Home > Uncategorized > What the German government must do now to turn around an unsustainable economy

What the German government must do now to turn around an unsustainable economy

from Norbert Häring

Germany’s economic output contracted in the second quarter and most indications point to a worsening in the third quarter, which is just halfway through. The culprit is only superficially Donald Trump with his trade wars. The German economy has been on an unsustainable path in several respects. Now the government is called upon to act courageously and intelligently to ensure that a deep restructuring crisis is avoided.

The German success model was not sustainable because it ignored the limits of the rest of the world’s ability to borrow money to pay for German exports and because it omits the fact that we are already very close to the limits of the ecological resilience of our planet.

As far as economic limits are concerned: In the long run it is not feasible that, in addition to China’s massive economic expansion through exports, rich Germany also tries to increase its prosperity through exports and frugality, resulting every year in a huge trade surplus. The counterpart to the export successes of these two nations is that the rest of the world is building up ever higher foreign debt. The longer this continues, the more countries will reach their debt limits and will no longer want or be able to participate in this game. If Trump hadn’t stood his ground, sooner or later others would have. Or simply more and more nations – including EU countries – would have descended into crises and would no longer have been able to buy German exports. As far as ecological limits are concerned: Without a plan on how to reconcile private transport with the requirements of climate protection and liveable cities, an economy like Germany’s that depends to a large extent on the unchecked growth of private transport will sooner or later have to slide into crisis.

So the German economy is currently experiencing a combination of economic crisis and fundamental transition problems, which has the potential to become a deep structural crisis. The only way to counter both now is for the government to plan and act quickly and courageously.

Countering the downturn

To counter the deepening recession, a switch to a deficit fiscal policy in order to stimulate demand will help. This is because companies and private households have a tendency to reduce their spending during a crisis. This can easily lead to a downward spiral due to lack of demand, loss of income, savings, and thus even greater lack of demand.

What does not help, or at best in the very short term, are measures that are based on the wrong diagnosis that Germany has not done enough for its competitiveness. This false claim is the basis for demands to cut taxes for companies and similar measures. The assertion that German industry is not price-competitive enough is downright absurd in view of many years of huge export surpluses.

Achieving sustainability

In order to prevent a deep transformation crisis in German industry, it is important that the additional money is spent in a manner that helps to solve the long-term challenges and does not exacerbate them. Intelligent and reliable planning is required. This creates the conditions for the necessary investments by the private sector, because companies will not invest more than necessary in unsustainable business models and in new business models only if the risk is not too high. Politicians must therefore not continue to seek headlines with incoherent, symbolic actions, such as the planned ban on plastic bags and a scrapping premium for oil-fired heating systems.

With regard to energy policy, the lack of a master plan makes the myriad individual measures too expensive and at the same time ineffective. The same applies to transport policy. The policies for both of these seem to be contradictory. If we are to promote solar energy and wind power on a massive scale, we need a coherent plan for dealing with the volatility of energy production from these sources. The massive increase in the number of electric cars on the roads, which the government has been trying to achieve but has not yet achieved due to the lack of a charging network, would exacerbate the problem even further. Imagine ten days without sun and wind in December, with millions of electric cars whose batteries run out of energy. After a few days, in addition to their normal electricity needs, everyone would want to charge their batteries and bake Christmas biscuits, but there would be no solar or wind power.

However, the government is not showing any signs of is working on a comprehensive integrated plan for energy supply, distribution, and use. Even the regional distribution of power plants and the expansion of the distribution network do not appear to be properly coordinated.

A few ideas:

– Terminate energy generation using lignite, while promoting job creation in the affected regions. Wherever possible, make state licenses and contracts dependent on investments being made in these regions.

– Draw up a reliable plan for the expansion of local and regional public transport so that the automotive industry can shift their capacities more confidently.

– Support Car-Sharing financially and administratively and ensure through government coordination that the necessary economies of scale (large supply with cars on almost every corner) are achieved, especially in rural areas.

– Place a CO2 tax not on the consumers of energy resources, because they are far too many, but on the much less numerous importers and producers of these energy resources. Then it is much easier to handle.

– Draw up a plan of which sectors will be affected if the CO2 price is raised to the necessary level, and what will be done to prevent mass-unemployment. Without this, the talk of CO2 pricing is only a symbolic policy, because the price will necessarily remain too low.

– Stop talking about emission-free means of transport, etc., because they do not exist. Even the sailing yacht, with which Greta Thunberg sails from Europe to the UN in New York, is responsible for a lot of CO2, if you calculate correctly. If you pretend that electric cars are emission-free, you cannot create a realistic and effective policy.

The sad truth then becomes apparent: we cannot achieve climate targets without a substantial reduction in our material consumption. But that does not have to be bad. There are many things that could significantly improve people’s lives without being associated with material consumption – first and foremost better elderly care, better childcare and health care, less work, more leisure time and more meaningful leisure activities.

My thanks go to Brave New Europe for translating my German text into English.

  1. lobdillj
    August 18, 2019 at 11:24 pm

    An excellent article. One quibble: You say “If we are to promote solar energy and wind power on a massive scale, we need a coherent plan for dealing with the volatility of energy production from these sources.“
    You probably don’t mean “volatility”. Wouldn’t it be better to say “intermittency”? IMO we need to proceed full speed ahead to use solar and wind and to solve the intermittency problem ASAP.

  2. August 19, 2019 at 12:02 am

    Congratulations, NH, on what appears to be cogent analysis and prescription. If you could speak conversational English, it might be good to have you appear on one of my TV programs via Skype. For example, here’s a SCIENCE SOLUTIONS episode on solar-synthesized fuel: https://www.youtube.com/watch?v=xSPa4Rx-8AM&t=225s

  3. Jan Milch
    August 19, 2019 at 2:04 am

    Vielen dank Norbert!

  4. August 19, 2019 at 3:06 am

    Yes. Thank you. And here we need to also begin discussing a declining population consuming less resources per person.

    It is many years now since a short paper I wrote in Italian was posted on a kiosk in Heathrow airport. Military destabilization is causing mass migration and a population explosion. Education and secure artful housing without war will catapult the African continent to the modern age of gently declining population.

  5. Craig
    August 19, 2019 at 3:37 am

    Nothing of consequence will happen until the new monetary paradigm is recognized and parasitical private finance is replaced by a national non-profit publicly administered monetary and financial system with policies that simultaneously end austerity and yet also enable the proliferation of renewable energy consumer products and the kind of mega projects that can help us survive the crises we face. This is no time for mere reforms or worse yet “hobby horse” erudite stupidity.

    • lobdillj
      August 19, 2019 at 1:39 pm

      Agreed, but…how can that be made to happen? We can easily list all the obstacles, but…peaceful resolution is problematic. No?

      • Craig
        August 19, 2019 at 10:30 pm

        It can be made to happen by awakening to the incredibly powerful ending/summing/terminal expression/tipping/inverting/paradigm changing point of retail sale of a 50% Discount/Rebate monetary policy.

        Steve Keen has de-bunked DSGE, but in that process he didn’t cognite on the way to create what I refer to as “the higher monetary and economic DISequilibrium”…and that is the 50% Discount/Rebate monetary policy at retail sale which takes a simple accounting and algebraic operation (a minus and a plus sum to zero)….but because it is implemented at the above ending/summing etc. point a sufficient percentage (50%+) it inverts individual and systemic economic realities from scarcity-austerity to abundance and from painful chronic price and asset inflation to beneficial price deflation.

        Every historical paradigm change has been characterized by a simple as in deep and elemental operation/activity made possible by a new insight or tool, and by conceptual opposition and reality inversion of the old/current paradigm.

        It’s a general and universal monetary assist to the economy and every agent individual and commercial. The policy is the very expression of the new paradigm itself, namely Abundantly Direct and Reciprocal Monetary Gifting.

        C. H. Douglas who first suggested a “compensated retail discount” was still captured by the classical concept of economic equilibrium, the concept and temporal implications of quantum theory was still in its infancy in the 1920’s and the word paradigm was not yet a part of the lexicon. Hence he was hampered by his own cultural horizon.

        The first essential step is a mass socio-economic and political movement to communicate the individual and business benefits of the 50% retail sale policy and related regulations and structural changes.

        You ARE quite correct that the financial powers that be would undoubtedly have no compunctions with fomenting a regional or world wide conflict to avoid giving up their parasitical and paradigmatic dominance, but so much the more urgent that the rest of the actually legitimate business models perceive its benefits.

  6. August 19, 2019 at 4:19 am

    How very refreshing.

    Someone calmly discussing how to avoid economic and ecological crisis. As a resident of one of the benighted anglophone countries where our political class lives a double fantasy (neoclassical economics plus ‘what climate crisis?’), it is soothing to see someone can just discuss the issues instead of mouthing platitudes and slogans.

    Craig may have a point about the monetary system, but this article allows room for such debate.

    btw it’s Australia: also a brutal place committing crimes against humanity, but not all of us support those who claim to speak for us.

  7. August 19, 2019 at 7:14 pm

    Yes, great article, Norman.

    Basically agreeing with Craig, this struck me as significant: https://www.bbc.co.uk/news/business-49330150.

    “The men and women who control trillions of dollars’ worth of assets are flexing their muscles. And as shareholders they are in a position to put pressure on companies to do the right thing.
    Climate Action 100+ is a group of more than 360 investors with more than $34tn (£28tn) in assets under management. … [Steve Wayward of Aviva Investments] is calling for coordinated action between with businesses, governments and regulators to come up with “a Marshall plan” to transition to a low carbon economy. He likens such action to the US programme to help rebuild western Europe after World War Two.”

    But those “trillions of dollars” are simply credit, which being immaterial can only be given, not loaned; to be repaid like the Marshall plan by the fruitfulness of the so-necessary rebuilding.

  8. Ken Zimmerman
    August 21, 2019 at 2:11 am

    The last sustainable economy created by humans was hunting and gathering. It’s been all downhill since.

    One correction to the article. No one knows the limits of the ecological resilience of the Earth. We have good information, however on the biological limits of humans to things like acid oceans and escalating global temperatures. In other words, the Earth’s likely to be around for quite some time, even with human abuses of it. But the same cannot be said for Sapiens. Humans’ excesses in climate change, pollution, and over population with kill our species long before it kills the Earth. So, the slogan “Save the Planet” is misleading. Should be “Save Sapiens.”

    • Ken Zimmerman
      August 21, 2019 at 2:29 am

      “with kill our species” should be “will kill our species.”

    • August 21, 2019 at 1:50 pm

      You evidently didn’t see the BBC documentary on the sun’s planets, Ken, which offered an explanation of how Venus became uninhabitable.

      • Ken Zimmerman
        August 21, 2019 at 8:32 pm

        Dave, I saw that documentary, and several others. Yes, Earth may become uninhabitable. But that doesn’t destroy the planet, just the living species that live there. Like Sapiens. Like I said, Sapiens will kill itself long before the planet becomes uninhabitable.

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