A recent blog post by Noahpinion explains why industrial policy is a “incredibly important and very timely topic” for economic research and why the formerly common dismissive attitude towards industrial policies between economists needs rethinking. The article also highlights the main ideas of the most important research in this field, for example done by Dani Rodrik, Réka Juhász, and Nathan Lane.

They point out that past research that supposedly shows the ineffectiveness of industrial policy was actually pretty ambiguous. There’s a fairly large literature showing a negative correlation between subsidies and productivity at the industry level. But Juhász, Lane, and Rodrik point out that while this could be because of inefficient policies and rent-seeking, it could also be that government is directing subsidies to the industries where market failures are the largest. After all, if you look at the correlation between hospital visits and deadly heart attacks, you’ll find a strong positive correlation … but this doesn’t mean that hospitals give people fatal heart attacks!

Read the whole post here.

The 2010s were Germany’s decade. A Jobwunder (employment miracle) that began in the 2000s reached full flower, largely unimpeded by the global financial crisis of 2007-09, as labour reforms introduced by Gerhard Schröder, chancellor from 1998 to 2005, combined with China’s demand for manufactured goods and a boom in emerging markets to add 7m jobs. From the mid-2000s to the end of the 2010s, Germany’s economy grew by 24%, compared with 22% in Britain and 18% in France. Angela Merkel, chancellor from 2005 to 2021, was lauded for her grown-up leadership. Populism of the Trump-Brexit variety was believed to be a problem for other countries. Germany’s social model, built upon close relationships between unions and employers, and its co-operative federalism, which spread growth across the country, wowed commentators, who published books with titles such as “Why the Germans Do It better”. Germany’s footballers even won the World Cup.

The 2020s are shaping up to be very different, and not just because the national football team is faltering. Alternative für Deutschland, a far-right populist party, is polling at 20%. Germans are unhappy with their government. Most worrying, Germany’s vaunted economic model and state look unable to provide the growth and public services people have come to expect.

After a Jobwunder decade, German economy is according to the IMF the only G7 economy to contract this year. This has led some commentators to dig out the early 2000 diagnosis of Germany as Europes sick man. A recent Economist article is sums up the main challenges replacing Germany’s position from European leader to laggard: geopolitics, decarbonisation and demography.

Geopolitics
Germany’s high exposure to China (manufacturing exports) and Russia (energy imports) makes the German economy vulnerable to geopolitical shifts. Slow post-pandemic recovery of the Asian economy together with the gas-price shock of last year are hurting the export-led economy. Plans to counter these developments are constrained by the strict deficit limits of the debt brake.

Decarbonisation
Once a pioneer of renewable energy, Germany has become a climate laggard already with its “annual carbon footprint, of 9 tonnes a person, around 50% higher than that of France, Italy or Spain”.

Although Germany is one of the most energy-efficient countries in Europe—meaning waste is low—it consumes enormous amounts of energy owing to its large industrial base. Making this energy greener will require awkward trade-offs.

Demography
As the boomer generation is retiring, firms are struggling more and more to find employees.

Without immigration or more women and elderly folk in the workforce, the labour market will lose 7m of its 45m workers by 2035, calculates Enzo Weber of the Institute of Employment Research, a think-tank. As he notes: “The raw figures are dramatic.”

Overcoming these challenges makes a capable and efficient state necessary. As the article notes, however, the German state is not, adding a fourth challenge:

The problem is not a lack of funds—it is the nature of the administration itself. Observers paint a picture of a government stuffed with lawyers and unable to steer policy or even monitor consultants properly.

Read the whole article here.

To Save Or Not To Save? – Article (German)
Petra Pinzler, Die Zeit, 10.08.2023
That is the wrong question here. Why are we still discussing things in such an unrealistic way – instead of taking a fresh look at the world in times of climate crisis?

Good Governance Is a Bad Idea – Article
Katharina Pistor, Project Syndicate, 09.08.2023
The good-governance agenda was always meant to mask underlying power structures by elevating technocratic decision-making over political struggles. The full costs have become apparent only recently, as the paradigm blocks effective action against climate change.

Economists Reconsider Industrial Policy – Article
Dani Rodrik, Réka Juhász, Nathan Lane, Project Syndicate, 04.08.2023
In the past, economists assessing the performance of industrial policies often focused on indicators such as import tariffs, capturing only limited dimensions of such measures and conflating their objectives with others. A new generation of research efforts takes a more productive approach – and reaches very different conclusions.

Italy shocks banks with 40% windfall tax for 2023 – Article
Angelo Amante, Valentina Za and Giuseppe Fonte, Reuters, 08.08.2023
Italy dealt a surprise blow to its banks and sent shockwaves across the sector in Europe by setting a one-off 40% tax on profits reaped from higher interest rates, after reprimanding lenders for failing to reward deposits.

Pressure on Lindner and the Debt Brake Is Growing – Article (German, Paywall)
Georg Ismar, Süddeutsche Zeitung, 06.08.2023
SPD politicians, Berlin’s head of government and well-known economists call for taking on more debt for a limited period of time – because of the economic situation and the housing shortage.

““Protest Voter Thesis Was Never Correct”: Who Votes for the AFD? – Article (German)
Max Kienast, Jasmin Brock, BR, 03.08.2023
In the ARD-DeutschlandTrend, the AfD once again achieves record figures. If there were a federal election on Sunday, 21 per cent of voters would put their cross with the AfD. Who votes for the party? A demographic overview.

Global Fundament – Article (German, Paywall)
Sven Beckert, Die Zeit, 05.08.2023
Der Kapitalismus gilt als Erfindung Europas. Doch seine Geschichte beginnt genauso mit arabischen, afrikanischen, indischen, chinesischen Kaufleuten, Bauern und Geldverleihern.  

Can John Rawls’s Philosophy Save Liberal Democracy? – Blogpost
Nick French, Cataylst Journal, 31.07.2023
The ideas of John Rawls, perhaps the greatest political philosopher of the 20th century, have much to teach the Left. But Rawls’s theories failed to grapple adequately with the fundamental obstacles capitalism imposes to realizing a just society.

World to lose $4.7 trillion to tax havens over next decade unless UN tax convention adopted, countries warned – Blogpost
TaxJustice Net, 25.07.2023
Countries are on course to lose nearly US$5 trillion in tax to multinational corporations and wealthy individuals using tax havens to underpay tax over the next 10 years, the Tax Justice Network warns.

This Is How Far Apart the Rich and the Poor Are – Article (German, Paywall)
David Böcking & Holger Dambeck, Der Spiegel, 31.07.2023
Who gets a lot, who gets little? In the USA or Great Britain, the income gap between the bottom and the top ten percent is huge. Four charts show how it looks in Germany – and in the rest of the world.

The distribution of income between wages and profits is a social process and therefore has no natural rules. The fact that companies can simply pass on cost shocks while workers take the brunt of them in real wage losses rather points to the weakness of unions and the strength of capital. While mainstream economists always warn against automatically adjusting the level of wages or social benefits to inflation – which a large part of Germans would support – such indexation is de facto the case for capital incomes: when companies can pass on cost increases one-to-one, or they are even in the contract, as with the 70 per cent index rents in Berlin.

Read the whole article (in German) here.

A green urban milieu riding a cargo bike versus a conservative rural population driving a car. This (supposed) contrast is omnipresent in the climate debate. But what is actually true about this polarisation hypothesis? A new report by Jan Eichhorn, Director of d|part, paints a more differentiated picture.

In debates on the climate crisis and energy transition, a picture is often painted of major differences in the attitudes of people living in urban and rural regions. But is this really true? Based on representative survey data, this study analyses how study analyses how people in different residential environments think about climate and energy about climate and energy policy issues. It shows that there are generally only nuanced differences in views on the importance of the climate crisis and the preference for certain measures. However, the profiles of people who share certain views across residential environments differ significantly in some cases. This is especially true for supporters of different parties. The analysis clearly shows that a target-group-oriented approach to climate and energy policy is promising when the personal characteristics of people and their local environment are taken into account collectively.

The whole report is available here.