Locust Capitalism Made in Germany

It seems appropriate now and then to remind everyone that the leaders of Germany– land of the gentle, caring social state (g)! protectress of human rights (g)! denouncer (g) of 'anglo-american' style turbo-capitalism! — continues to demand policies that have led to mass human suffering in countries in Southern Europe:

The Greek economy is in free fall, having shrunk by 20 percent in the
past five years. The unemployment rate is more than 27 percent, the
highest in Europe, and 6 of 10 job seekers say they have not worked in
more than a year. Those dry statistics are reshaping the lives of Greek
families with children, more of whom are arriving at schools hungry or
underfed, even malnourished, according to private groups and the
government itself.

Last year, an estimated 10 percent of Greek elementary and middle school
students suffered from what public health professionals call “food
insecurity,” meaning they faced hunger or the risk of it, said Dr.
Athena Linos, a professor at the University of Athens Medical School who
also heads a food assistance program at Prolepsis,
a nongovernmental public health group that has studied the situation.
“When it comes to food insecurity, Greece has now fallen to the level of
some African countries,” she said.

Oh, and the economic theory that German policymakers conveniently invoked as a fig leaf for their pursuit of Germany's economic interests cited as intellectual support has been largely debunked

To
see their enormous influence on the European debate, it is worth
quoting an extract from a speech by Olli Rehn, the European Commission’s
economic chief, to the Council on Foreign Relations in June 2011.
“Carmen Reinhart and Kenneth Rogoff have coined the ‘90 per cent rule’,”
he said. “That is, countries with public debt exceeding 90 per cent of
annual economic output grow more slowly. High debt levels can crowd out
economic activity and entrepreneurial dynamism, and thus hamper growth.
This conclusion is particularly relevant at a time when debt levels in
Europe are now approaching the 90 per cent threshold, which the US has
already passed.”

Mr Rehn presumably did not read the original papers, which were more
ambivalent in their conclusions, as academic papers tend to be. Policy
makers, such as Mr Rehn, are always on the lookout for economic theories
that seem plausible and accord with their deep beliefs. In Europe, most
of them have little exposure to macroeconomists who think out of the
box. Clearly, most policy makers find it counter-intuitive that
governments should spend money in a recession. It is against their own
experience, especially if they come from northern European countries.
They may have read the history of the Great Depression, and yet they
find that a Keynesian
response is less plausible than pro-cyclical austerity. If two of the
world’s most respected economists then come along and tell them that
their gut instincts have been right all along, this is the conservative
policy maker’s equivalent of birthday and Christmas coinciding. At last,
the message they always wanted to hear.

And, of course, is not even resulting in significantly lower debts, since austerity-driven economic contraction increases sovereign debt:

Though the cumulative level of government deficits fell last year,
mainly because of Germany swinging into a budget surplus, many countries
have continued to reel from the costs associated with recession.

Spending cuts and tax increases have helped to reduce deficits across the 17 EU countries that use the euro, but the region's debt burden rose after economic growth flatlined and fewer companies and households paid taxes.

Of
the four countries that accepted financial assistance, Portugal and
Spain saw their deficits swell in value terms and in proportion to the
size of their economies. Portugal's deficit increased to 6.4% of GDP in
2012, from 4.4% the year before; Spain's jumped to 10.6% from 9.4%.

Greece
managed to make further inroads in cutting its borrowings, but the
deficit rose to 10% of its annual GDP from 9.5% as the country remained
mired in a deep recession. Only Ireland, widely viewed as the poster
child of austerity, saw its deficit fall under both criteria – it stood
at 7.6% of GDP against 13.4% the year before.

Of course, only those ranting, irresponsible…populists* (pronounce with scorn) feel the need to continuously draw attention to these facts.

History is not going to be kind to Angela Merkel. Wait, let me qualify that: Non-German historians are not going to be kind to Angela Merkel. But then again, hypocrisy is only human:

A Moral Principle met a Material Interest on a bridge wide enough for but one.

‘Down, you base thing!’ thundered the Moral Principle, ‘and let me pass over you!’

The Material Interest merely looked in the other’s eyes without saying anything.

‘Ah,’ said the Moral Principle, hesitatingly, ‘let us draw lots to see which shall retire till the other has crossed.’

The Material Interest maintained an unbroken silence and an unwavering stare.

‘In order to avoid a conflict,’ the Moral Principle resumed, somewhat
uneasily, ‘I shall myself lie down and let you walk over me.’

Then the Material Interest found a tongue, and by a strange
coincidence it was its own tongue. ‘I don’t think you are very good
walking,’ it said. ‘I am a little particular about what I have
underfoot. Suppose you get off into the water.’

It occurred that way.

             — Ambrose Bierce, Fantastic Fables, 1898

(Via Futility Closet.)

* Populist (n): In German political discourse: (a) a person who advocates policies favored by large numbers of Germans but opposed by political and journalistic elites; (b) any public figure who repeatedly draws attention to one or more spectacular policy failures of German elites; (c) an actual populist. See also dirty fucking hippie.

6 thoughts on “Locust Capitalism Made in Germany

  1. No wonder, the current German leader not being a huge fan of the social state concept anyway.

    In the details, however, you contradict yourself: You correctly point out that the current measures are ieffective.
    How can they then serve German economic interests?
    I would be happy to see that these politics at least have one purpose, however egoistic – so far, I see them only as ideological nonsense.

    Moreover, how is Rehn German?

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  2. Germany doesn’t demand any politics from them, Germany just doesn’t want to finance the politics of their choosing. Neither does anybody else, and that’s the point of the whole crisis, anybody else.

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  3. 1) That people in Greece a suffering physical hardship of a scale like you describe is horrible.

    2) I spent a year at UMass Econ, so if only for that I am quite happy that the RR paper was debunked.

    3) Regardless of any inflection point to macro-economic growth dependent on debt (which is around 160% of GDP in GR, while RR were looking at 90%) things get complicated if creditors believe they will not be paid back in full and are no longer willing to give credit at all. This is what happened in Greece.

    4) Asking Germany (or really the Euro-North) to bail out a country, when that was contractually ruled out, is quite a lot to ask.

    5) Assuming that the situation in Greece is a result of a slump in aggregate demand is an untenable position I think (running a deficit of 9% is also quite the opposite of “austerity”). Assuming that the Greek economy is structurally fucked up (you might call that aggregate supply) seems more accurate. That people in Greece are experiencing malnourishment seems to indicate that the diagonosis about the economy can be extended to the state and its institutions.

    I do believe, though, that Germans like to think of themselves as holier-than-thou (especially regarding the US), I do also think that the Euro is not helping and should probably be disbanded, and I do think that considering private equity as locusts is – with exceptions – not true. But I do not think that calling out Germany for its position regarding Greece is justified.

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  4. The referral to Reinhart and Rogoff is particularly interesting since their claims were seemingly based on results from a flawed use of the Excel software
    http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogoff-i-think-its-best-to-admit-your-errors-and-go-on-from-there/

    There were times in Germany when policy makers and journalist just had to be reminded of Herinrich Brnüning in order to keep them from thinking that nations’ economies funtion like single households. Stupidity has risen since then. And that fraudulent results of spreadsheet-challenged economists exert influence over the economic desicions for a whole continent, is just weird.

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