6 ms·

> One of those things is that Germany needs to > start spending more. Why? Especially on the individual - many will ask: Why spend, when you save for "bad

> One of those things is that Germany needs to > start spending more. Why? Especially on the individual - many will ask: Why spend, when you save for "bad times" or your kids' future? And more recently: Why spend, when you want to reduce your footprint on this planet?

bitL 7y ago
This was more in context that Germany is underpaying its employees, i.e. the salaries are similar to France with much higher productivity, average pensioner gets less than somebody in Italy would get, and even Austria has higher wages now; not to mention Switzerland where wages are usually 2x higher. The theory was that if Germans were allowed to earn more, that would in turn propel economy; instead they are forced to save for worse times, companies/banks are super conservative in the time of expansion and not sharing any wealth, keeping their export advantage with stabilized cost of labor, leading to unnecessary suppression of growth that could have happened with increased domestic consumption.
- ChuckNorris89 7y ago
  >This was more in context that Germany is underpaying its employees Yep, at least in tech, German salaries are stupidly close to Eastern Europe now. All this because in EE the free market kicked in and did it's thing, forcing employers to compete for talent while German companies artificially cap salaries to fixed grids while complaining there's a talent shortage and pushing for immigration instead of wage increases.
  - Throw_Away_3278 7y ago
    What are fixed grids?
    - ldp01 7y ago
      He probably means a table of standard ranks and salaries.
    - deleted 7y ago
      [deleted]
QuesnayJr 7y ago
Because you can't really save for the future. You can only invest for the future. Saving only pays off when there's someone to take those savings and spend them on investments.
graeme 7y ago
It's more like "for the euro to work, Germany must spend more" The Euro isn't sensible from an optimal currency perspective. In a good currency union, labour will be extremely mobile. But though labour can move freely in Europe, people tend to prefer their home country. Contrast to the US where people move much more readily and follow jobs. So monetary policy has been too tight in areas like Greece that would have simply devalued their currencies in the past. Meanwhile policy seems to be too loose for Germany. If you want to keep the monetary union, you can't crush Greece and other southern countries. So the Euro must devalue a bit to help them. But this cuts interest rates in Germany, discouraging spending. Hence "Germany must spend more". It's more of a mechanical statement than a moral one. Also spending could be using capital to buy a business abroad or infrastructure or somesuch, I think. Needn't necessarily be consumer goods.
- Nimitz14 7y ago
  This is also how I understand the situation. Btw I think you've got a typo: > for the euro to work, Germany must save more
  - graeme 7y ago
    Thanks! Fixed it
- chii 7y ago
  the fundamental issue with the euro zone is that each member country still considers themselves a separate nation (and i m not talking about policy, but about the people). A greek national considers himself a greek, and not german. In america, when a state has low revenue or high cost, it is subsidized by federal taxes. I.e., people from richer parts of the country "pays" for the poorer parts (e.g., infrastructure, or education etc). In eurozone, this is rarely the case. I think a person in the US won't bat an eye if taxes are redistributed to a different state, but the amount of backlash that eurozone sees from this sort of redistribution (see brexit - they even believe in lies because it conforms to their worldview!). Until the eurozone culturally and societally accepts itself as a single country with a single identity, there cannot be financial unity. Euro is a failure because of this imho.
pm90 7y ago
> Why spend, when you save for "bad times" or your kids' future? And more recently: Why spend, when you want to reduce your footprint on this planet? You're framing this in moral terms whereas it should be viewed as more in economic terms. Spending by Germans creates more demand for Goods and Services, encouraging economic booms in the rest of Eurozone. These developed countries would then develop the skills and accumulate capital to compete with their peers in Asia. That would be a huge win-win from a European perspective. Honestly, this shouldn't be viewed as encouraging the average German to spend more of their savings, rather, the German Federal Government borrowing more + spending heavily on infrastructure building in Germany + the rest of Europe.
- deleted 7y ago
  [deleted]
- Paradigma11 7y ago
  Why would greece or italy grow because germany buys more chinese products? Sure the € would depreciate a bit but there have already been currency fluctuations that did not show a big positive effect on the malingering economies.
  - Paradigma11 7y ago
    Oops my bad, ment sick instead of malingering. Did not knew the negative meaning of malingering of pretending to be sick.
- ChuckNorris89 7y ago
  >Spending by Germans creates more demand for Goods and Services, encouraging economic booms in the rest of Eurozone. In theory. In practice however, all that negative rate money that people will borrow will all go to real estate causing the already high prices to skyrocket overnight while wages stagnate. Goods and Services are already cheap enough that we don't need loans for. When rates were high, property prices in Germany were cheap or at least reasonable as they were pegged to the income levels. When rates went down property prices went to have no correlation to salaries anymore as now every average Joe and his mom could go to the bank and max out a 30 year loan on as big of a house his bank could afford to give him. That's how Germany went from being one of the cheapest housing markets in Europe to one of the most expensive in the last 10 years.
wbl 7y ago
Germans would be richer if they spent and earned more instead of saving and earning less to export more. Germany's current account imbalance threatens eurozone stability and lower rates in Germany are the solution.
nl 7y ago
Others have addressed the mechanical points of this argument. I'm going to talk about the moral points: Why spend, when you save for "bad times" or your kids' future? By spending you keep companies in business where your kids will be able to work in the future. We often see a moral version of this argument framed as "buy local" or "buy American|German|Whatever" Why spend, when you want to reduce your footprint on this planet? Often lower impact choices cost more. By deliberately spending more money on lower footprint choices you are helping the planet. Good examples of this include high-efficiency appliances, extra house insulation, sustainable food sources etc etc.
- Nasrudith 7y ago
  That highlights issues of trust and game theory as well - "saving" in some sort of way (including investing) provides security and can allow rising higher. A moral arguement towards spending is looked at like you are trying to sell them sonething and/or fleece them. And they are technically right about that - accumulating wealth is what makes an individual rich. Investment in the actual sense would be a win-win. Not speculation or buying goods for the sake of getting cash flowing but things which provide a return. It is similiar to why lending out money/buying stocks is infinitely better as an investment than just holding gold - they provide utility. Gold just sits there. Of course investing reliably and safely is hard, especially when the behavior of others impact it and nobody has perfect information.
  - chii 7y ago
    which is why investing in a bank's savings account is the natural way to "save". It's very safe, and still guarentees some level of profit that is not too far off from inflation. Negative interest rates pulls that out under the rug, and forces people to take on extra risk than they currently do.
- perl4ever 7y ago
  "Often lower impact choices cost more." This doesn't seem like a reasonable assumption to me. If you spend $ to reduce your carbon output for example, the money circulates among other people, who average about the same usage of fossil fuels as the general population because after a few exchanges they are the general population. So if you are increasing your spending in the long run, you are increasing resource usage by that amount, no matter how virtuous the things you are spending it on. That doesn't mean it's wrong to invest in something that saves you money in the long run, but if there isn't a payoff, then by default you shouldn't think you're helping the environment.
marticode 7y ago
Spending more could be done by converting all those coal plants Germany has into renewables, or building better mass transit, or doing R&D for its industry, or providing better benefits for parents to raise its abnormally low birth rate, etc. Having money to spend is a good problem to have. More generally speaking, Germany has excess saving and insufficient spending which creates problems for the other members of the Eurozone. Excess deficits are bad, but excess surpluses are also not good.
rorykoehler 7y ago
The economy isn't zero sum. More spending means more good times for everyone.
throwaway34241 7y ago
To add one more angle on it: everyone can't save money at the same time. Say you have 100B euros. The next year everyone can't just have 110B euros in total unless you print money. What really happens is that 'savings' have two sides to them, and the other side is debt. So when people's savings go up by 10B, 10B of debt is created somewhere else (bank loans, government borrowing, etc) that enables that. Having things work this way makes some intuitive sense. Savings are really a promise for goods & services in the future, so it makes sense that you have a matching promise to (forgo) goods & services in the future to counterbalance that. In Germany's case, it's possible for the public and government to both save in aggregate only as long as trading partners go into debt (in euros). But if the debt becomes unsustainable, you will lose your savings that are the other side of that debt. Now, everyone can try to save at the same time, but because it's impossible it doesn't work and you just go into a recession. That is, everyone stops spending, people lose their job, and even though they want to save they can't, so the impossibility is avoided. Even though the basics aren't extremely complicated, it doesn't work like a household, and in many countries the average level of economics education seems to be about zero. There's a lot of public sentiment that everyone should should just save up and pay down debt, even though it doesn't make much mathematical sense how that could happen. I think there's a good chance people are elected at some point that handle things very badly. On an single individual level there's no reason to avoid saving, it's a good idea. But someone has to take on the debt on the other side of that saving. If no one wants to (including the government), it seems reasonable for interest rates to trend negative.
wetpaws 7y ago
Money is not a resource, it's just a number.
FabHK 7y ago
a) you can't compare the finances of a household with the finances of an entire economy. It might make sense for a household to aim to be debt free, but an economy should have plenty of debt (mostly to itself) to build all the infrastructure you need to run a modern and productive economy. It's sustainable for an economy not only to be eternally in debt, but to go eternally into more debt (ie have a deficit), as long as the economy grows. Common sense intuitions don't really work, and are contra-productive, at the level of an economy. b) insufficient aggregate demand can be a huge problem leading to recessions. What is sensible for the individual might not be sensible for the economy as a while. c) Germany's infrastructure is decaying, and rates are as low as never before, even negative, ie the market is willing to pay Germany to borrow. Yet Germany refuses to borrow. It's perverse. Of course, unemployment in Germany is relatively low, but in Europe it's high. Some big construction projects in Germany would be a win-win.

bitL 7y ago

This was more in context that Germany is underpaying its employees, i.e. the salaries are similar to France with much higher productivity, average pensioner gets less than somebody in Italy would get, and even Austria has higher wages now; not to mention Switzerland where wages are usually 2x higher. The theory was that if Germans were allowed to earn more, that would in turn propel economy; instead they are forced to save for worse times, companies/banks are super conservative in the time of expansion and not sharing any wealth, keeping their export advantage with stabilized cost of labor, leading to unnecessary suppression of growth that could have happened with increased domestic consumption.

ChuckNorris89 7y ago
>This was more in context that Germany is underpaying its employees Yep, at least in tech, German salaries are stupidly close to Eastern Europe now. All this because in EE the free market kicked in and did it's thing, forcing employers to compete for talent while German companies artificially cap salaries to fixed grids while complaining there's a talent shortage and pushing for immigration instead of wage increases.
- Throw_Away_3278 7y ago
  What are fixed grids?
  - ldp01 7y ago
    He probably means a table of standard ranks and salaries.
  - deleted 7y ago
    [deleted]

QuesnayJr 7y ago

Because you can't really save for the future. You can only invest for the future. Saving only pays off when there's someone to take those savings and spend them on investments.

graeme 7y ago

It's more like "for the euro to work, Germany must spend more" The Euro isn't sensible from an optimal currency perspective. In a good currency union, labour will be extremely mobile. But though labour can move freely in Europe, people tend to prefer their home country. Contrast to the US where people move much more readily and follow jobs. So monetary policy has been too tight in areas like Greece that would have simply devalued their currencies in the past. Meanwhile policy seems to be too loose for Germany. If you want to keep the monetary union, you can't crush Greece and other southern countries. So the Euro must devalue a bit to help them. But this cuts interest rates in Germany, discouraging spending. Hence "Germany must spend more". It's more of a mechanical statement than a moral one. Also spending could be using capital to buy a business abroad or infrastructure or somesuch, I think. Needn't necessarily be consumer goods.

Nimitz14 7y ago
This is also how I understand the situation. Btw I think you've got a typo: > for the euro to work, Germany must save more
- graeme 7y ago
  Thanks! Fixed it
chii 7y ago
the fundamental issue with the euro zone is that each member country still considers themselves a separate nation (and i m not talking about policy, but about the people). A greek national considers himself a greek, and not german. In america, when a state has low revenue or high cost, it is subsidized by federal taxes. I.e., people from richer parts of the country "pays" for the poorer parts (e.g., infrastructure, or education etc). In eurozone, this is rarely the case. I think a person in the US won't bat an eye if taxes are redistributed to a different state, but the amount of backlash that eurozone sees from this sort of redistribution (see brexit - they even believe in lies because it conforms to their worldview!). Until the eurozone culturally and societally accepts itself as a single country with a single identity, there cannot be financial unity. Euro is a failure because of this imho.

pm90 7y ago

> Why spend, when you save for "bad times" or your kids' future? And more recently: Why spend, when you want to reduce your footprint on this planet? You're framing this in moral terms whereas it should be viewed as more in economic terms. Spending by Germans creates more demand for Goods and Services, encouraging economic booms in the rest of Eurozone. These developed countries would then develop the skills and accumulate capital to compete with their peers in Asia. That would be a huge win-win from a European perspective. Honestly, this shouldn't be viewed as encouraging the average German to spend more of their savings, rather, the German Federal Government borrowing more + spending heavily on infrastructure building in Germany + the rest of Europe.

deleted 7y ago
[deleted]
Paradigma11 7y ago
Why would greece or italy grow because germany buys more chinese products? Sure the € would depreciate a bit but there have already been currency fluctuations that did not show a big positive effect on the malingering economies.
- Paradigma11 7y ago
  Oops my bad, ment sick instead of malingering. Did not knew the negative meaning of malingering of pretending to be sick.
ChuckNorris89 7y ago
>Spending by Germans creates more demand for Goods and Services, encouraging economic booms in the rest of Eurozone. In theory. In practice however, all that negative rate money that people will borrow will all go to real estate causing the already high prices to skyrocket overnight while wages stagnate. Goods and Services are already cheap enough that we don't need loans for. When rates were high, property prices in Germany were cheap or at least reasonable as they were pegged to the income levels. When rates went down property prices went to have no correlation to salaries anymore as now every average Joe and his mom could go to the bank and max out a 30 year loan on as big of a house his bank could afford to give him. That's how Germany went from being one of the cheapest housing markets in Europe to one of the most expensive in the last 10 years.

wbl 7y ago

Germans would be richer if they spent and earned more instead of saving and earning less to export more. Germany's current account imbalance threatens eurozone stability and lower rates in Germany are the solution.

nl 7y ago

Others have addressed the mechanical points of this argument. I'm going to talk about the moral points: Why spend, when you save for "bad times" or your kids' future? By spending you keep companies in business where your kids will be able to work in the future. We often see a moral version of this argument framed as "buy local" or "buy American|German|Whatever" Why spend, when you want to reduce your footprint on this planet? Often lower impact choices cost more. By deliberately spending more money on lower footprint choices you are helping the planet. Good examples of this include high-efficiency appliances, extra house insulation, sustainable food sources etc etc.

Nasrudith 7y ago
That highlights issues of trust and game theory as well - "saving" in some sort of way (including investing) provides security and can allow rising higher. A moral arguement towards spending is looked at like you are trying to sell them sonething and/or fleece them. And they are technically right about that - accumulating wealth is what makes an individual rich. Investment in the actual sense would be a win-win. Not speculation or buying goods for the sake of getting cash flowing but things which provide a return. It is similiar to why lending out money/buying stocks is infinitely better as an investment than just holding gold - they provide utility. Gold just sits there. Of course investing reliably and safely is hard, especially when the behavior of others impact it and nobody has perfect information.
- chii 7y ago
  which is why investing in a bank's savings account is the natural way to "save". It's very safe, and still guarentees some level of profit that is not too far off from inflation. Negative interest rates pulls that out under the rug, and forces people to take on extra risk than they currently do.
perl4ever 7y ago
"Often lower impact choices cost more." This doesn't seem like a reasonable assumption to me. If you spend $ to reduce your carbon output for example, the money circulates among other people, who average about the same usage of fossil fuels as the general population because after a few exchanges they are the general population. So if you are increasing your spending in the long run, you are increasing resource usage by that amount, no matter how virtuous the things you are spending it on. That doesn't mean it's wrong to invest in something that saves you money in the long run, but if there isn't a payoff, then by default you shouldn't think you're helping the environment.

marticode 7y ago

Spending more could be done by converting all those coal plants Germany has into renewables, or building better mass transit, or doing R&D for its industry, or providing better benefits for parents to raise its abnormally low birth rate, etc. Having money to spend is a good problem to have. More generally speaking, Germany has excess saving and insufficient spending which creates problems for the other members of the Eurozone. Excess deficits are bad, but excess surpluses are also not good.

rorykoehler 7y ago

The economy isn't zero sum. More spending means more good times for everyone.

throwaway34241 7y ago

To add one more angle on it: everyone can't save money at the same time. Say you have 100B euros. The next year everyone can't just have 110B euros in total unless you print money. What really happens is that 'savings' have two sides to them, and the other side is debt. So when people's savings go up by 10B, 10B of debt is created somewhere else (bank loans, government borrowing, etc) that enables that. Having things work this way makes some intuitive sense. Savings are really a promise for goods & services in the future, so it makes sense that you have a matching promise to (forgo) goods & services in the future to counterbalance that. In Germany's case, it's possible for the public and government to both save in aggregate only as long as trading partners go into debt (in euros). But if the debt becomes unsustainable, you will lose your savings that are the other side of that debt. Now, everyone can try to save at the same time, but because it's impossible it doesn't work and you just go into a recession. That is, everyone stops spending, people lose their job, and even though they want to save they can't, so the impossibility is avoided. Even though the basics aren't extremely complicated, it doesn't work like a household, and in many countries the average level of economics education seems to be about zero. There's a lot of public sentiment that everyone should should just save up and pay down debt, even though it doesn't make much mathematical sense how that could happen. I think there's a good chance people are elected at some point that handle things very badly. On an single individual level there's no reason to avoid saving, it's a good idea. But someone has to take on the debt on the other side of that saving. If no one wants to (including the government), it seems reasonable for interest rates to trend negative.

wetpaws 7y ago

Money is not a resource, it's just a number.

FabHK 7y ago

a) you can't compare the finances of a household with the finances of an entire economy. It might make sense for a household to aim to be debt free, but an economy should have plenty of debt (mostly to itself) to build all the infrastructure you need to run a modern and productive economy. It's sustainable for an economy not only to be eternally in debt, but to go eternally into more debt (ie have a deficit), as long as the economy grows. Common sense intuitions don't really work, and are contra-productive, at the level of an economy. b) insufficient aggregate demand can be a huge problem leading to recessions. What is sensible for the individual might not be sensible for the economy as a while. c) Germany's infrastructure is decaying, and rates are as low as never before, even negative, ie the market is willing to pay Germany to borrow. Yet Germany refuses to borrow. It's perverse. Of course, unemployment in Germany is relatively low, but in Europe it's high. Some big construction projects in Germany would be a win-win.