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The latest news, debates, proposals and developments on new economic thinking at a glance.
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.
The Struggle for Green Central Banking – Artikel
Christian Siedenbiedel, FAZ, 26.07.2023
In July, the ECB practically stopped its bond purchases based on climate criteria. Greenpeace speaks of a “broken promise”. There are new ideas – but they have a catch.
Debt, hydrogen, inflation – economic historian Adam Tooze and economist Veronika Grimm have major differences. Who has the better arguments?
What does the European centre-right stand for?– Article
Fredrik Erixon, The Spectator, 29.07.2023
The centre-right in Germany, like many of its equivalents elsewhere in Europe, is moving closer to the nationalists because it has no sure idea what it stands for any more.
AI changes everything – Article
Harold James, Project Syndicate, 26.07.2023
Whereas previous technological developments altered human behavior and appearances, the rapid rise of artificial intelligence will reshape individuals’ core social and political beliefs, including about the nature and role of the state. The use of autonomous weaponry in war is a case in point.
What’s Happening in Italy Is Scary, and It’s Spreading – Article
David Broder, New York Times, 27.07.2023
Ahead of Italy’s election last fall, Giorgia Meloni was widely depicted as a menace. By this summer, everything — her youthful admiration for Benito Mussolini, her party’s links to neofascists, her often extreme rhetoric — had been forgiven. Praised for her practicality and support for Ukraine, Ms. Meloni has established herself as a reliable Western partner, central to Group of 7 meetings and NATO summits alike.
The Ministry of Economics is looking for ways to define prosperity beyond growth figures. The population, science and business are called upon to participate.
When great heirs can not afford their assets – Article
Bastian Brinkmann, 25.07.2023, Süddeutsche Zeitung
Anyone who inherits a company and cannot pay the inheritance tax can have it transferred tax-free. Last year, 24 people were relieved of 1.4 billion euros in this way. Is this a tax trick?
Taking inequality seriously—and tackling it seriously – Article
Jayati Ghosh, Social Europe, 24.07.2023
Rising inequality is a challenge for the multilateral system, Jayati Ghosh writes, which must first measure it properly.
We switched close but stifling social networks for a capitalist safety net that offered modern life choices. Now we don’t have either.
OUR MAIN TOPICS
New Paradigm
NEW PARADIGM
After decades of overly naive market belief, we urgently need new answers to the great challenges of our time. More so, we need a whole new paradigm to guide us. We collect everything about the people and the community who are dealing with the question of a new paradigm and who analyze the historical and present impact of paradigms and narratives – whether in new contributions, performances, books and events.
Redefining
the role of
the state
REDEFINING
THE ROLE OF
THE STATE
For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.
Remaking
finance
REMAKING
FINANCE
More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.
Greening
prosperity
GREENING
PROSPERITY
During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.
Reducing
inequality
REDUCING
INEQUALITY
The rising gap between rich and poor has become a threat to social cohesion in most rich countries. To reverse this trend it will be crucial to better understand the importance of different drivers of income and wealth inequality.
Innovation Lab
INNOVATION LAB
Do we need a whole new understanding of economic growth? What would be a real alternative? How viable are alternatives to GDP when it comes to measuring prosperity? These and other more fundamental challenges are what this section is about.
Globalization
for all
GLOBALIZATION
FOR ALL
After three decades of poorly managed integration, globalization is threatened by social discontent and the rise of populist forces. A new paradigm will need better ways not only to compensate the groups that have lost, but to distribute the gains more broadly from the start.
Europe
beyond markets
EUROPE
BEYOND MARKETS
The euro was planned during a period in which economic policy making was driven by a deep belief in market liberalism and the near impossibility of systemic financial crises. This belief has been brought into question since the euro crisis, which showed that panics do happen. New thinking needs to focus on developing mechanisms to protect eurozone countries from such panics and to foster economic convergence between members.
Corona Crisis
CORONA CRISIS
The current Corona crisis is probably the worst economic crisis of the post-World War 2 era. Economists are working hard on mitigating the economic effects caused by COVID-19 to prevent a second Great Depression, the break-up of the Eurozone and the end of globalisation. We collect the most important contributions.