the union cadres involved in these decisions via co-determination. So you end up with a union movement that also understands economics heavily (if not exclusively) through the lens of competitiveness.
Competitiveness concerns are not per se anti-Keynesian, but they tend to relativize Keynesian concepts. Aggregate demand is no longer the central variable --- supply-side factors become equally important, if not more so (esp. for firm-level union cadres concerned about the jobs in their firm). Thus, also among organized labour and the social-democratic party, the discourse of competitiveness becomes at least very strong (if not necessarily hegemonic), and Keynesian thought if not marginalized then at least somewhat downplayed.
Of course, as you will rightly point out, the most Keynesian bastion in Germany is probably the Boeckler Foundation of the trade union federation (DGB). Absolutely true, however I wonder how representative the folks at Boeckler may be -- in this specific regard -- of the wider union and social-democratic cadres. The folks at Boeckler, I suspect, are mainly academics, not firm-level union cadres. They obviously share very many concerns & outlooks, but on this issue there might be greater divides than one might initially think or than may meet the eye.
There may be a lot in what you say, and it echos some points put to me by others, which perhaps I underestimated at the time (although see footnote !). A point I would add is that Germany has for many years been part of a fixed exchange rate regime, so using competitiveness to raise demand works. (Under flexible exchange rates it should be offset by an appreciation.)Delete
As you say, this should not make economics anti-Keynesian, but it could explain why Keynesian ideas could be neglected. I think you have also to explain why German economics appears to be relatively insular, to avoid simply falling in with international mainstream views. That is not an issue I have much information on.
I think German academia in general has been relatively insular --- throughout the entire social sciences, and even reaching into the technical and natural sciences (probably least in the natural sciences). I think institutions and incentives is likely to be the key: in all of these -- but esp. technical sciences and economics -- there were/are relatively extensive and attractive institutions in Germany offering researchers status, competitive salaries and influence: the economic think tanks, Fraunhofer, BuBa, the Ministries, the famous university departments (famous in G.). So you don't actually have to look outside of G. to find quite a lot of attractive posts. The system-internal reward system then reinforced this insularity. For example, until recently - and perhaps still today - there was limited reward to publishing in international journals. What really advanced your career was getting large outside grants from government or industry. (This is certainly how it worked/works in the technical sciences, I know less about economics.) So in other words, you have a large system with attractive positions, with a reward system of its own. One should in fact expect that to generate its own, somewhat insular discourse.Delete
I appreciate your points in Fn. 1, and think they are spot on. But also remember that German manufacturing companies from very early on internationalized substantially. So from the early 90s on German workers saw themselves as in direct competition with Eastern and Central Europe and East Asia. All of that has only grown. So while your point about wage suppression being able to increase demand within a fixed-exchange rate system is true, neither the German economics nor the German business nor even the German union/SPD establishment ever saw itself as mainly part of the Euro- and pre-Eurozone fixed-ex. rate system, but as part of -- and in direct competition with -- a much larger industrial system, and one wherein German labour costs were structurally located at the high end. That is also the reason why the argument you and many others on the Anglo-Keynesian side make about relative wage/inflation growth in the Eurozone tends to get ignored in Germany. People are thinking less about wage developments in the Eurozone, than about wage developments in CE Europe, China, and South Korea. That is where the competitors are perceived to be (both the firms, and the other workers.)
That's a good point about Germany's response to the crisis being similar to all of the other advanced economies, even China and Japan.ReplyDelete
Policymakers enacted the rescue packages as the global economy was in crisis, but once the economies reversed course and began growing again they turned to austerity.
They didn't make it a priority to close the output gap and bring down unemployment quickly. They switched to deficit reduction. (Of course unemployment didn't go too much in Germany, but they didn't target a wage boom.)
Directed at NM above.Delete
This comment has been removed by the author.Delete
The German obsession with inflation strikes me as weird too. You would think given their other obsession with their Nazi past, they would at least get the economic history correct. (Granted even the conservatives in the U.S. get the history wrong.) Here is the relevant section from Wikipedia (which isn't the end all and be all of encyclopedias and is sometimes wrong, but still). I would think Germany's neighbors and antagonists in the war would get it right. I would think Germany could distinguish between the Treaty of Versaille and the Marshall Plan.ReplyDelete
"...In mid-1931, the United Kingdom and several other countries abandoned the gold standard and devalued their currencies, making their goods around 20% cheaper than those produced by Germany. As the Young Plan did not allow a devaluation of the Reichsmark, Brüning triggered a deflationary internal devaluation by forcing the economy to reduce prices, rents, salaries and wages by 20%. Debate continues as to whether this policy was without alternative: some argue that the Allies would not in any circumstances have allowed a devaluation of the Reichsmark, while others point to the Hoover Moratorium as a sign that the Allies understood that the situation had changed fundamentally and further German reparation payments were impossible. Brüning expected that the policy of deflation would temporarily worsen the economic situation before it began to improve, quickly increasing the German economy's competitiveness and then restoring its creditworthiness. His long-term view was that deflation would, in any case, be the best way to help the economy. His primary goal was to remove Germany's reparation payments by convincing the Allies that they could no longer be paid. Anton Erkelenz, chairman of the German Democratic Party and a contemporary critic of Brüning, famously said that the policy of deflation is a:
rightful attempt to release Germany from the grip of reparation payments, but in reality it meant nothing else than committing suicide because of fearing death. The deflation policy causes much more damage than the reparation payments of 20 years ... Fighting against Hitler is fighting against deflation, the enormous destruction of production factors.
In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy. The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's NSDAP."
Germans and InflationDelete
May I refer all and sundry to Robert Shiller's study
http://www.nber.org/papers/w5539.pdf Why do People dislike Inflation?
where he find that Germans' and Americans' attitudes (Aversion) to inflation are practically indistinguishable?
I'm a student from Germany and I can confirm that we do have some kind of "obsession" with inflation ( At least from my experience)Delete
YOu have to understand moste people neither care about nor understand economics.
They don't really know what either inflation or deflation means and what it's impacts are on an economy.
However, showing the 100000000 Mark or whatever bill has an emediate influence and is kind of simple to understand.
So you have a picture corresponding to the term Hyperinflation. You think you know what it means ( "All my money is gone")
If you hear that there was a 40% ( or more) deflation through the great depression and that it was way more devestating people may remember that for atime but they don't know why or what high deflation means so they forgett.
However they willl never forget those pictures oft the immensly inflated money( People payingwiht with wheelbarrow full of money etc.)
Besides, the Hyperinflation is counted as oneof the reasons for Nazi-Germany.
(Eventhough the Great depression would have to be higher on the list of reasons)
There is some research contradicting this panacea. Howarth & Rommerskirchen (2014) find that inflation aversion is greater in the Eurozone periphery, even when correcting for inflation, unemployment, wage growth etc.Delete
I think you'd find that inflation aversion is quite wide-spread. I'd put it down to the economics profession and its influence on German debate. Look at the Bundesbank's hard money policy, slamming the brakes when the social-democrats had their brief flirtation with Keynesianism in the seventies and had a go at a mildly expansionary fiscal policy. Look at the opposition to ECB policy by their German directors, staffers and their Council of Economic experts.
Maybe inflation aversion only appears stronger in countries with stronger institutional frameworks. Inflation implies change and institutions are hesitant of changing. The defeated Germany was rebuilt as a federal state with strong regions, strong counterbalancing institutions, i.e. strong chambers of commerce AND strong unions, co-determination, the church also played (or plays) a role. The people might be the same everywhere (and reject inflation), but weaker institutions in the Eurozone periphery might create more inflation.Delete
I would point to the same answer I gave in my comment to your old post from January 2014, to which you linked from this one: many Ordoliberals' definition of "Keynesian" or "Keynesianism" is more or less bizarre, so the "Keynesianism" they're rejecting is a chimera. This is not a complete explanation in itself (far from it) but I still think that it's at least a key building block towards one.ReplyDelete
And as a Finn, I would also emphasise the other thing I emphasised in my old comment, because it's still not generally known abroad, and even if it's known, not generally understood: there is a second country in Europe with much the same attitude to Keynesianism as Germany, and this is Finland. Both in the culture of economic policymaking, and in newspaper debate and other public debate on same. There are some differences; but the language and tone of many newspaper editorials on economic policy, for instance, is often eerily similar in the two countries. As is the fact that the macroeconomics textbooks are Keynesian through and through, but routinely ignored and denigrated in policymaking.
So the question "What it is about German economics?" is largely the same as "What it is about German and/or Finnish economics?"
So given that Finland and Germany share a Soviet past, could it be that current economic thought is influenced by past economic thought?Delete
Well, Finland shares a "Soviet past" in a very much more attenuated form than Germany.Delete
But the early reception of Keynesian thought in Finland during Keynes's own lifetime is relevant here, I think. Quite simply, Keynes was liable to be viewed as a pro-Soviet person, either consciously as a conspiratorial fellow traveller, or unconsciously, as one of Stalin's "useful idiots".
Keynes's own view that what he wanted was to save capitalism, not destroy it, was quite simply not believed, but was viewed instead as either a lie or a delusion. I don't remember who wrote it, but I remember that at least one of the early reviews of General Theory in a Finnish academic journal gave the impression that it was at heart a kind of pro-Soviet tract by a Fabian socialist, or something of the sort!
Inarticulate (and not of course 100% irrational) fears of Soviet communism by the bourgeoisie, in both pre- and post-war Finland and in post-war West Germany, may indeed have been one factor in the rejection of Keynes in both countries. What was irrational, though, was the psychic association existing between Keynes and Soviet communism.
Another factor was that what is somewhat carelessly called "the Keynesian welfare state" (when "the Beveridgean welfare state" is meant) became solidly established in both West Germany and Finland after World War II. This managed to give the population all the benefits of the social policy side of Beveridgean-Keynesian thinking, without nevetheless bringing in the fiscal and monetary policy side of it. And the former's success may itself have reduced the political demand for the latter.
Just to endorse this point, I have just returned from Finland where I had an inpromptu conversation with a now relatively senior politician. The thrust of my friend's position was to welcome the new Finnish government's approach as they could hope to follow the success Britain has had with austerity. I tried to explain that this 'success' was really nothing more than a collapse of productivity but was not, I fear, sufficiently convincing.Delete
May be a silly question but could Germany's aversion to debt simply be a reflection of widely expected medium to long term German population decline? Unless German productivity grows to compensate for the loss of workers then surely debt becomes less affordable in the long term?ReplyDelete
It's also possible for cultures to change. Germans might not have been that worried about (although still not comfortable with) debt in 2007, but it's quite possible that the Greek situation has scared many into a more hardline position (helped by certain German media outlets).
I have read once that Merkel made that argument, i.e. Germany needs stable finances because its shrinking population will not be able to carry growing debt anymore.Delete
To me the answer is simple... Germans seek to optimize their own private benefits over the social benefits of Europe. Many other countries do the same, but it results to be more blatant in Germany due to their type of economic power.ReplyDelete
Yes, some people like simple answers.ReplyDelete
The answer is simple because it sums up the ideology of conservative economics. but explaining how Germany ends up looking more conservative than other countries is more complex because of the dynamics behind their economic power.Delete
In fairness to SWL, comments have been mixing up three different questions: (1) Is Keynesian economics appropriate for Germany (or anyone else)? (2) Why is public opinion in Germany so anti-Keynesian? (3) Why is academic economics in Germany so far outside the international academic Keynesian mainstream? Of these, the OP is about (3).ReplyDelete
I have some views about (2), which have to do with the structural biases of creditor countries, going back to the original embrace of “national economy” in the nineteenth century. But that’s not the topic for today. Regarding (3), it should be noted that this is an empirical question: in principle one could do surveys of German economists to determine the distribution of their macroeconomic views and how it corresponds to other factors. Absent this, we can only draw on our personal experiences or indulge in speculation. On this basis I would say that German economists, even those with an emphasis on macro, tend toward a real economy approach—that money is a veil behind which lies the real world of wealth creation. The most common critique of Keynesian thinking I hear in Germany is that it is based on the illusion that money creation can substitute for true wealth creation. Interestingly, I hear this from economists who, as Simon says, have read the textbook chapters on aggregate demand somewhere along the way. But even if I’m right, this just displaces the original question: why is a real economy perspective so much more widespread in Germany? Does it have to do with the unique history and function of the German banking system?
Incidentally, the widespread academic support for codetermination is founded on the view that it is wealth-creating, which I think is correct.
I'm replying to Peter Dorman because it seems my thoughts connect up with his at some level.Delete
I'm going to make some generalisations to fit this into a blog comment. The key here I think is to look at "what is the underlying belief about how prosperity is created/safeguarded." In the UK, we might trace a historical shift. In the 60s it might be said that economists were focused on (un)employment. That is to say, the underlying belief about prosperity was about "mobilising the workforce." Then, we have a crisis, which leads to Healey "going to the IMF." At this moment, the underlying belief starts to shift to questions about "competitiveness/making our way in the world." However, this is soon shifted for a variety of reasons (North Sea Oil, internal politics in the country about the power of organised labour and the size of government) and we get to a modern concentration with "government borrowing". (See Osborne's latest for how far this has gone.)
To quicken this up, the long-term underlying belief in German economics is that prosperity comes out of competitiveness. Trade economics and policy is the starting point - not macroeconomics. Subconsciously if you like, macro is chosen to fit with "trade micro" - as such there are no real quests for consistency between macro and evidence - because successful trade is the evidence.
One might add, as a short-hand that Germany is a large economy that is dominated by small economy thinking. In a small economy, trade effects and leakages are very large. Domestic demand management is often tilting at windmills - partially because global headwinds are so much larger than your economy, partially because stimulus easily leaks out of your small economy...Delete
Peter - your comment did provoke this thought. Could you argue that Keynesian theory became a central part of macro in the US/UK because of memories of the Great Depression? Of course Germany had a similar experience, but that historical lesson got lost/complicated by other things. You would still have to explain the insularity of German economics from US influence.Delete
Peter, there have been surveys on this topic, by Bruno Frey et al., reaching from 1983 to 2007. In the most recent survey, where they surveyed all members of the German Economics Association (Verein für Socialpolitik). Respondents could indicate multiple affiliations. A mere 12% self-identified with Keynesianism, whereas 42% identified with Neoclassicism, 34% with public choice, 7% with supply side. Interestingly, a mere 24% indicated any affilation with ordoliberal thought, among them mostly older economists who were less embedded in international economics.Delete
I can't link to the paper, but you might be interested in this working paper by me and Ferdi De Ville. where we cite some of these findings (p. 29):
For this paper, we surveyed Eurozone academics on necessary EMU reforms. Interestingly, German respondents widely diverge from all others (expanded ECB mandate, automatized fiscal transfers, Eurobonds).
Prof. Wren-Lewis's comment of 10 June at 3:50, together with Tommi Uschanov's comment of 9 June at 9:34, prompt this thought: perhaps the reason Germans and Finns (Finland had a Nazi-allied government early in World War II) do not now look upon Keynesian policies favorably is that in 1930's Germany, the economic policy of odious fascists was very similar to "military Keynesianism" (which was not supported by John Maynard Keynes himself).Delete
Try and be open minded on this Simon. I know you would love to confirm the righteousness of the New Keynesian Model on everything. But perhaps you should ask, "what do they do well?" or "Perhaps I better rethink what my Amercian superiors say about prices and incomes policies, because clearly they help German workers and have been part of the success of an economy in many respects a far better performer than anywhere in the Anglosphere."ReplyDelete
"because clearly they help German workers"Delete
The whole mercantile German policy is based on not allowing wages to rise with productivity. Life is hell for German workers.
A relatively strict regime of price controls and fantastic social benefits keeps the workers happy with relatively low wage increases...although speaking as a worker in Germany with a CBA, I got a 2 percent real wage increase last year, in the middle of a global recession.Delete
Life is GOOD for the German worker. The system works for Germany; the issue is, does it work for the rest of the world?
Wages in Germany are decided by workers (unions) and employers. The government has nothing to do with it. So can we please, please kill this meme that somehow "the government" held wages down in Germany, please? Wage growth was restrained since the mid-1990s (!) and it was a result of industry and often firm-level negotiations between employers and unions. The government played little or no role in this. The reason unions were happy to involve themselves in holding wages down was that they were concerned about job losses if manufacturing shifted abroad, esp to eastern Europe, later also to China. That incidentally is another reason why the New Keynsian call for stronger wage growth in Germany tends to fall on deaf ears here: 1) the gov. plays no role in wage setting anyway; 2) the response is, "so you are telling us that we should export our manufacturing jobs to other countries?" Unsurprisingly that is not a popular position. It also bears remembering that German industrial wages are among the highest in the world.Delete
"Life is hell for German workers."Delete
Yeah, like the train drivers I meet having four week vacations in Crete.
Perhaps you would prefer being on a zero hours contract in a multi-occupancy house in London competing with Poles who just seem to be able to keep going lower with their wages?
"Wages in Germany are decided by workers (unions) and employers. The government has nothing to do with it. "Delete
This is true. This can be described as centralised wage fixation (prices and incomes policies), but it is corporatist - ie a collective decision by corporations and unions.
I am talking about the one euro workfare and minijobs.Delete
I have been thinking lately about how the response of today's Germans to the Greek crisis contrasts with the response of West Germans to East Germany during the collapse of Communism. The East German economy was also a mess - perhaps much more so than Greece's is today. But the West Germans responded with a "we will spend whatever it takes" attitude (I am sure the reality at the time was much more fraught).ReplyDelete
I'm not sure the today's problem is simply a failure of economics. The Germans are just as capable of understanding and implementing Keynsian policies as the rest of us (admittedly a poor test). They just don't feel the same social and cultural affinity to the Greeks that the West Germans had to East Germans. The Germans know what needs to be done. They just don't want to do it.
And the Germans aren't the only ones by the way. It is a problem we are all heir to. Keynsianism requires more than just deficit spending. It requires "social solidarity" mixed with enlightened self-interest. Both are limited.
West and East Germany was not a merger of equals. Mostly west German institutions and legal systems were adopted for the east. This makes a difference.Delete
Greece by today has not a proper institutional framework and public institutions.
Keynesian spending only works if it used for sensible projects and investments. It is useless over the longer term if it is used for bloating a useless public service or raising pensions to unsustainable levels.
Simon asks what is wrong with German economics. I don't think there is anything wrong with German economics. The Germans know perfectly well what needs to be done. They have done something very similar in the recent past. They just don't want to do it.Delete
Brad, I don't think this is about cultural affinity -- it is remarkable how strong the appeal to EUROPE! continues to resonate here -- but about the fact that in the East German case, the West Germans basically trusted and had veto power over the institutions receiving the money. In the Greek case they do not trust the institutions (ie., the Greek government, parties and social partners) --- for good reason, IMHO --- and do not have veto power or control over them.Delete
I think one key reason is the rather mixed economic record of Chancellor Helmut Schmidt (1974-1982), a supporter of Keynesian economic policies. He was criticized for being soft on inflation - “I prefer 5% inflation to 5% unemployment”; he left office with an unemployment rate of c. 7% and inflation of c. 6%. He was the only post-war chancellor to lose a motion of no confidence.ReplyDelete
Schmidt was probably the only self-confessing Keynesian german chancellor. He was unlucky to govern at that point. But then, the same global circumstances carried Reagan and Thatcher to power. So this alone cannot be the reason why german economics is different.Delete
The answer is obvious.ReplyDelete
If Texas was a major creditor to Vermont and Vermont was up the creek in debt and doing poorly, might that not influence Texan economic thinking? If each state was a nation in a group with no strong over-arching government, might that not influence a few states' economic thinking? This whole EURO thing is like a philosophical balloon being squeezed with a few bulges sticking out between the fingers. Perhaps German economic though is one of those bulges.ReplyDelete
Why use Vermont? Look at Puerto Rico. All the fine words of the American Keynesians get tossed to the wind as they let the hedge funds fight, while Puerto Rico suffers from many of the same problems as Greece (declining population, for instance).Delete
In view of the fact that the German economy seems to have been the best of the larger old industrialised economies at coping with globalisation, a better question my be "why are we not copying German economics?".ReplyDelete
For what it is worth, my explanation would be that, perhaps as a legacy of a couple of lost World Wars, Germany seems to be resistant to hype and denial. I would place Keynesian responses to our present disappointing economic performance in the latter category - "no, our economy is competitive, our problem is a demand shortfall and what we need is fiscal and monetary stimulus".
Another SWL article obsessing about stimulus versus austerity. Is there anything else to economics? The more I see Krugman/SWL and others berate the 'austerians' the more I start to think it's just the narcissism of small differences. I'm not sure Mr Keen has all the answers but I'm starting to think the likes of him and also Will Hutton who's bemoaned the bowdlerisation of Keynes into nothing more than a proponent of proactive fiscal policies have a point.ReplyDelete
I've just been watching Newsnight which involved a discussion of the record current account deficit. This involved an insane man called Martin Beck from Oxford Economics claiming that selling our houses to foreigners was no different to selling them cars. Evan Davis looked at him completely bewildered before pointing out that houses were in limited supply. Mr Beck said that wasn't an issue we could just build more of them! In one of the most densely populated countries in the world we can just build endless houses. But the point he completely missed that Steve Keen to his credit raises endlessly is that buying fixed assets for the purpose of investment is very different to other goods.
It's this kind of swivel eyed madmen we're dealing with and SWL just goes on and on and on about insufficient stimulus from government borrowing. Does he not recognise the real enemy?
I am not so sure they are anti-Keynesian as anti-Smithian. It all sounds extremely mercantilist to me. Hoard that gold.ReplyDelete
There is no mercantilism in Germany. Germans are taught in school that mercantilism is unproductive.Delete
Oh Lord, there must be conflicting definitions of mercantilism. :-)Delete
Anonymous10 June 2015 at 12:28Delete
Indeed - what is yours?
Just to add a quote from Wolfgang Munchau. There's two types of German economist. Those who haven't read Keynes and those who haven't understood Keynes.ReplyDelete
Why should anyone take Wolfgang Munchau seriously?Delete
For all the arguments about the merits of German vs Anglo Saxon economists, I don't understand how the Troika, including the EU and ECB, both as I understand dominated by Germany, can look at the economic performance of Greece over the last 5 years, having implemented extreme austerity, and conclude that Greece needs yet more austerity.ReplyDelete
Can anyone please explain why it is worth repeating such an obviously failed experiment?
Regardless of theory or mantra, surely basic scientific method should indicate that, the original hypothesis having produced an unintended outcome, its time to try something else?
Why does the Troika, and the Germans in particular (I am thinking of Wolfgang Schäuble), apparently not see this?
One can only speculate what goes on in Schäuble's head, but he's an extremely cynical character. Would you seriously expect him to say, oops, seems I was wrong, sorry for all that suffering and the rest? It would go against everything the 'serious' media have been telling germans for the last 5 years. The standard narrative here is "the greeks are morally deficient, we really tried to help them along but, like bad children, they don't want to hear about it and continue to be lazy/corrupt/unwilling to "reform". Economical considerations are not part of the argument, it's more a morality play (as always).Delete
"if you know where the enemy is, your day immediately gets a structured appearence"
The unstated assumption here is that the Germans care one whit about the Greeks. I don't see why we should assume that. A basket-case, deflationary Greek economy only helps the German currency position vis-a-vis the Euro. Unemployment is at its lowest level in years in Germany, the Eurocrisis has been thunderingly good business for the Germans.Delete
First of all, the "provocative" explanation of the "Germans" attitude against inflation is not provocative at all, it is simple truth. The same can be told about the success of ordoliberalism', a theory backed by three nazists, even not racists. That's can happen - World and its history is a complicated affair. You can hardly find support for these "news", but you can find if you carefully search. Ask yourself why it is so hard to find that.ReplyDelete
You can find the complete story unfortunately only in Italian here: http://www.centroeinaudi.it/notizie-in-evidenza/3994-l-economia-sociale-di-mercato.html
Even here you can't find the "strange" coincidence (1933) of ordoliberalism startup with the killing of the socialist "vague" (SA) of Nazism by Hitler (Nacht der langen Messer, Night of the long knives). SAs defended the original anti-capitalistic Nazist manifesto, while Hilter was making a strong (and long-term) pact with the German "capitalism", SA becoming in this way a dangerous hindrance to Hitler's power.
It's true that ordoliberalism (and its origin: the Von Mises Austrian School) doesn't exclude market failures - it nevertheless exclude any government spending nor interference in the market mechanisms (considered as right by hypothesis), if not only to avoid any free-market perturbation from "externalities". This has NOTHING TO DO with Keynes.
Yes, that's true that Germany doesn't have so good government debt, but it would be even worse if they didn't hide part of deficit from the government budget. This story has been told by Handelsblatt (the main German financial newspaper), ask to your German colleagues. Every one of the EU oligarchy is telling the false story of "the Greeks" who doctored the government accounts in order to enter the euro currency. THIS STORY IS A COMPLETE, CONSCIOUS, LIE.
It is nevertheless true that Germany is low in the TRUE debt (schulde!): i.e. the private debt. It is and were very very low, i.e. negative, and so is even today, tough much less negative, thank to the contribute of the others euro-area countries, via the so-called government-rescue fund, which is actually a bank-rescue fund.
The German banks were CREDITORS (mainly via French banks) of Greece, and by its own of the so-called "southern" Euro-area Countries (please note that Ireland is northern than Germany), to which they gave loans in order to allow them to be able to buy German merchandises.
Germany, starting from euro currency, made a current account surplus in absolute terms greater that of the China' one. But China made its surplus all around the world, when German surplus was made for more 70% in EU countries.
And this (not Lehman Brothers' affair) is the origin of the Euro-area crisis, and of the EU Long Depression.
And such a extraordinary outcome for the good reason that Germany, when adopting euro currency, took an under-evaluated currency, while "southern" countries got an hyper-evaluated one.
Moreover, Germany adopted a labor policy (Hartz IV) which kept not only the labor wages under the labor productivity growth, but even in real terms in the 10 years of euro, 6% of purchasing power lost, depressing in this way the domestic demand and the import.
I'm not sure every keynesian German economist is so aware of that.
For sure Heiner Flassbeck does:
(Sorry, in French)
My own theory is that Germans are not averse to inflation or government debt per se - rather, they are averse to being indebted to the rest of the world as a nation. The root cause of the hyperinflation was arguably the debilitating reparations they had to make after WWI. I imagine (I don't have the data) they were once again heavily indebted post-WWII and it took long years of export-driven manufacturing to get out of that net external debt. As a result of this pain and shame, Germans tend to save more on the private side. At the same time, they want to ensure a certain standard of living for themselves. This obviously presents a trade-off. They can achieve the best standard of living by pursuing full employment at all times - an outcome that likely requires them to become net debtors again. The tenuous compromise is unemployment that is generally higher than (say) the US, a standard of living (as measured by per capita GDP) than the US, but an overall current account surplus. Indeed, the IMF data shows Germany having run a rather large CA surplus between 1980 and 2008. I don't want to call this mercantilist behavior because a sense of fear (of post-WWI experience) as well as shame tends to be at the root of this. Could be completely wrong and I am reminded of Solow's quote about how attempts to explain something ends up in amateur sociology so I say all this with a sense of trepidation.ReplyDelete
Sorry, but the story of hyperinflation because of war reparations is another false story.Delete
The reason was the lack of paper bills (there was no monetics at all, at these times) because Reichsbank didn't print enough of them (terror of inflation?). So everyone (Laenders, municipalities, etc.) started printing money in a uncoordinated fashion, writing what they wanted on the paper bills, in order to provide enough means of payment. This hyperinflation lasted ONE YEAR (1923), TEN years before the raise of Hitler, when he became chancellor in an opposite situation: recession, deflation, and 50% of unemployement.
When the Reichsbank Governor, Hjalmar Schacht (please read about him, and about his role in the Hitler success), started printing enough bills, declaring that these "private" bills were out of the law, the hyperinflation was suddenly stopped.
The story of the Argentine hyperinflation at the Cavallo's times is quite similar: money printed everywere by everyone. Hyperinflation is not merely "big inflation", is a completely different affair.
I don't think it's as complicated as that. Keynesianism works for an economy that is primarily consumer-driven. Current German economic policy is centered around export competitiveness. Whereas monetary expansion and inflation will help a consumer economy back on its feet, it will hurt the competitiveness of an export economy, offsetting substantially the gains in consumer spending.ReplyDelete
Germany is a special-case economy. It's not anti-Keynesian per se, there are just different goals on the demand side. A weak Euro and low wage increases ARE a demand stimulus measure.
This was the point of my footnote . But Keynesian theory is about the importance of aggregate demand, so what you are suggesting should involve the acceptance of Keynesian theory, but using it in a different way in Germany. By ignoring the basic principles of open economy (Keynesian) macro, the discussion of competitiveness in Germany becomes terribly confused.Delete
"Current German economic policy is centered around export competitiveness."Delete
This has been a popular line for decades taken by the MIT Dornbusch/Fischer etc open economy crowd. I am sceptical. They said the same thing about Japan.
Actually, Japan had overvalued exchange rates for much of the high export growth economy. The DM was also a very strong currency. If they were really prioritising export competitiveness they would not want a strong currency.
Export competitiveness is a result. It is a result of a well run economy. I think the corporatist wage fixation system is key.
It would be good if we had sociologists on here familiar with how this and Germany works. Why isn't he we cannot have such a wage bargaining system in the UK and that we have such hostility between labour and capital? This would enable us to think beyond Model.
Around the world: storytelling vs. scienceReplyDelete
Comment on ‘What is it about German economics?’
It is important to distinguish first between political and theoretical economics. The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the monetary economy works. Theoretical economics has to be judged according to the scientific criteria true/false and nothing else.
When economics is understood as a science there is, first of all, no such thing as a German or UK economics. When economics is understood as a sub-discipline of politics then of course there are at least as many “economics'es” as there are nation states.
The scientific value of this political variants is zero. As a matter of principle, there is no such thing as a national mathematics or physics or, for that matter, economics. True scientists transcend the trivial fact that they are born into some specific regional entity.
Political economics consists mainly in the reshuffling of psycho-sociological stereotypes. The standard explanation of folk psychology is the childhood trauma, in the collective variant it then reappears as depression- or inflation- or debt-trauma. All this is ridiculous as an economic explanation, but most people are happy with it.
Yet, even if political economics aims at a scientific explanation it could at best explain the functioning of society but not the working of the economic system. It the strict sense, therefore, political economics has not much to do with economics proper.
Broadly speaking: whether German economists are more Keynesian or more Walrasian, or whether ordo-liberalism is for all practical purposes better than neoliberalism, or whether they are for or against a minimum wage is a matter of indifference because they, too, do not realize that they have no proper scientific understanding of how the monetary economy works. German economists are in the political storytelling business like their colleagues elsewhere.
You might find some New-Keynesians at the DIW, maybe its director Marcel Fratzscher who used to sound pretty Keynesian to me, but I've lost track of him and maybe he has joined the hivemind now.ReplyDelete
As I did on your other posts on this subject, I soberly continue to defend the German economic model for itself, but remain very critical of its policy towards others. Keep in mind, Germany has, almost alone among the industrialzed countries, managed to defend its manufacturing sector in the globalized, i.e. post-Cold War world. This is the German economic model whose failure would imply huge frictional costs to Germans, so the strength of the manufacturing sector needs to be defended. That's why Germans are willing to forego (temporarily) increased consumption for job security.
But the schizophrenic view of the German policymakers is that other countries would do best to emulate the German model, which implies that everyone should export, and which implies that Greeks will have less money to spend on German exports. Maybe the root of the problem lies at the logical conclusion of what "should" be: because in the "perfect" world, a consumption-driven Greek economy would buy German goods within a european fiscal union, i.e. Germany would end up sending money to Greece so that they can buy our products. Macroeconomically, it even makes sense, but Germans are left with the impression that they are the "workhorses" AND the "paymasters" of Europe, which is political suicide.
Geany practices Keynesianism but to other countries they adwise neoliberalizm in order to advan e merchantilist goals.ReplyDelete
germany had a much larger fiscal stimulus then visible by looking only at public deficit. Germany hid a stimulus through its developement bank AfW providing low interest loans(0interest) in amount of close to 80B euros. Developement bank spending is not counted toward public debt.
i would advise as Do as Germans do, not what they tell you that should be done
IMK is a paid pro-union lobby group, not an "island of Keynesian thinking".ReplyDelete
Why there is no, or very little Keynesian thought in German?ReplyDelete
Keynesian thought is about the importance of demand for a prospering economy.
There is no recognisance of the importance of demand in Germany! Why?
Because in German thought consumption is a sin.
In a normal sense, production is a means to consumption, not so in German. In German production is an end in itself.
In an private conversation with an older philosophy professor, he ask me about Keynesianism: (the question was meant serious)
"How could we get wealthier, if we consume more? I never understood this."
If you want to get wealthier, you have to work more und consume less.
In German we have a lot phrases, connoted with "Werk" (work?), all of them are emphatic.
So Keynesianism is against deep feelings.
In the "Keynesian moment" after the Global Financial Crisis the government introduced "Kurzarbeit", which holds the worker in employment. This was uncontroversial. (Worker should work)
And the government introduced the "Abwrackprämie", an incentive to buy a new car. This was told to be waste.
The emphasis to work (Werk!) is associated with "Treue" (loyalty), loyalty to the master and to the goverment. There exists the word "Werktreue" (loyalty to the work). Read "Heinrich Mann, Der Untertan". (Translated into English under the titles Man of Straw, The Patrioteer, and The Loyal Subject.)
"Werk" and "Treue" mean: You have to serve, if you want to get wealthier. There is no original liberal (libertarian) tradition in German.
Think over the title "Ordoliberalismus". "Ordo" derives from medieval Scholasticism (Ordo universi) and means "Gods universal order". There is no liberalism in the anglo-saxon sense in this.
Greeting from German Christoph Stein
The world can be divided into "demand givers" and "demand takers." In the post war world Germany has always been and sought to be a demand taker. Since at least the early 1970's the German position has been that advanced countries should run surpluses which can then be recycled to provided investment funds for developing countries. This was their rebuttal of US attempts to put forward the "locomotive theory" in the 1970's.ReplyDelete
The German position is a very convenient one for them. It removes any obligation on them to sustain demand. That can be left to others, especially the Americans.
It also fits in with a very strange sense of causation which often crops up in German economic discourse. The best known is the idea that inflation caused the success of the Nazis, when it is clear that the real source was the Depression. But there is a more recent example. In 1978 Germany gave in to pressure and did a 1% fiscal boost. Shortly after there a jump in inflation and deep recession. In German economic discourse the fiscal stimulus is blamed for all this. In fact of course the Iran-Iraq war sent oil prices through the roof.