by Dirk Ehnts, Econoblog101
So asks DIE ZEIT some days ago in an article with the same name – well, in German, obviously. The newspaper notes that there are no economists at the top-level of the German government:
Heute sind die Volkswirte auf dem Rückzug. Wolfgang Schäuble ist Jurist, genau wie sein für Währungen, Finanzmärkte und Europa zuständiger Staatssekretär Thomas Steffen. Steffen ist einer der mächtigsten Beamten in Berlin und organisiert den Kampf gegen die Krise. Er vertritt Deutschland in internationalen Gremien und handelt in Brüssel Rettungspakete aus. Der langjährige Versicherungsaufseher kokettiert unter Vertrauten gerne damit, von Ökonomie nicht sehr viel zu verstehen. Auch die beiden anderen Staatssekretäre – Werner Gatzer und Hans Bernhard Beus – haben Jura studiert. Genau wie Schäubles oberster Bankenregulierer Levin Holle, der vor seinem Wechsel in das Ministerium das Berliner Büro der Beratungsgesellschaft Boston Consulting Group geleitet hat. Erst auf der Ebene der Abteilungsleiter leistet sich Deutschland mit dem ehemaligen Notenbanker Ludger Schuhknecht einen Ökonomen.
Basically, all responsable are lawyers. Only at the level of Abteilungsleiter (head of department) there is an economist with Ludger Schuhknecht. He comes to the following conclusion in the last paper published of before the crisis (2006):
The assessment of the implementation of the revised rules is therefore mixed. It is of the essence that the provisions of the revised SGP be rigorously implemented in order to ensure fiscal sustainability.
So, this is where we stand in Germany. Wolfgang Schäuble is on the record for saying this:
“Der eine spart, der andere braucht Geld, das er noch nicht hat. Das muss organisiert werden. Das nennt man Bank. So einfach ist das.”
– Stern Nr. 48/2008 vom 20. November 2008, S. 53
That translates into:
“One saves, the other needs money, which he doesn’t have (yet). That must be organized. That is called a bank.”
Nice, but completely wrong. Here is a University of Chicago – the birthplace of monetarism – text:
In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.
OK, then. Banks can create loans, which create deposits which are used to buy stuff. If they stop doing this, who buys all the stuff? Obviously, either foreigner do or the public sector by deficit spending. German economists chose to ignore endogenous money and Keynesian theory. Because of this, they could neither predict the crisis nor understand the dangers of the macroeconomic imbalances before and during the crisis. Not taking the schism between reality and models as a pretext for changing their ideas about the world works, they became obsolete. They are not able to explain the crisis, except repeating like a mantra that government debt is too high. This, however, even a lawyer does understand – why do you need an economist for that? Contracts have been broken, and to fix that you need lawyers, not economists.
Economics as a discipline has come to a crossroads: reform or be relegated to the level of philosophy, sociology and other social sciences. German economists seem to opt strongly for the latter solution. And, more than 3 years after the first problems in Greece, the suffering in Europe continues while policy makers are trying to buy time …
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