If there is such a thing as guiding principles that direct politics and people in a country, then for a few decades it was the idea that problems can best be solved through free markets, more globalisation and deregulation. This was still the case at the time of Agenda 2010, when privatisation and deregulation were the order of the day. Today, hardly a day goes by without a call for the state: to rescue banks or energy companies, to issue energy lump sums, to set up special funds for the German armed forces – or to pass gas price brakes. A new fashion, as supporters of the market doctrine have since been muttering? A fleeting zeitgeist against economic reason?

It may have something of a fashion phenomenon. What has been happening for a few years now is probably much more than that – it is driven by a much deeper-seated attempt to develop a new guiding principle that replaces the market as the ultimate remedy. Not because it is the spirit of the times. But because the dogma has reached its limits.

Whether such a new socio-economic paradigm is emerging – and at what stage it is – was the subject of an extensive study that has just been published. According to this study, such guiding principles are important for guiding politics in practice – and for creating a basic trust in politics. And it is precisely this basic trust that has dwindled with the failure of the market-liberal dictum, as several evaluations have shown since then – at the latest since the financial crisis of 2008, which acted as a revelation for the supposedly so efficient financial markets and banks.

Read the whole article here (in German).

In a recent column, Mark Schieritz wonders to what extent the land tax on real estate could serve as a model for a possible reform of the wealth tax. As a result of the reform initiated by the Constitutional Court, standard land values on which the tax is based must be recalculated and adjusted. Which is nothing other than a valuation of assets. However, this is precisely a popular counter-argument in discussions about the feasibility of a wealth tax.

Since the real estate assets of private households are about three times as high as assets in bank accounts and share deposits, they are an important component of wealth, while at the same time the evasion effects are likely to be smaller. Why not expand the property tax into a kind of wealth tax?

The political stipulation is that the reform of the tax must not lead to additional revenues for the state. That is why it has been constructed in such a way that the amounts to be paid should not change very much in the end. But that could be changed. With a few tweaks, it could be expanded in such a way that the wealthy would participate much more in the financing of the state’s tasks. The corresponding data are being collected right now. Another practical aspect is that the increase – or decrease – in the value of a property could be taken into account in a relatively uncomplicated way when calculating the tax. One would then simply have to query the value on a regular basis.

The whole column can be found here.

What Drives Innovation? – Article
William H. Janeway, Project Syndicate, 20.01.2023
After decades in the wilderness, industrial policy is now being rediscovered as a tool for addressing climate change and navigating a fraught new geopolitical environment. This development is long overdue, and fully justified by economic history since the dawn of the Industrial Revolution.

The Unfair Costs of Care – Article
Nancy Folbre, The Prospect, 18.01.2023
A very different kind of inflation.

The planned reform of EU budget rules gives the EU Commission too much power – Article (Paywall, German)
Philipp Heimberger, Handelsblatt, 16.01.2023
The EU Commission wants to change the Union’s budget rules. But the Commission’s plans would create a dangerous arbitrariness, warns Philipp Heimberger.

Corporations and the Super-Rich are Crisis Winners – Article (German)
Die Zeit, 16.01.2023
Food and energy companies made billions of US dollars in windfall profits last year, according to a report. At the same time, extreme poverty increased again.

France Wants to Revolutionise Europe’s Industrial Policy – Article (Paywall, German)
Martin Greive, Julian Olk & Gregor Waschinksi, Handelsblatt, 15.01.2023
The EU has so far failed to find a common response to US industrial subsidies in the wake of the Inflation Reduction Act. France is also pushing for new EU funds – the German government is sceptical.

Necessary Targeting – Article
Achim Truger, Aus Politik und Zeitgeschichte, 02.01.2023
The relief measures should be precisely targeted. In the case of private households, they should preserve energy-saving incentives and focus on lower and middle incomes.

In a recent interview with the Süddeutsche Zeitung, Tom Krebs, one of the authors of the study ‘Mapping the State of a Shifting Paradigm’, explains how the economic policy debate has changed.

The market regulates everything, the state is supposed to stay out of it: This policy is over, fortunately, finds economist Tom Krebs. Why the government should intervene again with the minimum wage, but would rather have left it alone with higher earners.

The economic policy debate has changed over the past 30 years, among economists and in international organisations. In the 1990s, the International Monetary Fund (IMF), the World Bank and the OECD argued in a market-liberal way. They called for privatisation, deregulation and flexible labour markets, which often meant low wages. The market should regulate everything. Today, they postulate an important role for the state and think reasonable minimum wages are right.

Read the whole interview here (German, Paywall).

In a recent Tagesspiegel article (paywall), Harald Schumann argues that state is taking over more and more tasks from the market as faith in its efficiency dwindles. He sees a new paradigm entering economic policy: The state as steer, investor and entrepreneur.

Based on a new study by the Forum ‘Mapping the State of a Shifting Paradigm’, the article describes a reorientation of economic science. This can be seen in the fact that all leading institutions from the International Monetary Fund to the EU Commission are abandoning faith in the market and calling for massive state intervention against inequality, climate change and financial crises.

However, it is uncertain whether the ideological turnaround will lead to practical success. A new consistent paradigm is yet to come, so far there are only experimental approaches. In addition, there is now a lack of insight and competent experts in the state apparatuses. In addition, there is a danger of subsidy races and the looting of state coffers by a few beneficiaries. Full transparency is therefore the sine qua non for a successful new economic policy.

The full article is available here. The full study on the state of the paradigm shift is available here.