The Levy Economics Institute of Bard College is ostensibly non-partisan but much of its published output is in the post-Keynesian tradition, and inspired by the work of Hyman Minsky and Wynne Godley, who both worked at the Institute in their later years. Continue reading →
There is a nice piece in this week’s New Statesman by economics commentator Grace Blakeley on the dangers of the unresolved eurozone crisis, with Germany at its heart. With growth in the eurozone currently slowing, after a brief spurt, unemployment is set to remain unsatisfactorily high in a number of countries, not least Greece and Spain. Germany itself is teetering on the brink of recession.
As Blakeley argues, resolving the crisis requires the northern states of the currency block to expand domestic demand. This is particularly necessary in Germany, the largest economy in the eurozone, which is running a current account surplus of nearly eight percent of GDP. It is thus overly dependent on external demand, and growth in world trade.
What the piece misses, maybe in order to avoid unnecessary complexity, is that a decade of wage stagnation in the 2000s, while rendering German exporters more competitive and profitable, and boosting employment, has also squeezed household incomes and raised national savings relative to investment. This is reflected in the aforementioned large current account surplus, which is by definition equal to the gap between domestic savings and investment. Continue reading →
This surplus, which means that Germany is lending its equivalent abroad, is equal to the excess of national saving over national investment.
It means that the rest of the world is running a current account deficit with Germany, since the sum of all the world’s current account surpluses and deficits is zero. If the rest of the world is running an overall deficit with Germany, this means that it is accumulating debt, funded by Germany lending its net savings, or the savings that are not invested domestically.
I have discussed these matters in previous posts, but the article cited above makes a useful point. The potential for reducing the German current account surplus is being played out as a conflict between economic and institutional forces. Continue reading →
Costas Lapavitsas, a Professor of economics at SOAS, and briefly a Greek MP in the Syriza government, discusses the causes and evolution of the eurozone crisis, and potential strategies for the left in Europe. While I am sympathetic to his explanation of the crisis, his solution, especially for Greece, are for a new leftist nationalism in opposition to the EU. Perhaps in the absence of EU and eurozone reform this would be desirable, but it remains controversial.
The interview is at the link below, via the Radical Political Economy website.
The following interview, conducted by Darko Vujica was originally published by prometej.ba on June 10th 2017.
Professor Barry Eichengreen writes in The Guardian on the unbalanced German economy, which I have posted on many times. As he says, the country’s large current account surplus reflects the excess of domestic savings over investment, as a matter of accounting. But he puts this down to an ageing population prudently saving for retirement, so does not see any medium term reversal of the household sector’s resulting financial surplus.
What he does not mention is the large net savings of German companies. To put it another way, corporate savings, or retained earnings, are larger than corporate investment. Rebalancing the German economy, and arguably restoring much greater prosperity to the EU and the eurozone, requires an increase of investment relative to savings. This an either be accomplished by consumption rising and the savings rate falling, the investment rate rising, or some combination of the two.
Although it is widely believed that Germany is an economic success story due to its successful exporters and low unemployment, its imbalances are a problem for Europe and the rest of the world economy. Continue reading →
This paper by Jorg Bibow has a useful take on how an ideology of anti-Keynesianism among German policymakers and its economic outcomes as a popular mythology result from a misreading of economic history. This faulty economic analysis has arguably played a major role in the eurozone crisis, and recent improvements in the eurozone economy are at the expense of the rest of the world. This is a form of ‘beggar-thy-neighbour’ policy, as a weak euro is stimulating demand for eurozone exports from its external trading partners, while domestic demand in the region remains weak. The eurozone economy is therefore improving by making the zone as a whole more like Germany in recent history, which has ‘succeeded’ via a dependence on export-led growth. Continue reading →
The German Bundestag. Change is needed on all sides involved in the current crisis, not least in Germany.
The German government’s ‘record’ post-unification budget surplus of nearly 24bn euros was in the news this week. As a percentage of GDP it is a mere 0.8%, but compared to the UK’s deficit of just under 4%, they seem to be doing relatively well, at least in terms of the desire expressed by many politicians for governments to ‘live within their means’. And this surplus does not seem to have come at the expense of economic growth. The German economy grew by 1.9% in 2016, the fastest in the G7 group of the largest economies in the world.
So how is this possible? Quite simply, it is down to the competitiveness of German exporters, achieved at the expense of ordinary German workers over the last decade or so.
Firstly, the deregulation of the labour market put downward pressure on wages at the bottom of the scale, so that Germany now has record numbers of low-wage, insecure jobs. Continue reading →