Reply to post: Re: The 1930s

Re: The 1930s

I await your detailed takedown so I can assess it.

I kind of walked into that one. Well, I won't give you one mainly because this is mainly a tech site, but I also don't have time for the details.

Suffice it to say that economics is far more politics than it is science, and a "dismal science" at that. My politics are profoundly different to Mr Worstall's: I'm a proud European and he's an insular (ex-pat, I believe). So we are bound to start from different positions and come to different conclusions. I can live with a difference of opinion but do get annoyed by the populist oversimplifications.

Germany didn't bail out its banks more than Britain. You can see the scale of the UK bailout in the public deficit after the financial crisis. Any comparison of the economies should have a baseline in 2008. From 2008 to 2012 Britain managed to shrink its economy and keep inflation above target, leading to a decline in the real standard of living. It's okay though, because nominal asset values were maintained.

When it comes to bullying other economies. Well, people in glass houses shouldn't throw stones. The UK applied enormous pressure to Ireland to bailout its banks and thus avoid British banks taken the hit of the bad loans. It then applied anti-terrorist legislation to seize Icelandic assets from banks that had been correctly licensed in the UK. The hawkish head of the FCA has just been told that his contract won't be renewed so it looks like a return to "light-touch", risk-on regulation. Given that the finance sector was contributing around 25% of GDP before the crash, you can see where the incentive to do this might be coming from.

Germany was one of the fastest countries to be fiscally expansive with the stupid-but-popular cash-for-clunkers scheme. State-subsidised shorter working hours were also hugely popular and are again with Opel recently applying for them now that the Russian market has collapsed. German banks were certainly complicit in stoking Greece's insolvency and the arms manufacturers certainly did a roaring trade, but no more so than any other country.

Translating "Ordnungspolitik" with ordoliberalism is fashionable but wrong. The German post-War political order was largely imposed by the allies so any thoughts of peculiar German traits are misplaced. It is the government's job to create the relevant institutions to manage the various sectors. Afterwards the government is legally prevented from meddling. This is one of the reasons why the Bundesbank is more independent than the Federal Reserve, the other being that the Federal Reserve is as beholden to the commercial banks as it is to the US government.

The hyperinflation of the 1920s is not etched in some kind of collective memory but it did illustrate the futility of getting the central bank to monetise government debt by printing money. This is why there is little desire or understanding in Germany for money printing as a solution. Whether QE has been a success or not can only properly be assessed once the central banks have managed to shrink their balance sheets. Little evidence of that at the moment.

Austerity is much misused word. In the early 2000s Germany certainly engaged in restraint across government and business in order to regain competitive advantage lost by the 1:1 exchange rate of unification. The labour market was significantly liberalised and wage restraint was exercised with annual pay increases well below the rate of inflation the norm for about 10 years. Similar adjustments were, of course, practised by the Baltic countries after-2008 as they strove to join the Euro.

Some of the consequences of this were the nearly disastrous falls in productivity in other Eurozone countries and the export of German savings into high-risk, high-return investments such as American CDOs and Greek bonds. Other consequences such as underfunding of healthcare and pensions will take time to show.

All the historical comparisons with the Great Depression, Hitler's rise to power, etc. can be illuminating but are necessarily simplistic. The 1930s were extremely unstable across Europe which is why Ramsay MacDonald imposed a state of emergency in 1931. This is quite simply not the case today. Not that there isn't considerable hardship throughout Europe but the scale is very different.

Where I do agree is that the Euro is unfinished business. Since its introduction the member states largely turned inwards and tried to ignore the consequences of pooling sovereignty. France is the elephant in the room here with successive governments simply failing to start the same kind of dialogue with the population that Germany did in 2001. It simply is not enough to look covetously at the situation "outre-rhin" and expect some kind of a miracle.