_The German question never dies. Instead, like a flu virus, it mutates. (The Economist, 21 October 2010)_
In late September 2010, Brazil’s Finance Minister Guido Mantega commented in Sao Paulo that the world was “in the midst of an international currency war.” His comments effectively ended all the premature praise for the G-20’s efforts at international cooperation with regard to the global financial crisis. In vogue came the assessment of the actual lack of cooperation as evidenced by the growing tensions and fault lines between the new global institution’s main protagonists, China and the United States, who disagree so starkly on the origin of the global macroeconomic imbalances. Those systemic imbalances – a large US current account deficit balanced by large current account surpluses in China, Japan, and Germany – have been identified as one of the main causes of the credit crunch of 2007-8 which led to the Great Recession. The central issue preventing a unified solution to the current crisis is whether the main cause of those imbalances is a global savings glut in Europe and Asia, or deficient savings and too loose monetary policy in the United States. This disagreement has risen to the forefront of the existing crisis debate as evidenced by Mantega’s remarks. No one point of view, or ”narrative,” so far seems to have won the day and allowed cooperative steps forward.
Two popular views of Germany have dominated the current debate about the European financial crisis. Both are wrong. The first view sees Germany as an economically virtuous island in a sea of European profligacy. This is the view of most German voters and of their chancellor, Angela Merkel. In this view, Germany was industrious and prudent while others (Greece, Ireland, Hungary) were profligate. Therefore, these countries should rebalance their accounts without a “bailout” from Germany. This view conveniently ignores that German firms and banks financed these imbalances and that absent external demand for German goods and capital, Germans would be poorer. To put it bluntly, Germany can profitably do what it does only if most others do not. [click to continue…]
In the aftermath of the current economic downturn, German policy makers turned to Keynesianism with ambivalence, hesitation, and no small amount of bad faith. Notoriously fearful of debt, government spending, and state power, the German government was among the last in the G-20 to adopt a stimulus package, as one might well have expected. And yet, German stimulus measures were actually more than met the eye and represented one of the more extensive efforts in Europe, though the rhetoric surrounding the debate over the package hewed closely to traditional German narratives about fiscal probity, debt, and inflation. This inconsistency between rhetoric and reality also characterized the German turn to austerity in summer 2009. While excoriating the Greeks for fiscal profligacy and egged on by an unsavory public discourse about southern European work habits, Chancellor Angela Merkel announced plans to cut euro 80 billion from the German federal budget over the next four years. And yet, these cuts amounted to less than they appeared and spared politically powerful groups. [click to continue…]
As Mark Twain once observed, “The trouble with the world is not that people know too little, but that they know so many things that aren’t so.'” The aphorism is appropriate in light of the current confusion concerning Germany’s role within Europe. According to German public and political discourse, Germany is experiencing a second economic miracle (look no farther than the FT Deutschland’s “Wirtschaftwunder blog”:http://www.ftd.de/wirtschaftswunder ) thanks to balanced social and economic policies, fiscal responsibility, and respect for the rules and institutions of the European Union. Although much attention has been paid to this “new” German model, little has been focused on how this reading of events was constructed or, to use Twain’s formulation, how and why many among the German public and elite are convinced of so many “things that aren’t so.” Doing so not only helps clarify the seemingly contradictory or ad hoc nature of contemporary German politics. It also sheds light on how problematic the current German approach is as a perceived solution to Europe’s woes. [click to continue…]
The end game for the Germans, and the rest of Europe, in terms of resolving the current Eurozone crisis is pretty straightforward. There are four ways to deal with a financial crisis: devalue, default, inflate, or deflate. For any country in the Eurozone who transferred private debt from the banking sector to their public balance sheets, and thus blew a hole in their debts and deficits, neither inflation nor devaluation were options. That leaves default, which pushes the costs onto bondholders, or deflation, through domestic wages and prices via the public balance sheet, which places the costs onto taxpayers. For a host of reasons, as guardians of the Eurozone, as an inflation-averse savings-culture, we would expect the Germans to prefer austerity to expediency, and force deflation, but there are real and obvious limits to any such strategy, which is what I have found puzzling since the crisis began just over a year ago. [click to continue…]
Why is Germany in Europe’s catbird seat? Yes, it’s Europe’s largest economy, but not so long ago it was the “sick man of Europe,” earning only disdain or indifference from its European neighbors. What really matters is what didn’t happen: the German economy did not blow up in the global financial crisis like its erstwhile Anglo detractors – the UK and the US. Thanks to the Chinese stimulus plan, German exports quickly boomed again and without a huge domestic debt or banking crisis holding it back, Germany was the only one in a position to bail out the rest of Europe (to a point) and thus call the political shots. So, why did Germany come through the financial crisis of 2007-09 in relatively good shape? The answer lies in understanding why the German financial system (and economy generally) didn’t come to depend on a derivatives pyramid and debt-driven growth.
After nearly a half century, the “Germany through Europe” bargain, intended to help Germany overcome the political and cultural legacies of World War II, has unraveled. In just a few years, Germans have demanded a rebalancing of the European budget, strict rules governing monetary union, have pushed Eastern European member states into the hands of the International Monetary Fund, and balked at a quick bailout of Greek sovereign debt. In short, the European free ride on the German economy is over.
Over the next few days, Crooked Timber will be publishing a seminar, based on a workshop organized by Abe Newman and Mark Blyth at Georgetown University some weeks ago. The workshop was intended to get a bunch of political economy/political science people with an interest in Germany together, to figure out what was driving Germany’s economic policy. This is a topic which has received a lot of attention from e.g. US commentators such as “Paul Krugman”:http://www.google.com/search?q=paul+krugman+germany+new+york+times, and for good reason. German preferences seem to be dominating European Union policy making (e.g. the continued effective veto on proposals for a genuinely European bond arrangement), and are arguably (through pressures for ‘austerity’) having a broader global impact too. Abe and Mark asked a variety of people to think about the causes and consequences of Germany’s policy stance – we’ll be publishing the results over the next few days.
Academic workshops like this are not uncommon. However, given the time horizons of academic publishing (which are better measured in years, if not geological epochs, than days or weeks), their findings are usually outdated by the time they see the light of day. Blogs (which get more attention usually than e.g. departmental websites) seem a nice way to get the results out in a more timely fashion. Thanks to the Mortara Center and Center for German and European Studies at Georgetown for hosting the original event. The participants in this seminar are as follows:
* Sheri Berman is Associate Professor of Political Science at Barnard College.
* Mark Blyth is Professor of International Political Economy at Brown University.
* Aaron Boesenecker is Assistant Professor at the School of International Service of American University.
* Richard Deeg is Professor and Department Chair of Political Science at Temple University.
* Henry Farrell is Associate Professor of Political Science and International Affairs at George Washington University.
* Wade Jacoby is Professor of Political Science at Brigham Young University.
* Matthias Matthjis is Assistant Professor at the School of International Service of American University
* Abraham Newman is Assistant Professor at the School of Foreign Service of Georgetown University.
* Tobias Schulze-Cleven is a Postdoctoral Researcher at the University of Bamberg.
* Mark Vail is Assistant Professor of Political Science at Tulane University.
The posts by Abe Newman, Richard Deeg and Mark Blyth will go up shortly. The others will follow over the next two days. On Thursday, I’ll also put up a PDF of the seminar, for those who prefer to read on paper or via iPad, Kindle or whatever.
When I signed the contract with Princeton UP for Zombie Economics, I read the section covering movie rights, and had fun chatting about which of my friends would be best suited to play Dynamic Stochastic General Equilibrium, Trickle Down (yes, yes, I know!) and so on. Then I found out that Freakonomics actually has been made into a movie, and of course, I wanted the same. But, even in the century of the mashup, it doesn’t seem likely that a polemical economics text could be made watchable just by adding zombies (though I thought the mash worked pretty well in print).
Instead, how about starting with a standard comic-horror zombie movie, then making the apocalyptic zombie-generating event a financial-economic crisis? That seemed much more promising, and I starting working out the treatment in my head. All was going well until I realized that I was stealing all my best ideas from Charlie Stross. I emailed Charlie, and he said to go right ahead, so I thought at least it would be fun for a blog post.
Over the fold some of the scenes I’ve sketched so far – feel free to make suggestions which I will then feel free to steal in the unlikely event that this goes any further [click to continue…]
Well, things have been quiet around my house lately, except of course for the whole-house water filter that exploded two weeks ago while Janet and I were at the movies, drenching the basement with four inches of water (750 gallons, we learned from the nice young man whose powerful machines drained our house). The water had just gotten within reach of the bottom of the spines of the books in one bookcase (does a book have a coccyx?), leaving a row of thinkers from Marshall Berman to Harold Bloom shrieking for help and drawing their knees up to their chests. And of course Jamie lost a lot of stuff — Beatles books, art books, crayons, writing pads, pretty much anything that was on the floor (and there were many things on the floor). But at least it was clean water, not like <a href=”https://crookedtimber.org/2008/01/06/slow-parade/”>last time</a>. So there’s that.
And now that I’ve spent the weekend putting together new shelving and storage devices and tidying up in general, it’s time to pick a fight! This time I’m over at the National Humanities Center blog, <a href=”http://onthehuman.org/2011/01/humans-disabilities-humanities/”>On the Human</a>, complaining about bioethicists. For example (from a discussion of Jonathan Glover’s book Choosing Children: Genes, Disability, and Design):
This then is yet another version of the classic “trolley problem,” in which we are asked to decide whether it is better that people with X disability not be born at all (because the prospective mothers wait two months and have different children altogether) while some people with X disability go “uncured” in utero, or better that people with X disability be “cured” in utero while others are born with the disability because their mothers went untreated.I suppose this is the stuff of which bioethical debates are made, but may I be so rude as to point out that there is no such trolley? This thought experiment may be all well and good if the object is to ask people about the moral difference between foregoing a pregnancy that will result in a fetus with disabilities and treating a disabled fetus in utero (and miraculously “curing” it!). But it does not correspond to any imaginable scenario in the world we inhabit. (And there’s more: because, perhaps, “a disability is harder to bear if you know that people could have prevented it but chose not to do so,” [Derek] Parfit adds that “we assume that those born with the disability do not know they could have been spared it” [48]. Why not assume instead that those born with the disability are given a pony on their fifth birthday?) There simply are no known genetic conditions that present prospective parents with this kind of decision….
Not an entirely original thought, as Google reveals, but those interested in the Palin phenomenon might find some useful historical counterpoints in the career of Queensland’s own Pauline Hanson. As far as parallels are concerned, Palin now seems to be reaching the same point as Pauline, where the official conservatives start tearing her down. In Pauline’s case, this effort was led by Tony Abbott, now leader of the opposition and led to her being jailed on the basis of an absurd technicality about electoral funding (she was released on appeal).
Apart from the general danger of relying on historical analogies, I’m less convinced than some that the tearing-down will work in time to stop Palin being a serious contender or at least a veto-holder in the selection of a Republican presidential candidate, and also less convinced than some that she could not possibly win office under the circumstances (really bad failure by Obama) where she would be a possible candidate.
He’s been “subbing over at Ta-Nehisi Coates”:http://www.theatlantic.com/ta-nehisi-coates for the last few days. Which reminds me that I’ve been meaning to post reviews of both _Gentlemen of the Road_ (aka: Jews with Swords!) and his lovely _Maps and Legends_ for at least two years. [click to continue…]
Kevin O’Rourke, quoted “in extenso”:http://www.irisheconomy.ie/index.php/2011/01/13/divide-and-conquer/
A friend of mine has just sent me this “link”:http://www.reuters.com/article/idUSPISDCE7QE20110113, in which Sarkozy is saying that it is unreasonable for us to maintain our low corporate tax rates while seeking financial aid from Europe:
bq. “I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half (what other countries have),” he said.
For a more inflammatory version of the same argument, by an influential French economist, click “here”:http://www.liberation.fr/economie/01012306493-le-scandale-du-sauvetage-des-banques-irlandaises. And I was struck on my last trip to France by how ordinary people there are making the link between the Irish bailout and our ‘dumping fiscal’.
There are lots of obvious counters to all this, but I think the more important point is that such responses are inevitable, given the European response to the crisis to date. As two recent articles point out (“here”:http://www.eurointelligence.com/index.php?id=581&tx_ttnews[tt_news]=3002&tx_ttnews[backPid]=901&cHash=c374cd2038 and “here”:http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-citizens-must-fight-rise-of-european-bankocracy-2492637.html), the real cleavage in Europe is between European taxpayers and bank creditors (with the ECB being a third interested party, as another body which could help to fill the holes which have emerged in the European banking system). But since the powers that be are ruling out bondholder haircuts and quantitative easing, the only cleavage we are left with in practice is the one between core and periphery taxpayers.
Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own. Why wouldn’t they be? Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks. Why wouldn’t they be?
And while ordinary Europeans get angry with each other, with unpredictable political consequences, capital walks away scot free.
It’s worth expanding the argument that I suspect Kevin is hinting at with his mention of ‘unpredictable political consequences.’ We have seen a lot of analysis from economists which points (correctly) to the inherent contradictions of the Eurozone’s shambolic crisis management strategy. Much less attention has been paid to the _political fallout_ which is considerable. The bailout strategies seem almost purpose-designed to corrode popular legitimacy both in the states giving and receiving funds. If the prospect of a politically viable European Union isn’t quite dead yet, it’s haemorrhaging on the operating table, and the surgeon clearly has no clue what to do. We will be running a seminar on Germany and the EU next week – I have a short piece in it which talks to this at greater length.
Actually they do a pretty good job. I particularly like the kid who not only establishes the function of the record player, but also immediately discovers scratching.