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Home Publications Blogs Beat the Press The Post Wants Germany to Consume More as Part of Austerity

The Post Wants Germany to Consume More as Part of Austerity

Tuesday, 11 May 2010 12:15

That's right, the Post wants the Germans to let out their belts. Its editorial board probably doesn't realize this (they think that Mexico' GDP quadrupled since NAFTA was passed -- the actual growth was about 80 percent), but the statement: "the European Union's more successful economies, especially Germany, must retool to depend less on exports for growth," means that these countries should consume more.

As an accounting identity the trade surplus is equal to the the excess of national savings over national investment. As a practical matter, it is very difficult to change rates of investment. This means that the Post's complaint about Germany's trade surplus is a complaint about excessive savings and insufficient consumption. So, this sounds like the Post wants Germany to make its generous welfare state even more generous. It would be good if the Post's editors could learn a little economics so that they could at least figure out what they are sternly lecturing people to do.

Comments (4)Add Comment
Spending and Saving
written by SMU Cox MBA, May 11, 2010 2:09
I think that the Post's editors must be members of Congress. My personal plan says that we should buy up all the European debt and use that to pay back China.
written by izzatzo, May 11, 2010 4:24
After extensive study of North Korea's Spirit of Self-Reliant ideology, also known as the Axis of Juche or the Beast That Starved, the Republican Party has decided to adopt this practice as an austerity platform for the upcoming elections based on consuming less, exporting less and saving more.

Anyone caught making grass soup from nice gated lawns will be arrested immediately.
written by Glen, May 11, 2010 9:28
I agree with the Post. Germany must do something to end its persistent trade surplus.
As Michael Pettis said...." As I see it, domestic German policies, perhaps aimed at absorbing East German unemployment, forced a structural trade surplus. The strong euro, along with the automatic recycling of Germany’s large trade surplus within Europe, ensured the corresponding trade deficits in the rest of Europe – unless Europeans were willing to enact policies that raised unemployment in order to counter the deficits. As long as the ECB refused to raise interest rates, southern Europe had to accept asset bubbles and rapidly rising debt-fueled consumption.

This couldn’t go on forever, or even for very long. Now southern Europe is paying the inevitable price, and of course the moralists are accusing the south of being shiftless and lazy, confusing the automatic balancing mechanisms in the balance of payments with moral weakness."

Where is the union going?
written by skeptonomist, May 12, 2010 9:59
The eventual objective of the European union must be to do away with trade balances entirely. An economically united Europe would then have the comparative advantages of the different countries without having to deal with trade balances through counter-productive measures such as duties, etc. The US enjoys such advantages, as did the former Soviet Union. A number of things which have been proposed to deal with the current crisis, including the remedy demanded by the Post for Germany but also some of the monetary remedies, would move in the opposite direction and will probably be rejected by European authorities.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.