Newsletter: Turnaround paper against the trend - Symposium on the consequences of the US election and the German coalition collapse

Dear friends and colleagues,

A liberal party that, in the midst of the economic crisis and government drama, presents a policy paper that ultimately demands a market-liberal turnaround. So radical that the Chancellor cannot go along with it. Then the break-up. And after new elections, the change to a new government. That was the case in 1982 when Economics Minister Otto Graf Lambsdorff launched his divorce paper. Just like Christian Lindner last week, it seems, when he first floated a (market-liberal) ‘economic turnaround’ paper only to be dismissed as finance minister a few days later. Break-up. New elections. And soon the change to a new government?

Attentive political observers have already pointed out that this could be the end of the parallel – if only because, as things stand, there is no majority in favor of switching to a coalition with the CDU. Something else could be even more severe: when Lambsdorff had his ordoliberal paper formulated in 1982, largely by the later head of the Bundesbank Hans Tietmeyer, market liberalism was just about to become the main guiding principle for decades to come. In the UK, Margaret Thatcher, a staunch market liberal, was in power; in the US Ronald Reagan. The new dogma soon prevailed in almost all major organizations – from the IMF to the OECD to the European Community: Washington Consensus. In Germany, leading advisors such as those from the German Council of Economic Experts announced their supply-side policy turnaround. 

Today, the OECD is calling for a minimum wage. The IMF is urging reform of the debt brake. And in the EU, the realization has taken hold that overly strict deficit rules based on old ordoliberal recipes are not good. Not because this is just a fad, but because the majority of recent research points precisely in this direction.

For years, economists have been researching why there is an imbalance of power in the labour market, for example, which speaks against too much deregulation. Or why there are good reasons in favor of industrial policy in certain situations. Why the once-promised trickle-down – where wealth accumulation at the top ends up benefitting everybody else – is an illusion, and why free markets left to their own devices lead to a drifting apart of income and wealth. Why a climate policy based solely on the market will not work. And why it can be dangerous to adhere to strict debt limits. Or that it is important to subsidize national production in a world of geo-economic tensions.

The fact that the old days are over is even reflected in the US, where an even bigger political shock happened this week. As wide as the rift between Republicans and Democrats is, neither the one nor the other is seeking a return to the old ‘free trade’ doctrine. Whether it’s sanctioning subsidized Chinese imports or industrial policy, it’s more about the way it’s done, not about going back to the market.

Not every political paper has to reflect the state of modern economics. And progress in knowledge is not achieved through majorities. What is more worrying is how stubbornly the market-liberal, supply-side policy promises of salvation are still being kept in Germany in 2024.

This leads to dangerous misdiagnoses such as the one that Germany is primarily and above all suffering from dwindling competitiveness – and economic turnaround papers promise to make the country more competitive at a time when German exporters are selling hundreds of billions more than is imported into Germany.  And at a time when there is a US president-elect who will lament and sanction precisely that.

What Donald Trump’s election means for the US and Germany will be discussed at our symposium on 19 November – with Joe Kaeser, Simon Jäger, Cathryn Clüver Ashbrook, Isabella Weber, Harold James and others. Registration – here.

Have a good weekend,

Thomas Fricke

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