I've observed with some degree of fascination how Mr. Krugman - an economics Nobel laureate - discussed the Western economic troubles. It's fascinating to see a macroeconomic position with such a huge preference for the short term over the long term. It was also fascinating to see him fail to understand the German position on the economic troubles.
Mr. Krugman is no doubt a smart man - probably 20-30 IQ points superior to myself - but he appears to lack the cherished multi-disciplinary approach and the necessary wide angle of view. His look at the 'German' position (there is domestic dissent, most notably in the Financial Times Deutschland) is purely about macro. He misses the point.
Being a busy man promoting a book, having a newspaper column, having a blog and doing research all at once he'll 150% not look at this text. Still, I'd like to share my thoughts on this 'German' position with my readers. After all, it does provide some insights into German military history and doctrine (to some extent).
The following is merely my opinion and I cannot cite social science study reports as backup:
Germans have a lower than average tolerance for imperfections, and their preferred countermeasure to imperfections is to organise them away. This "organising" may be about creating an institution, enacting laws, enforcing laws or simply entering a treaty or other agreement. We don't wait for a glorious performance of a single person either - our preferred reaction to intolerable imperfection is a collective one.
We do not develop a convenient hypothesis (such as "lower taxes solve economic problems") and expect to get rid of an intolerable imperfection the comfortable way. Well, not as often as some other countries. It should be mentioned that almost all imperfections are intolerable to us.
An example; back in the late 19th century the socialist movement picked up steam in elections and became a major political force. The arch-conservative chancellor Bismarck reacted by introducing the anti-socialist social insurance system. Yes, social insurances are anti-socialist, even though many in the United States call them socialist. Fact is, people from the U.S. have on average no clue about all things socialist anyway.
To Germans, all major imperfections would be intolerable at home. The economic crisis directed our attention on the Southern European partners (mostly Greece, Spain, Italy) while we keep ignoring most of Eastern Europe. The Austrians look at Eastern Europe - most Germans don't. Eastern Europe - that's to us the non-allied Russia and our neighbour Poland. Poland is the place where we park our cars if we want to get the insurance money for our car because of theft. Such a dangerous life for cars would be intolerable to us at home, of course.
So we look at Greece and we see a country where nobody really pays attention to red lights in street traffic. A place where tax dodging is a national custom. A place where the government is a booty to be plundered, not an institution to address imperfections in society.
What we see when we look at Greece (or with other imperfections; Italy, Spain) is a country with intolerable imperfections.
It's inconceivable to us that these imperfections could be tolerated. It's likewise inconceivable that these imperfections will be addressed successfully once the pressure from the crisis' symptoms is gone. After all, this would imply that the pressure of the crisis' symptoms didn't suffice to force an organisational countermeasure!
So basically it's inconceivable to us that these countries address the short-term problems (symptoms) in a way people like Mr. Krugman advise - and then just go on. That's simply not our way of doing things, and we're not all that flexible in our way because after all, they kinda work well.
A superficial repair as strongly promoted by Mr. Krugman doesn't address the imperfections, and living with said imperfections is inconceivable. We couldn't.
Well, Germans and even Germans with access to widely distributed media are no macroeconomic geniuses. It doesn't matter that said imperfections are likely responsible for the economy having a lower natural gross domestic product growth path as opposed to being responsible for the short-term slump below said growth path.
Still, what Mr. Krugman doesn't get is that we don't care all that much about what he cares about. He doesn't care all that much about what we care about either. He would probably not be so flabbergasted by the 'German' position on the economic troubles if he understood this. All the macroeconomic data graphs and formulas he can throw against our position are not all that relevant to us - they're designed to be powerful arguments for someone who shares his preferences.
Mr. Krugman discusses how to apply a medication against the short-term problem (the slump far below the potential GDP growth path). The 'German' position mistakes reasons for a lower potential GDP growth path with roots of the current slump below it. Assuming a long-term focus, 'we' demand that the imperfections be addressed, for they won't be addressed any time soon if not under the current pressure. Thus the readiness to apply additional pressure.
'We' simply cannot understand how -even under huge pressure- tolerance for major imperfections could prevail over the desire to get rid of them through some organisational response.
Besides, we won't accept any fix of symptoms that includes major transfers from Germany to South Europe. We had that experiment with Western and East Germany and it sucked. Well, we won't accept it until our notoriously U-turning chancellor does a U-turn on the topic.
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So what's the connection to military affairs or at least security policy?
Well, the tolerance for imperfections is low, so solutions need to be found - solutions of the community. This is a natural advantage for the improvement of an organisation and its capabilities. That being said, the post-Cold War Bundeswehr (and to a great extent already the Cold War-era Bundeswehr) is stretching the (small) tolerance of Germans for imperfections a lot.
I advise readers to keep this kind of typical German response to imperfections in mind when they read about German military history. I don't mean battles, but the development of military organisations and doctrines.
S Ortmann
P.S.: Yes, things can turn really ugly with the German way of doing things once people get confused about what's an imperfection. After all, the reaction will likely be effective.
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Very good statement. I had to explain German thinking ("Am deutschen Wesen soll die Welt genesen.") on this topic somewhere else and came to similar conclusions that Germany wants to cure structural issues and for this reason is even willing to amplify the slump conditions via imposed austerity. Our chancellor has pretty good survival instincts and won't do an Agenda 2010 or lay visionary fundations for the future. In my POV both positions have their merit.
ReplyDeleteKrugman is currently getting a lot of media play, both in the US and on your side of the pond, because he is forcefully advocating a position that liberal statists want to hear: simply put, Austerity = Bad, "Growth" (in the form of more government spending) = Good. A classic Keynesian, Krugman argues, inter alia, that austerity should only be practiced during boom times, when the economy is rolling along. Unfortunately, he's also a hypocrite: you will search in vain for any columns he wrote during the last economic boom period (late 2009-early 2011) that advocated ANY austerity measures. The ugly truth about would-be policy shapers of Krugman's ilk is that, for them, there is never a time when more government spending and more government control over the economy is not called for. Krugman won't be satisfied until the nanny state triumphs, and the government IS the economy. Stand your ground, Germany; even the short term cataclysm of a euro bust is better than the slow suicide of continuing to bail out the unworthy.
ReplyDeleteThere was no real economic boom in late 2009-early 2001.
ReplyDeletePeople like Krugman do not look so much at quarter GDP growth as they look at the distance to potential GDP growth path. That's a more reasonable metric in regard to almost everything. The U.S. is still below this potential GDP growth path because of population growth, and Krugman won't see a reason for austerity until the actual and potential GDP are close.
That's a perfectly reasonable position.
I'd even add that the long operation of the economy below potential GDP created a slump in capital investment to a lower level than depreciation. This means the capital stock was (or is) actually shrinking while the population is growing. This in turn necessitates much investment for catching up once the economy is operating near 100% capacity again, for said capacity dropped below the trend.
Quick version: The government should probably postpone austerity even when the economy is again at 100% activity, for additional infrastructure investments are necessary to make up for a lack thereof during the recent years.
It's all quite complicated.
From my very own personal point of view, as a half-German. I am going to be caricatural for the sake of the argument.
ReplyDeleteGermans have a lack of goal. In the organisations I worked in, nobody ever questioned the goal of it all. Hence, it becomes possible to obsess over the day-to-day details and optimize them at leisure.
Life in Germany revolves around killing time until you die, and it is no wonder that german demographics have been a single catastrophy for so long, to be specific since the late 60's. (http://de.wikipedia.org/w/index.php?title=Datei:Bevoelkerungsentwicklung_deutschland.png&filetimestamp=20071126172230 )
Why the late 60's ? For lack of leadership, Germans embraced the western "Cultural Revolution" (sexual revolution, the pill, feminism etc.) with unequaled eagerness and thoroughness. Even the drug scene, the "alternative politics" scene or the esoteric scene have a distinct sense of organization, complete with books, practical guides etc. Whereas in France you have scores of badly written unpractical books nobody reads in these areas, and widespread amateurship.
To the difference of countries like France (which I must admit is peculiar in its own way), Germans weren't allowed to resist, let alone to fight back. From the gregarious Otto-Versand-buying Wirtschaftswunder drones, this was simply the latest trend to follow. From the other side, resistance would have meant sticking to old fashioned patterns, and being called "alter Nazi" was not far away.
Old farts were fleeing (or locked away ?) in this parallel world of "Hitparade der Volksmusik" filled with Heinos, Horst Tapperts and the like (Franz-Josef Strauss ?).
The consequences of this cultural destruction are insufferable women, incompetent mothers, "antiautoritär" non-education for brats and men reduced to purchase stuff just to get laid, i.e. emasculation.
Some people might sneer at these arguments and might tell I'm projecting (I'm used to these reactions, so I mention them straight away). This is the cold, hard reality I have been witnessing as a general trend, and pre-WW2 people I spoke with agree with it. Again, what is being dimissed as "old fart rantings" is genuine feddback from people who knew better.
Since Germans are not allowed to transcend their lives, for there is no society nor sound spirituality, they are condemned to live a life of material achievement (at best : Häusle baue, Mercedes, Mallorca, Aktiendepot, for many : Hartz IV) that explain the disastrous demographics.
Life in Germany is not appealing to the new generations. It is only appealing to the newcomer immigrants (Asylanten, "Russlanddeutsche" etc.), and then only for the first years.
What is true on the personal level is true on the national level. There is simply no political goal offered by any party, be it for Germany or for the EU. (Toeing the atlantist line by providing soldiers for Afghanistan being simply equal to have no policy of one's own).
As long as there is no purpose for the means, debating the means is a non-issue.
I'm a German who worked in a few foreign countries. You are right that Germany is often thoroughly organized and clueless. There lacks some drive, but the old guys most likely invent a better past to improve the future.
DeleteA NY Times article tried to explain German lovers that seem great guys but try to bore girls out of their pants from an American perspective. The low fertility on the other hand has a lot to do with men feeling not secure about creating offspring, "Zeugungsstreik". Men feel treated unequal by the current laws and face certain poverty due to high divorce rates. They have the most dangerous court-cases with people frequently running amok (leading to currently intensified security in Bavaria).
In defense of Krugman, his professional works on economy are a very useful read. The column is very black and white because he advocates something and doesn't give the math and statistics that formed his opinion in the first place. During the Clinton era US government was running a surplus, so austerity was served.
ReplyDeleteThe nanny-government is something totally different from state investment for growth. The state decides to buy stuff because there are currently too few sustain their current workforce level.
Like Reagan or Roosevelt you can develop and buy military hardware or invest into a better electricity grid/smart grid, energy saving technologies, high speed internet connections even in remote places to ease the bubble in certain other areas(like China does) or make a major research drive for treatments of rare and tropical diseases that are totally underserved by the industry and would create lots of goodwill for the US by numerous rescued persons worldwide.
The difference between this spending flush and big government is the temporary nature of the increased expenditure and the scaling back of state expenditure during boom times in order to better serve debt and thus pay less interest during the next Keynesian spending tour.
I agree that we should limit state interference in many fields, but economic recovery measures are rather not part of that. The big problem is that in case of growth, riding the bull, it's popular with the electorate to promise more jobs, more money, instead of preparing for the bear and scaling down spending. You also have to blame short sighted voters that didn't make it clear that the debt should have been reduced instead of increased during the previous good times.
We are all sad parodies of what we were one hundred years ago. Germany was the intellectual center of the world, USA had a dynamic, world-transforming manufacturing, Poland was at least patriotic etc.
ReplyDeleteAs for the Krugman/austerity debate - this is a classical false dichotomy. They are popular today - apparently from the psychiatric point of view they are a typical defensive reaction in narcissism.
Other similar dichotomies are "socialism" / "libertarianism", elitism/populism, etc. Each side of the dichotomy implies the other; and even both together are not sufficient.
Even a minimal knowledge of economy (eg - Krugman, who is no genius) shows that when demand is lower than production, austerity is suicidal.
For Germany too - Germans put a lot of effort into creating an unbalanced economy with not enough demand. Income of the lower classes in Germany was limited, and production overwhelmed consumption. I understand that this was sold in Germany as something positive. Germany was "world master of export".
In practice, this meant that rich had too much money and didn't know what to do with it, so they borrowed it to Greece and Ireland. German workers didn't consume enough, since they didn't get enough money. As the result, Greek workers had to help out their German brothers, consuming on borrowed money.
Now the Germans are demanding their money back, which is clearly insane - the system is not designed to work that way.
Low fertility in Germany is connected with that - children consume resources, which could be exported instead. All export heavy countries (Germany, Japan, China) have low fertility and policies limiting consumption and pay for lower classes - and it cannot be otherwise.
This policy has its upsides - the developed manufacturing capability is real and useful - but you need to get an alternative source of demand. The leadership in Japan and China seem to understand the problem and to have some solutions in mind. Japan has actually already massively increased the domestic consumption. The nuclear disaster helped to balance their export with import.
The German leaderships very convincingly simulates complete idiocy. The current policy is going to end in absolute disaster - all countries of eurozone will go bankrupt one after the other.
http://fistfulofeuros.net/
I presume this is policy - the best way to stampede cattle in the desired direction is to get them mad with fear. The desired direction is of course fiscal union.
As you said, German voters do not want to export their consumption to Greece. Stupidly - Germans like to work, Greeks like to party. Each country should concentrate on its core competences.
Since, however, the voters are too stupid to sacrifice themselves willingly, there is a need of a bit of disaster to persuade them that there is no other choice.
Current German policy is guaranteed to cause that disaster.
you probably know more about Germans than I do, and I know that Krugman is smarter and more of an "other-people's-money-liberal" than I am.
ReplyDeleteWhile not a traffic expert, I have not witnessed red-light running in Greece. Illegal parking is more of a problem, as well as reckless driving on not so good roads.
But I can say this: I have never being in line in a German airport, without locals cutting in line. Tsk tsk, I though that was a Greek trait.
I can also say (as I am commenting on the red light habit) that German sailors (I mean sailors of private or rented sailboats), are a less than polite bunch, the rudest I have met in the Med, disregarding safe distance, right of way or even proper anchorage practices.
Getting down to the more serious stuff. Germans are fine, some of my best friends are German. A little on the mercantilist end of things, and I am too much of an Adam Smith fan to like that. They will do anything to export, even use bribes (boy oh boy have they gone wild in Greece! -- trust me, it takes two to tango), or lies, or bizarre EU rules and regulations, a little blackmail here and the occasional cajoling there. I am delighted with every German product that I bought with my own free will, but I resent, seriously, the ones that are imposed on me (e.g. windmills, pv panels and other Green nonsense)
I know nothing about defence, Greece owns some bizarre submarines and other trinkets, the product of corruption. Yes, bribes. To officials promoted with great effort and care by the associates of the local German-Hellenic chamber of Commerce.
I do know a things or two on macroeconomics. No offence, but Greek debt is part of German GDP and employment. Greek current account deficits are German current account balances. We have been subsidized, through weird EU rules to accomplish such feats.
Is it Germany's fault? Of course not. But as Minister Schauble said, we are free to vote provided we vote for the right thing. Guess whose interests the "right thing" represents.
Amusingly, this is a pattern that appears in all of Europe's periphery, compliments of the ECB and the carefully controlled local Cental Banks. I do believe that it would be best if all these PIIGS+F dirtballs were to be cut loose and thus free the German taxpayer from the burden. Freedom at last.
Finally taxes. Taxes ...suck. And when they are perceived as unfair, or counterproductive, hey... look in Swizterland or Luxemburg. You will find a lot more Germans there than Greeks (even if adjusted for GDP). All the power to them, God bless them.
German sailors with their private ship/boat are the richer part of the population.
DeleteGermany is very proud of exporting a lot. It's the German view that we have no resources other than our ability to produce things to sell abroad.
The lowered wages in Germany did contribute to keeping the industrial base in Germany that otherwise would have disappeared because of high costs. The Mittelstand are hard to replace specialists in small to medium manufacturing enterprises, many of them technology leaders in their field (typical for Germany, Austria and Switzerland).
I agree with you that Germany should have more internal consumption, but at the same time they are in a low-wage competition with equally skilled labour in Poland and Czechia (especially Czechia was the old economic heart of Central Europe), so the increased consumption should be distributed to more people, especially formerly unemployed, instead of a few getting more. That is difficult to achieve, but we are probably on the right track.