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Germany's trade surplus is a problem

76 points by Thimothy 12y ago

cyphunk 12y ago
Someone explain to me why the same argument does not apply internally within the US. The imbalance of trade between Germany and other Eurozone partners does indeed create winners and looser. How different is this from states within the US. Since when did the US care about similar imbalances created between Alabama and say California? I'm sure there are arguments against this comparison. I'd be interested to hear them. That aside, I "feel" (based on living in Germany) that Bernanke is correct with his suggestions of where Germany could move. I don't think it will have much impact on the trade deficit but it will help Germany avoid more drastic emergencies in the future. The pay for workers is out of balance. The investment in infrastructure is not required now but important for its future. Currently it's infrastructure is far better off than other EU zone countries of similar size (and many times better than the US). But if it wants to retain it's significance 20 years from now it will need to innovate in infrastructure or be satisfied with being that country known for making old-world things at good quality. Germany definitely needs policies that encourage investment. Ideally though I'd prefer that not be in housing as stable housing is probably one of the primary social benefits in Germany. But as it stands with its undervalued assets it's becoming a place to be bought by others. Politically this creates interdependence which is NOT a bad thing but ultimately as the undervaluing continues Germans are just throwing away that value as value lost. In a globalized economy if they do not capitalize on it someone else will. Still, none of this will do much for the trade deficit. Because while it may take 20 years for Germany to push some of these changes, change within other EU countries to take advantage of it will take significantly longer. Then again, I'm not an economist so what do I know.
BjoernKW 12y ago
Isn't he the one who thinks printing money is a sound economic policy? Pot calling the kettle, I suppose. Anyway, I don't think there are absolute rights and wrongs in this game. And a game it is, the outcome of which is quite uncertain. The players (i.e. nation states and larger economic entities such as the EU) in this game sometimes act as opponents, sometimes they cooperate but unfortunately they're hardly friends with a common goal or the greater good in mind. Germany's zero-debt policy might very well prove to be the right one once the next few rounds have been played. Bernanke's criticism has some merit, though. Certainly, Germany's economic policy currently severely disadvantages other EU countries and benefits from their weakness. That definitely is a problem. However, this weakness also is largely self-imposed by corrupt politicians or generally wide-spread corruption. Greece for instance, economically shouldn't ever have been admitted to the Euro but it was nonetheless because of political reasons. This doesn't mean German politicians or Germans for that matter have any right to be condescending towards other nations as they sometimes come across recently. There's corruption and tremendously wasteful spending in Germany as well. Maybe it's just not as severe as in other countries but Germany hardly is a paragon of economic virtue itself. However, they can hardly be blamed for trying to achieve the best for their country first. Why should they draw up economic policies that benefit other countries which - without any accompanying political change on their part - would likely continue as before. Their crisis primarily isn't caused by Germany's strength but by their comparative weakness. On the same grounds Bernanke could advise the US the cut their grotesquely large military expenses and donate some of it to Greece so they can pay off their debt. Not bloody likely either, I suppose ... That said, Germany is a tremendously wealthy country that could spend a lot more on infrastructure if it wasn't for large amounts of taxpayers' money wasted on pointless stuff and corrupt structures. There have been talks about a proper tax reform for more than 30 years now and by and large nothing has happened. If there's one point of criticism that can be justly made it's that German politics is lacking a vision and is largely guided by cowardice and unwillingness to assume a leadership role. Some of its success in recent years probably was mere luck.
jazzyk 12y ago
Germany was a strong exporter even in the past, with the strong Deutsche Mark. And they save money for the rainy day, so they can invest in R&D and infrastructure as needed. “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” -- Charles Dickens
orbifold 12y ago
There is a fairly interesting book written by the current finance minister of Greece Yanis Varoufakis on the subject called "The Global Minotaur", he argues that after Bretton Woods the trade surplus of Germany especially vis a vis the United States was by design, as the profits of German corporations ultimately ended up in the hands of Wall Street. On the other hand Europe lacks such a surplus recycling mechanism, which according to him worsened the current economic crisis in Europe.
- UweSchmidt 12y ago
  Aparently the current finance minister of Greece has his own idea on how to "recycle" German surplus? At least he has build a congruent worldview that lets him sleep well at night. The fixed exchange rate 4,20 DM == 1$ in the 1950s is usually cited as helping German exports during the 1950s. During later decades the Deutsche Mark was exceptionally strong, in theory harming German exports. It's a fallacy to pick and choose events in the ultracomplex global economy and form a story from that. Consider all the fiscal and monetary policies that were enacted by all countries - ultimately success of an economy depends on the intrinsic strength, regardless if it's export oriented, or if it lives happily with a trade deficit like the US.
  - orbifold 12y ago
    The point is that the US ultimately profits from the arrangement, yes it has a large and growing deficit, but that is actually fine, because the profits of the corporations that export goods to America largely end up at Wall Street, so there actually is a "cycle". Moreover since the US has control over the Dollar, which also is used for international trade, by devaluing the Dollar, that is increasing the national debt, they effectively levy a tax on the global trade.
  - Luc 12y ago
    That can't be right. The value of the euro is depressed, to Germany's advantage, by the other euro members. How is that not going to affect the success of the German economy? I am reading Varoufakis' Minotaur book at the moment. I am about halfway in and I haven't yet gone 'hang on a sec, that can't be right!'. So he's got that going for him.
higherpurpose 12y ago
Maybe Germany shouldn't have cut the solar power subsidies so quickly.
- dimitar 12y ago
  The interesting point is that this is a question of ideology - there are plenty of things the Germans would love to spend on, but the government believes that more spending would make things worse. Bernanke doesn't suggest things that he believes are harmful or less good for Germany itself.
  - tormeh 12y ago
    Yeah, but taking up loans is the wrong way to go about it. If the German government wants to spend more money then it should raise taxes. That's not politically impossible, but maybe there are some obstacles to private consumption of foreign goods and services that can be tackled simultaneously?
    - dimitar 12y ago
      If the government raises taxes and spends the extra money, it would still have the same effect, but less of it than spending directly.
dimitar 12y ago
As Paul Krugman has said before[1] This is a reflection of the following identity: Current account = Savings – Investment Basically, Germany is over-saving and both Germany and its trade partners are worse off because of it. [1]: http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-germany/ http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-ge...
- dmichulke 12y ago
  There are schools who disagree with this and say Savings = Investment because 99,9% of the money saved is put on the bank where it gets reinvested.
  - Gibbon1 12y ago
    And those schools are nothing but quantity theory of money cargo cultists or worse, gold bugs.
  - dimitar 12y ago
    This is called Loanable Funds and is the same thing. The identity in my comment is the open economy version where you also have the current account.
  - dimitar 12y ago
    Also, think of I=S as the point of where two curves intersect (saving and investment). The point is that the savings curve is way to the right and the investment is way to the left. The curves still intersect though, but so what? That doesn't provide you with any judgement to which way the curves might shift.
    - dmichulke 12y ago
      OK, I think the difference is whether the amount of money is fixed. If it were, global investment would equal global savings. In any case, it's locally possible to invest more (in nominal terms) than savings, both because money supply is increasing and there are always local imbalances. Typically, interest rate differentials take care of this in a free market. Reducing the interest rate in Germany would be one cure, another one would be hiking it in the importing countries. So I don't see the blame at one side only.
Eye_of_Mordor 12y ago
If these were 2 people, then who is the 'problem': * US with heavy debts? * Germany with savings? Germany is in a position to fix its infrastructure, but then again, this can wait until there's a need for job creation. Also, outstanding tax 'reforms' are more a symptom of weak political influence by corporations, which is a good thing. Germany isn't the US, and for this reason, it is rich. Edit: punctuation
- tiatia 12y ago
  > If these were 2 people, then who is the 'problem': * US with heavy debts? If I may quote Greenspan: "That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit. * Germany with savings? >Germany is in a position to fix its infrastructure, Nope German infrastructure is in ruins. She does not have any savings. She has Lehman debt obligations, Greek government debt and billions of unpaid retirement obligations. She gives its products away for free. > Germany isn't the US, and for this reason, it is rich. The average American is richer than the average German. Neither too much export, not too much import is good. BOTH is a sign of weakness. The best country is one that exports a tremendous amount but has an close to zero account deficit.
  - lispm 12y ago
    > Nope German infrastructure is in ruins. Yeah, sure. I happen to live in Germany and I don't see to many ruins. Actually the city where I live invests a billion $ into a concert hall and 1.5 billion $ into a new X-ray research laser facility.
    - Luc 12y ago
      You're right of course, though I'm not sure you can call it investing when they pay four times as much as planned for a concert hall :)
      - 12y ago
tobiasu 12y ago
It's always nice when our American masters tell us what to do with our money and laws.
- yxhuvud 12y ago
  Well, in this case you deserve rebuke, as the current policies are horrible for the world and really bad for the Germans. Trade imbalances are simply not sustainable, regardless of direction.
steveridout 12y ago
I'm still woefully ignorant about world economics. Could someone do me a favour and answer a few basic questions about this: 1. Is the trade surplus mainly affected by private enterprise? If that's the case, what control does the German government have over it if the businessmen running the companies would rather save than spend? (Interest rates are already incredibly low.) 2. I'm personally conservative with money, and never like to get into debt, so from a this naive point of view, I would be very happy to know my country has a large buffer to weather out any oncoming storms. Assuming that Germany's position (saving) is bad for the world economy, but good for Germany, what would make the Germans change their behaviour? 3. What books would you recommend for a complete newcomer to learn about macro economics?
- dantheman 12y ago
  There's a lot to economics, one book that I think is really insightful and quite easy to read is Economics in One Lesson. It's main function is to highlight second order effects, or unintended consequences, of legislation on activity. http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ http://www.amazon.com/Economics-One-Lesson-Shortest-Understa...
- tiatia 12y ago
  Easy 1. > Is the trade surplus mainly affected by private enterprise? Hell yes. > If that's the case, what control does the German > government have over it if the businessmen running the > companies would rather save than spend? Good question. They could put export tariffs and forbid the immigration of "highly skilled labor". (If you make at least 30k Euro you get a work permit immediately. If not, just ask for asylum and you get better benefits than most pensioners.) It could abolish export financing and government guarantees for export financing. 2. > I'm personally conservative with money, and never like to > get into debt, so from a this naive point of view, I > would be very happy to know my country has a large buffer > to weather out any oncoming storms. It is impossible to save money without someone else going into debt. Germany is not creating a buffer, it is exporting both, capital and goods. She does dumping with salaries for engineers and exports like crazy. She has too, since there is not enough money people can spent in Germany since the salaries are so low. At the same time, "Germany" is not getting any financial buffer. She gets Lehman debt obligations and Greek government debt. Germans take pride in being the leading exporter of goods. They better would take pride in "giving away products for free". But in fact, there is someone profiting: Private, highly export oriented enterprises. And there are three kinds of people footing the bill: 1. Employees that are highly underpaid. 2. Tax payers that will have to foot the bill for the bail outs. 3. Citizens that see there infrastructure, universities and public services crumble. In short: Germany is exporting itself to death. 3. > What books would you recommend for a complete newcomer to learn about macro economics? Hm. Hart to say. There are so may. Mises, no matter what you think about him, is good for an introduction. But later you will realize that he failed in most things. Keynes may be right. In the end, we are all fucked. "There is No Steady State Economy (except at a very basic level)" http://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ http://ourfiniteworld.com/2011/02/21/there-is-no-steady-stat... Limits to Growth–At our doorstep, but not recognized http://www.resilience.org/stories/2014-02-12/limits-to-growth-at-our-doorstep-but-not-recognized http://www.resilience.org/stories/2014-02-12/limits-to-growt... Wealth And Energy Consumption Are Inseparable http://www.declineoftheempire.com/2012/01/wealth-and-energy-consumption-are-inseparable.html http://www.declineoftheempire.com/2012/01/wealth-and-energy-... Galactic-Scale Energy http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/ http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-e...
exar0815 12y ago
The really funny thing is, that the Idea of the Euro was never well beloved by the german government prior tho 1990. But then, the French demanded (out of historical fear) some reassurings for allwing the German reunification and preventing a dominant Germany in Europe again. That plan has hugely backfired, boosting the struggling german economy after the very costly reunification in the beginning of the 20th century. In fact, French fear (or envy?) of the Deutsche Mark in the 80s and 90s lead to a legenday discussion between a german and a french state official: "We have to talk about the threat of german nuclear weapons, too!" "But we germans have no nuclear weapons!" "Yes you have. You just call it Deutsche Mark!"
- frivoal 12y ago
  Just curious, who said that?
  - exar0815 12y ago
    The quote circulates through a lot of the german press for about two decades, here for example a international article from Der Spiegel http://www.spiegel.de/international/germany/the-price-of-unity-was-the-deutsche-mark-sacrificed-for-reunification-a-719940-2.html http://www.spiegel.de/international/germany/the-price-of-uni...
- lispm 12y ago
  If you look at the German Mark at its time. It was the anchor for a lot of currencies. Basically the currencies of the continent followed the Deutsche Mark and much the currency policy was made by Germans in the Deutsche Bundesbank in Frankfurt. Many of the currencies were members of the European Exchange Rate Mechanism: http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanis... With the Euro, the currency policy is now made by a European institution by Europeans, in Frankfurt at the ECB. Trading is easier because of a larger market easily accessible: the EU, the Eurozone, Eastern Europe, ... Before that it was slightly more difficult, but still the industry did very at exports. > That plan has hugely backfired, boosting the struggling german economy after the very costly reunification in the beginning of the 20th century. The economy has been boosted because Germany got after the fall of the wall a huge new market: Eastern Europe. Right next to its door. In the EU, in the Eurozone. Since a lot of German exports are to the Eurozone or to countries which have currencies following the Euro, much of that is not depending on a favorable exchange rate.
dmichulke 12y ago
This article could be called "Countries' trade deficits are a problem" with the very same logic.
tomjen3 12y ago
No, it is a problem for the rest of us that we cannot make anything Germany wants, at a price it wants. People, especially economists, love to make macro economy some big mystery (no doubt so that they seem important) when it really can be solved the same way it can be solved on a smaller level.
lispm 12y ago
The US trade deficit, many of its finance institutions and its general over-consumption is more of a problem.
probably_wrong 12y ago
(Disclaimer: I know nothing about economy, and the very little I've read made no sense to me) I keep reading about how Germany's "zero debt" economic policy is bad for the country, and how bleak Germany's future is. That is, everyone seems to agree on this... except for the Germans, who say nothing about it while they continue being one of the top 5 economies in the world. Lots of these analysis come from the US, which to me makes even less sense: why would anyone listen to the country who got paralyzed when they couldn't keep getting even more in debt? How come George Soros can suggest[1] that Europe should go to war against Russia as a mean for stimulating the economy, and do it with a straight face? Every article seems to suggest that German economists are a bunch of amateurs who don't know what they are doing. But from my layman's point of view, it certainly doesn't look that way. [1] http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/ http://www.nybooks.com/articles/archives/2014/nov/20/wake-up...
- deleted 12y ago
  [deleted]
- happyscrappy 12y ago
  Only 14% of the U.S. economy is export. Almost 50% of Germany's economy is export. Edit: changed 80 to 50. Not sure where I saw that number.
  - bildung 12y ago
    > Only 14% of the U.S. economy is export. Over 80% of Germany's economy is export. It only seems to be a bit more than 40%: http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
  - lispm 12y ago
    > Over 80% of Germany's economy is export. Germany has a GDP of 3 Trillion Euro. It had exports of 1 Trillion Euro.
    - urschrei 12y ago
npstr 12y ago
I'm from Germany, and im tired of the argument, the Germans should do something about their export. Export exists, because someone outside of Germany thinks goods from Germany are better then goods from their country. How to solve this problem? Go and produce better goods urself, instead of crying to Germany to make their goods worse.
- npstr 12y ago
  Addendum: There is also export of unique goods, e.g. some countries have rare earths or some other unique ressource. Germany does not have any unique ressources, eversthing Germany does, anyone can go and do equally good/better himself.
- deleted 12y ago
  [deleted]
  - lispm 12y ago
    Germany is already the third largest importer of the world. http://en.wikipedia.org/wiki/List_of_countries_by_imports http://en.wikipedia.org/wiki/List_of_countries_by_imports
- acd 12y ago
  The strong exports would be self regulating if Germany had its own currency the deutsche mark. If you have the Dmark and people like german cars, germans exports will rise and so will the currency deutsche mark. Like it is now, people like german cars, but germany has the euro so it can export good cars at an almost artificially by the euro cheap price. Thus the south of Europe is trapped in the Euro as they do not increase productivity as much as the north and in some product cases does not make as good products as Germany. The European politicians has pretended that all of europe are equal in productivity. The german wants to sells cars in euroes, but you do not want to support the south permanently financially. This is like going against the tide, its a matter of time before the Euro will fall. I just hope Europe will unite in peace after that event.
  - 12y ago
ianpurton 12y ago
The article assumes that if you have a trade surplus then your bridges are crumbling. I cross bridges in Germany everyday and they look OK to me. There are some big projects going on here too, for example cities are burying their ring roads underground. Not cheap. http://www.dorsch.de/en/news/story/article/licht-am-ende-des-tunnels-mittlerer-ring-suedwest-laeuft-auf-hochtouren/ http://www.dorsch.de/en/news/story/article/licht-am-ende-des...
- kuschku 12y ago
  The only problems would be stuff like the bridges over the Kiel Canal (and the canal itself), and other smaller projects like that.
tim333 12y ago
Often surpluses and deficits are not really problems. Say for example a guy in the US has Facebook stock which has gone up and a guy in Germany has a Porsche he helped make. They swap, both happy but in the trade accounts it shows a big surplus to Germany and deficit to the US because the transfer of shares is treated as investment rather than trade. A lot of the surpluses and deficits are in effect stuff like that.
kriro 12y ago
Why do macroeconomists focus on single countries at all? I guess you can argue that policy changes (and taxation) can be made on a country level. For many policy decisions this is not as true as it was pre EU. Since I'm a "micro guy" anyway (even though I do enjoy chaotic systems etc.) I am fairly suspicious of the aggregation mechanisms in general. If you aggregate over "what money is used" (which seems sensible if you want to make balance of trade arguments in the traditional, currency based sense) the Euro-zone has close to a +-0 balance of trade. Recently the chart got a bit out of whack shape wise but it's still close to the +-0 now. I used to be very interested in economics but have grown more and more frustrated with the entire field. I pretty much stick to stuff that's interesting for other reasons (multi agent based modelling, chaotic systems, game theory etc.). As an academic in another field the entire field seems pretty strange. Conflation of politics and economic theory is wide spread and there seems to be a lot of "friend helps friend, outsiders suck" like structures in place. Granted this is the case in academia in general but economics always struck me as rather extreme in that regard.
mirekrusin 12y ago
why, when something works well, some people have an urge to change it? shouldn't it be the other way around? why not go through Germany state policies and copy working ideas over to other countries? telling germans what to do sounds like a joke, people should learn from them, not teach them how to do things.
plongeur 12y ago
The US is simply not producing and exporting anything of value and able to compete with comparable products. Furthermore not every country in EU is "suffering from Germany's export surplus" - countries like Estonia, Poland, Norway, Sweden, Denmark, ... are doing pretty well and doing better. What countries are supposedly suffering? - Portugal - Italy - Greece - Spain ... aka the PIGS states - have a look at their economic and political history and you will notice they were all ruled by incompetent and corrupted governments. Berlusconi is still active in policts ... do I need to say more? A lot of countries in EU have issues not due to Germany but due to their very own problems.
- Ygg2 12y ago
  > you will notice they were all ruled by incompetent and corrupted governments. Yes, governments that EU and Germany support because they only care about them doing what they want in foreign arena, regardless of their domestic politics.
kfk 12y ago
Not it's not. Currency is a unity of measure, it's not the foundation of an economy. The real problem with Germany's trade surplus is that is showing how inefficient and backwards are some of the other European countries. What would happen if Italy, let's say, had it's own currency? They would still buy goods from German, they would pay more, plus they would be even more unreliable as a country since the monetary policy would be in the hands of the Berlusconis and such (meaning: huge inflation to monetize public debt).

76 points by Thimothy 12y ago

Someone explain to me why the same argument does not apply internally within the US. The imbalance of trade between Germany and other Eurozone partners does indeed create winners and looser. How different is this from states within the US. Since when did the US care about similar imbalances created between Alabama and say California? I'm sure there are arguments against this comparison. I'd be interested to hear them. That aside, I "feel" (based on living in Germany) that Bernanke is correct with his suggestions of where Germany could move. I don't think it will have much impact on the trade deficit but it will help Germany avoid more drastic emergencies in the future. The pay for workers is out of balance. The investment in infrastructure is not required now but important for its future. Currently it's infrastructure is far better off than other EU zone countries of similar size (and many times better than the US). But if it wants to retain it's significance 20 years from now it will need to innovate in infrastructure or be satisfied with being that country known for making old-world things at good quality. Germany definitely needs policies that encourage investment. Ideally though I'd prefer that not be in housing as stable housing is probably one of the primary social benefits in Germany. But as it stands with its undervalued assets it's becoming a place to be bought by others. Politically this creates interdependence which is NOT a bad thing but ultimately as the undervaluing continues Germans are just throwing away that value as value lost. In a globalized economy if they do not capitalize on it someone else will. Still, none of this will do much for the trade deficit. Because while it may take 20 years for Germany to push some of these changes, change within other EU countries to take advantage of it will take significantly longer. Then again, I'm not an economist so what do I know.

BjoernKW 12y ago

Isn't he the one who thinks printing money is a sound economic policy? Pot calling the kettle, I suppose. Anyway, I don't think there are absolute rights and wrongs in this game. And a game it is, the outcome of which is quite uncertain. The players (i.e. nation states and larger economic entities such as the EU) in this game sometimes act as opponents, sometimes they cooperate but unfortunately they're hardly friends with a common goal or the greater good in mind. Germany's zero-debt policy might very well prove to be the right one once the next few rounds have been played. Bernanke's criticism has some merit, though. Certainly, Germany's economic policy currently severely disadvantages other EU countries and benefits from their weakness. That definitely is a problem. However, this weakness also is largely self-imposed by corrupt politicians or generally wide-spread corruption. Greece for instance, economically shouldn't ever have been admitted to the Euro but it was nonetheless because of political reasons. This doesn't mean German politicians or Germans for that matter have any right to be condescending towards other nations as they sometimes come across recently. There's corruption and tremendously wasteful spending in Germany as well. Maybe it's just not as severe as in other countries but Germany hardly is a paragon of economic virtue itself. However, they can hardly be blamed for trying to achieve the best for their country first. Why should they draw up economic policies that benefit other countries which - without any accompanying political change on their part - would likely continue as before. Their crisis primarily isn't caused by Germany's strength but by their comparative weakness. On the same grounds Bernanke could advise the US the cut their grotesquely large military expenses and donate some of it to Greece so they can pay off their debt. Not bloody likely either, I suppose ... That said, Germany is a tremendously wealthy country that could spend a lot more on infrastructure if it wasn't for large amounts of taxpayers' money wasted on pointless stuff and corrupt structures. There have been talks about a proper tax reform for more than 30 years now and by and large nothing has happened. If there's one point of criticism that can be justly made it's that German politics is lacking a vision and is largely guided by cowardice and unwillingness to assume a leadership role. Some of its success in recent years probably was mere luck.

jazzyk 12y ago

Germany was a strong exporter even in the past, with the strong Deutsche Mark. And they save money for the rainy day, so they can invest in R&D and infrastructure as needed. “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” -- Charles Dickens

orbifold 12y ago

There is a fairly interesting book written by the current finance minister of Greece Yanis Varoufakis on the subject called "The Global Minotaur", he argues that after Bretton Woods the trade surplus of Germany especially vis a vis the United States was by design, as the profits of German corporations ultimately ended up in the hands of Wall Street. On the other hand Europe lacks such a surplus recycling mechanism, which according to him worsened the current economic crisis in Europe.

UweSchmidt 12y ago
Aparently the current finance minister of Greece has his own idea on how to "recycle" German surplus? At least he has build a congruent worldview that lets him sleep well at night. The fixed exchange rate 4,20 DM == 1$ in the 1950s is usually cited as helping German exports during the 1950s. During later decades the Deutsche Mark was exceptionally strong, in theory harming German exports. It's a fallacy to pick and choose events in the ultracomplex global economy and form a story from that. Consider all the fiscal and monetary policies that were enacted by all countries - ultimately success of an economy depends on the intrinsic strength, regardless if it's export oriented, or if it lives happily with a trade deficit like the US.
- orbifold 12y ago
  The point is that the US ultimately profits from the arrangement, yes it has a large and growing deficit, but that is actually fine, because the profits of the corporations that export goods to America largely end up at Wall Street, so there actually is a "cycle". Moreover since the US has control over the Dollar, which also is used for international trade, by devaluing the Dollar, that is increasing the national debt, they effectively levy a tax on the global trade.
- Luc 12y ago
  That can't be right. The value of the euro is depressed, to Germany's advantage, by the other euro members. How is that not going to affect the success of the German economy? I am reading Varoufakis' Minotaur book at the moment. I am about halfway in and I haven't yet gone 'hang on a sec, that can't be right!'. So he's got that going for him.

higherpurpose 12y ago

Maybe Germany shouldn't have cut the solar power subsidies so quickly.

dimitar 12y ago
The interesting point is that this is a question of ideology - there are plenty of things the Germans would love to spend on, but the government believes that more spending would make things worse. Bernanke doesn't suggest things that he believes are harmful or less good for Germany itself.
- tormeh 12y ago
  Yeah, but taking up loans is the wrong way to go about it. If the German government wants to spend more money then it should raise taxes. That's not politically impossible, but maybe there are some obstacles to private consumption of foreign goods and services that can be tackled simultaneously?
  - dimitar 12y ago
    If the government raises taxes and spends the extra money, it would still have the same effect, but less of it than spending directly.

dimitar 12y ago

As Paul Krugman has said before[1] This is a reflection of the following identity: Current account = Savings – Investment Basically, Germany is over-saving and both Germany and its trade partners are worse off because of it. [1]: http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-germany/ http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-ge...

dmichulke 12y ago
There are schools who disagree with this and say Savings = Investment because 99,9% of the money saved is put on the bank where it gets reinvested.
- Gibbon1 12y ago
  And those schools are nothing but quantity theory of money cargo cultists or worse, gold bugs.
- dimitar 12y ago
  This is called Loanable Funds and is the same thing. The identity in my comment is the open economy version where you also have the current account.
- dimitar 12y ago
  Also, think of I=S as the point of where two curves intersect (saving and investment). The point is that the savings curve is way to the right and the investment is way to the left. The curves still intersect though, but so what? That doesn't provide you with any judgement to which way the curves might shift.
  - dmichulke 12y ago
    OK, I think the difference is whether the amount of money is fixed. If it were, global investment would equal global savings. In any case, it's locally possible to invest more (in nominal terms) than savings, both because money supply is increasing and there are always local imbalances. Typically, interest rate differentials take care of this in a free market. Reducing the interest rate in Germany would be one cure, another one would be hiking it in the importing countries. So I don't see the blame at one side only.

Eye_of_Mordor 12y ago

If these were 2 people, then who is the 'problem': * US with heavy debts? * Germany with savings? Germany is in a position to fix its infrastructure, but then again, this can wait until there's a need for job creation. Also, outstanding tax 'reforms' are more a symptom of weak political influence by corporations, which is a good thing. Germany isn't the US, and for this reason, it is rich. Edit: punctuation

tiatia 12y ago
> If these were 2 people, then who is the 'problem': * US with heavy debts? If I may quote Greenspan: "That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit. * Germany with savings? >Germany is in a position to fix its infrastructure, Nope German infrastructure is in ruins. She does not have any savings. She has Lehman debt obligations, Greek government debt and billions of unpaid retirement obligations. She gives its products away for free. > Germany isn't the US, and for this reason, it is rich. The average American is richer than the average German. Neither too much export, not too much import is good. BOTH is a sign of weakness. The best country is one that exports a tremendous amount but has an close to zero account deficit.
- lispm 12y ago
  > Nope German infrastructure is in ruins. Yeah, sure. I happen to live in Germany and I don't see to many ruins. Actually the city where I live invests a billion $ into a concert hall and 1.5 billion $ into a new X-ray research laser facility.
  - Luc 12y ago
    You're right of course, though I'm not sure you can call it investing when they pay four times as much as planned for a concert hall :)
    - 12y ago

tobiasu 12y ago

It's always nice when our American masters tell us what to do with our money and laws.

yxhuvud 12y ago
Well, in this case you deserve rebuke, as the current policies are horrible for the world and really bad for the Germans. Trade imbalances are simply not sustainable, regardless of direction.

steveridout 12y ago

I'm still woefully ignorant about world economics. Could someone do me a favour and answer a few basic questions about this: 1. Is the trade surplus mainly affected by private enterprise? If that's the case, what control does the German government have over it if the businessmen running the companies would rather save than spend? (Interest rates are already incredibly low.) 2. I'm personally conservative with money, and never like to get into debt, so from a this naive point of view, I would be very happy to know my country has a large buffer to weather out any oncoming storms. Assuming that Germany's position (saving) is bad for the world economy, but good for Germany, what would make the Germans change their behaviour? 3. What books would you recommend for a complete newcomer to learn about macro economics?

dantheman 12y ago
There's a lot to economics, one book that I think is really insightful and quite easy to read is Economics in One Lesson. It's main function is to highlight second order effects, or unintended consequences, of legislation on activity. http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ http://www.amazon.com/Economics-One-Lesson-Shortest-Understa...
tiatia 12y ago
Easy 1. > Is the trade surplus mainly affected by private enterprise? Hell yes. > If that's the case, what control does the German > government have over it if the businessmen running the > companies would rather save than spend? Good question. They could put export tariffs and forbid the immigration of "highly skilled labor". (If you make at least 30k Euro you get a work permit immediately. If not, just ask for asylum and you get better benefits than most pensioners.) It could abolish export financing and government guarantees for export financing. 2. > I'm personally conservative with money, and never like to > get into debt, so from a this naive point of view, I > would be very happy to know my country has a large buffer > to weather out any oncoming storms. It is impossible to save money without someone else going into debt. Germany is not creating a buffer, it is exporting both, capital and goods. She does dumping with salaries for engineers and exports like crazy. She has too, since there is not enough money people can spent in Germany since the salaries are so low. At the same time, "Germany" is not getting any financial buffer. She gets Lehman debt obligations and Greek government debt. Germans take pride in being the leading exporter of goods. They better would take pride in "giving away products for free". But in fact, there is someone profiting: Private, highly export oriented enterprises. And there are three kinds of people footing the bill: 1. Employees that are highly underpaid. 2. Tax payers that will have to foot the bill for the bail outs. 3. Citizens that see there infrastructure, universities and public services crumble. In short: Germany is exporting itself to death. 3. > What books would you recommend for a complete newcomer to learn about macro economics? Hm. Hart to say. There are so may. Mises, no matter what you think about him, is good for an introduction. But later you will realize that he failed in most things. Keynes may be right. In the end, we are all fucked. "There is No Steady State Economy (except at a very basic level)" http://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ http://ourfiniteworld.com/2011/02/21/there-is-no-steady-stat... Limits to Growth–At our doorstep, but not recognized http://www.resilience.org/stories/2014-02-12/limits-to-growth-at-our-doorstep-but-not-recognized http://www.resilience.org/stories/2014-02-12/limits-to-growt... Wealth And Energy Consumption Are Inseparable http://www.declineoftheempire.com/2012/01/wealth-and-energy-consumption-are-inseparable.html http://www.declineoftheempire.com/2012/01/wealth-and-energy-... Galactic-Scale Energy http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/ http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-e...

exar0815 12y ago

The really funny thing is, that the Idea of the Euro was never well beloved by the german government prior tho 1990. But then, the French demanded (out of historical fear) some reassurings for allwing the German reunification and preventing a dominant Germany in Europe again. That plan has hugely backfired, boosting the struggling german economy after the very costly reunification in the beginning of the 20th century. In fact, French fear (or envy?) of the Deutsche Mark in the 80s and 90s lead to a legenday discussion between a german and a french state official: "We have to talk about the threat of german nuclear weapons, too!" "But we germans have no nuclear weapons!" "Yes you have. You just call it Deutsche Mark!"

frivoal 12y ago
Just curious, who said that?
- exar0815 12y ago
  The quote circulates through a lot of the german press for about two decades, here for example a international article from Der Spiegel http://www.spiegel.de/international/germany/the-price-of-unity-was-the-deutsche-mark-sacrificed-for-reunification-a-719940-2.html http://www.spiegel.de/international/germany/the-price-of-uni...
lispm 12y ago
If you look at the German Mark at its time. It was the anchor for a lot of currencies. Basically the currencies of the continent followed the Deutsche Mark and much the currency policy was made by Germans in the Deutsche Bundesbank in Frankfurt. Many of the currencies were members of the European Exchange Rate Mechanism: http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism http://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanis... With the Euro, the currency policy is now made by a European institution by Europeans, in Frankfurt at the ECB. Trading is easier because of a larger market easily accessible: the EU, the Eurozone, Eastern Europe, ... Before that it was slightly more difficult, but still the industry did very at exports. > That plan has hugely backfired, boosting the struggling german economy after the very costly reunification in the beginning of the 20th century. The economy has been boosted because Germany got after the fall of the wall a huge new market: Eastern Europe. Right next to its door. In the EU, in the Eurozone. Since a lot of German exports are to the Eurozone or to countries which have currencies following the Euro, much of that is not depending on a favorable exchange rate.

dmichulke 12y ago

This article could be called "Countries' trade deficits are a problem" with the very same logic.

tomjen3 12y ago

No, it is a problem for the rest of us that we cannot make anything Germany wants, at a price it wants. People, especially economists, love to make macro economy some big mystery (no doubt so that they seem important) when it really can be solved the same way it can be solved on a smaller level.

lispm 12y ago

The US trade deficit, many of its finance institutions and its general over-consumption is more of a problem.

probably_wrong 12y ago

(Disclaimer: I know nothing about economy, and the very little I've read made no sense to me) I keep reading about how Germany's "zero debt" economic policy is bad for the country, and how bleak Germany's future is. That is, everyone seems to agree on this... except for the Germans, who say nothing about it while they continue being one of the top 5 economies in the world. Lots of these analysis come from the US, which to me makes even less sense: why would anyone listen to the country who got paralyzed when they couldn't keep getting even more in debt? How come George Soros can suggest[1] that Europe should go to war against Russia as a mean for stimulating the economy, and do it with a straight face? Every article seems to suggest that German economists are a bunch of amateurs who don't know what they are doing. But from my layman's point of view, it certainly doesn't look that way. [1] http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/ http://www.nybooks.com/articles/archives/2014/nov/20/wake-up...

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happyscrappy 12y ago
Only 14% of the U.S. economy is export. Almost 50% of Germany's economy is export. Edit: changed 80 to 50. Not sure where I saw that number.
- bildung 12y ago
  > Only 14% of the U.S. economy is export. Over 80% of Germany's economy is export. It only seems to be a bit more than 40%: http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
- lispm 12y ago
  > Over 80% of Germany's economy is export. Germany has a GDP of 3 Trillion Euro. It had exports of 1 Trillion Euro.
  - urschrei 12y ago

npstr 12y ago

I'm from Germany, and im tired of the argument, the Germans should do something about their export. Export exists, because someone outside of Germany thinks goods from Germany are better then goods from their country. How to solve this problem? Go and produce better goods urself, instead of crying to Germany to make their goods worse.

npstr 12y ago
Addendum: There is also export of unique goods, e.g. some countries have rare earths or some other unique ressource. Germany does not have any unique ressources, eversthing Germany does, anyone can go and do equally good/better himself.
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- lispm 12y ago
  Germany is already the third largest importer of the world. http://en.wikipedia.org/wiki/List_of_countries_by_imports http://en.wikipedia.org/wiki/List_of_countries_by_imports
acd 12y ago
The strong exports would be self regulating if Germany had its own currency the deutsche mark. If you have the Dmark and people like german cars, germans exports will rise and so will the currency deutsche mark. Like it is now, people like german cars, but germany has the euro so it can export good cars at an almost artificially by the euro cheap price. Thus the south of Europe is trapped in the Euro as they do not increase productivity as much as the north and in some product cases does not make as good products as Germany. The European politicians has pretended that all of europe are equal in productivity. The german wants to sells cars in euroes, but you do not want to support the south permanently financially. This is like going against the tide, its a matter of time before the Euro will fall. I just hope Europe will unite in peace after that event.
- 12y ago

ianpurton 12y ago

The article assumes that if you have a trade surplus then your bridges are crumbling. I cross bridges in Germany everyday and they look OK to me. There are some big projects going on here too, for example cities are burying their ring roads underground. Not cheap. http://www.dorsch.de/en/news/story/article/licht-am-ende-des-tunnels-mittlerer-ring-suedwest-laeuft-auf-hochtouren/ http://www.dorsch.de/en/news/story/article/licht-am-ende-des...

kuschku 12y ago
The only problems would be stuff like the bridges over the Kiel Canal (and the canal itself), and other smaller projects like that.

tim333 12y ago

Often surpluses and deficits are not really problems. Say for example a guy in the US has Facebook stock which has gone up and a guy in Germany has a Porsche he helped make. They swap, both happy but in the trade accounts it shows a big surplus to Germany and deficit to the US because the transfer of shares is treated as investment rather than trade. A lot of the surpluses and deficits are in effect stuff like that.

kriro 12y ago

Why do macroeconomists focus on single countries at all? I guess you can argue that policy changes (and taxation) can be made on a country level. For many policy decisions this is not as true as it was pre EU. Since I'm a "micro guy" anyway (even though I do enjoy chaotic systems etc.) I am fairly suspicious of the aggregation mechanisms in general. If you aggregate over "what money is used" (which seems sensible if you want to make balance of trade arguments in the traditional, currency based sense) the Euro-zone has close to a +-0 balance of trade. Recently the chart got a bit out of whack shape wise but it's still close to the +-0 now. I used to be very interested in economics but have grown more and more frustrated with the entire field. I pretty much stick to stuff that's interesting for other reasons (multi agent based modelling, chaotic systems, game theory etc.). As an academic in another field the entire field seems pretty strange. Conflation of politics and economic theory is wide spread and there seems to be a lot of "friend helps friend, outsiders suck" like structures in place. Granted this is the case in academia in general but economics always struck me as rather extreme in that regard.

mirekrusin 12y ago

why, when something works well, some people have an urge to change it? shouldn't it be the other way around? why not go through Germany state policies and copy working ideas over to other countries? telling germans what to do sounds like a joke, people should learn from them, not teach them how to do things.

plongeur 12y ago

The US is simply not producing and exporting anything of value and able to compete with comparable products. Furthermore not every country in EU is "suffering from Germany's export surplus" - countries like Estonia, Poland, Norway, Sweden, Denmark, ... are doing pretty well and doing better. What countries are supposedly suffering? - Portugal - Italy - Greece - Spain ... aka the PIGS states - have a look at their economic and political history and you will notice they were all ruled by incompetent and corrupted governments. Berlusconi is still active in policts ... do I need to say more? A lot of countries in EU have issues not due to Germany but due to their very own problems.

Ygg2 12y ago
> you will notice they were all ruled by incompetent and corrupted governments. Yes, governments that EU and Germany support because they only care about them doing what they want in foreign arena, regardless of their domestic politics.

kfk 12y ago

Not it's not. Currency is a unity of measure, it's not the foundation of an economy. The real problem with Germany's trade surplus is that is showing how inefficient and backwards are some of the other European countries. What would happen if Italy, let's say, had it's own currency? They would still buy goods from German, they would pay more, plus they would be even more unreliable as a country since the monetary policy would be in the hands of the Berlusconis and such (meaning: huge inflation to monetize public debt).