So what’s happening in world economics?
Steepest drop in German private sector output for three years. Euro crisis leads to survey-record monthly fall in service providers’ business outlook.
Of course, an economist could explain this better, but let’s see:
Germany is the leading voice for an austerity strategy for dealing with Europe’s economic problems. When countries practice austerity, jobs and services are cut. When that happens, citizens have less money to spend. German economic strength is based on product manufacturing. People throughout Europe buy German products. But governments throughout Europe are practicing austerity. With austerity, people don’t have money to buy products (fewer jobs, fewer payouts in social services, higher taxes, less money). When people don’t buy products, German businesses make less money.
So austerity is bad for Germany.
But Germany insists austerity is the way to go.
And now German service providers are experiencing a record fall in their business outlook.
Basically, it seems that even as the euro approaches a critical juncture, senior German officials are living in Wolkenkuckucksheim — cloud-cuckoo land.
Now, I know the phrase normally refers to a state of naive optimism, not normally something one attributes to German officials. But a broader interpretation would be that of believing, despite all the evidence, that the world is the way you want it to be, and acting on that false belief.
So the man from the finance ministry asserts that the euro crisis was brought on by fiscal irresponsibility, and in particular by “short-termism” — so that the remedy is to focus on long-run fiscal irresponsibility plus structural reform, which he insists has never failed.
All one can say is, My God. You have to be willfully blind not to know that private excess, not public, caused the problems in Spain and Ireland — and nowhere, not even in Greece, did Keynesian stimulus efforts have anything at all to do with the crisis. As for fiscal responsibility plus reform solving the kind of problem we face now — massive real overvaluation with a fixed exchange rate — it would be truer to say that this has never worked.
- Economist Paul Krugman on Germany’s ‘Whips and Scourges’ (pbs.org)
- Common Sense: German Rectitude Has Its Risks (nytimes.com)