TCS Daily


What's German for Economist?

By Tim Worstall - May 14, 2004 12:00 AM

So, your economy is in the tank, you're Chancellor of Germany, you've an election coming up and, to put it frankly sir, you're stuffed. While you may have the third largest economy in the world, a reputation for visiting Poland en masse and some decent memories of the flesh pots of Paris, you also have the highest per hour labour costs in the world, a rapidly aging population, 10% unemployment ( rising to 20% in the east, even 30% in parts ), the shortest working year of any advanced nation and incipient deflation. Not to mention a national cuisine based on disguising the disgusting parts of pigs.

So, what are you to do ? What are the varied alternatives available to you, to dig your country's economy out of this mess, this cul de sac on the road to full social solidarity ?

You are not allowed to move or change the exchange rate -- that is, to devalue your way out of trouble -- as you have joined the new pan European currency, the Euro. For the same reason, you cannot change interest rates. The Bundesbank is now just a branch office, rates are set for Deutschland by, of all things, a Dutchman named Wim. You might remember that a few of those, um, commentator types said there would be tears before bedtime over this.

So why not reach for the chequebook? That always works, spending one's way out of trouble, heating up the deficit to get out of current trouble. I mean, what problem mortgaging the children's future when re-election is at stake ?

Ah, no, you can't do that either, this Stability Pact thing that you signed -- in fact insisted on just in case the Italians behaved, well, like Italians -- that means that deficits are controlled. Cutting spending is out of the question of course for a left wing government just before an election. Oh, come on, you know how the real world works, and we can't cut taxes for the same reason: the Pact. So, that's all of the macro options covered.

Why not try some micro? Reform the labour market, why not? Remove some of the incredible restrictions on its smooth functioning: as it is almost impossible to fire someone, not surprisingly very few people get hired. Countrywide, industrywide labour agreements are imposed upon all companies large and small. National unions negotiate with national employer's clubs. Perhaps let, or if that is too restrictive, allow occasionally, companies and workforces negotiate things like vacation allowances, overtime payments, trivial things like that, directly. If you're feeling really brave you could alter the hours shops open: be interesting to buy fresh bread on a Sunday outside a railroad station, or for stores to be allowed a sale when they want, not for only two two week periods each year.

No? Too radical ? Too close to an election ?

Ah, so you're going to appoint a commission? OK, yes, that'll do it!! Who have you chosen, who's the guy to head it? Hartz? The guy from Volkswagen? Wasn't he the one who cut the working week to four days? In an attempt to increase employment? Um, those pesky commentators, they call this The Lump Theory of Labour Fallacy. It just isn't true that there is only so much work to go round. It is a basic theory (axiomatic, meaning basic to anyone with the first clue) that human desires and wants are unlimited, while the resources we have available for their satisfaction are limited. Labour is just one of those resources, one of the factors of production. So in theory he was wrong, and in practice for VW even more so. Wages in Germany are a small part of the cost of employing someone: social contributions, pension contributions, health contributions, these are what make Hans and Mattheus so expensive to employ.

Ok, Ok, if you insist on him, but you'd better make sure there are some other good people on the same Commission.

By the way, how are you going to win the election? Anti-Americanism? Hey, way to go! That always plays well with your constituency, the euro-left. Your speech? They're planning a war and you don't want to go? Of course you'll win, no doubt about it, evil Yankees, plays well every time.

Psst. No oil vouchers floating around I hope?

So, back to this Commission thing. Who else are you going to have on it? 15 members? Trade Union leaders? Businessmen? Sociologists? Politicians? Well, if you insist, I mean are you sure that these people are going to think outside the box? Not just fiddle around at the margins? Well, you know, just tell us to reform the unemployment agency, make the rules for part time or self employment a little easier. Here's a radical idea, how about some of those commentators who know the subject, that subject with micro and macro types, you can put it in front of "metrics", oh come on, you know what I mean, they come in flavours, Marxist, Keynesian, Sraffian and correct. No? You don't want any?

Four further things :

Gerhard Schroeder on announcing the Commission:

"They include board members of large industrial firms and union representatives; labour market analysts and practitioners, but also municipal and Land politicians, consultants and representatives of the trades"

The Economist this weekend:

"... the Hartz Commission, established to reform the labour market and create new jobs, has sociologists on board but not a single economist."

The Hartz Commission recommendations have been enacted. 15 minor changes around the edges of the unemployment benefits system. I have a dream, a vision if you will, that sometime next year, maybe even in 2004, Chancellor Schroeder will make a phone call to one of Germany's five excellent first rank research institutions:

"Guten Morgen, Economists 'R Us....ja, Herr Chancellor, we do know what we're talking about...ja, ja, we can solve that problem...sorry? ...ah, yes, we thought you might have problems with that word. It is spelt E.C.O.N.O.M.I.S.T."

Tim Worstall is a frequent contributor. He recently wrote for TCS about Throwing Tomatoes. His online home is www.timworstall.com.


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