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Is the German position sustainable?

by afew Tue Jan 25th, 2011 at 08:34:17 AM EST

German economic growth is rocketing ahead while most of the eurozone is in difficulty, says Eurointelligence this morning:

Germany, like China, is hitting the speed limits

The interesting question about Germany is not so much whether the economic recovery is for real (it is), but it is whether it is sustainable. On Monday, the Ifo index reached a post-unification record, and yesterday, the eurozone PMI also raced ahead, based on good performances by Germany and France, but also showing a widening gap between core and periphery.

Eurointelligence refers to a report in the Financial Times that shows the divergence in this chart:

And the further question (that underlines the lack of labour mobility within the single-currency area) is whether the ugly spectre of (gasp!) wage inflation will strike the speeding mercantilist economy:

FT.com / Europe - Germany powers eurozone services growth

Underscoring Germany's revival, Ernst & Young, the financial services firm, reported that almost three-quarters of the small and medium-sized companies in the country's industrial Mittelstand were having difficulties finding enough qualified workers.

Its survey of 3,000 enterprises put the cost of skill shortages in terms of lost revenues at almost 30bn ($41bn) a year. German business organisations have called for easier immigration rules for skilled workers to tackle the shortage.

Are the limits of German competitive deflation in sight?


Display:
Another question is whether it can really be called a recovery. It is an improvement on the bottom of the crisis, but is Germany about to redefine 7% unemployment as "The new normal" full employment?

European Tribune - Comments - European Salon de News, Discussion et Klatsch - January 19

The German federal Government raised its growth forecast for te current year from 1.8% to 2.3%. At the presentation of the yearly economic report the economy minister Rainer Brüderle (FDP) said Germany has come out of the crisis best among European countries, with "sensational figures". "We're going forth in seven-league boots, while the others trot behind us in single file".

Interesting German cognate here, "goose step"...

Anyway, "sensational figures" include: exports down 6.5%; disposable income up 3.4%; unemployment down from 7.7% to 7%, below 3 million; deficit forecast of 2.5% below the GSP's 3% threshold.

And if this modest situation is unsustainable, what would be sustainable?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 04:52:53 AM EST
Migeru:
is Germany about to redefine 7% unemployment as "The new normal" full employment?

It's apparently the "new normal" full employment of highly productive workers.

Are the points presented in the FT article relevant, or of no great interest?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 08:21:27 AM EST
[ Parent ]
I think the FT is adopting the self-serving rhetoric of businesses that there's a lack of qualified workers as evidence of a speeding economy.

European Tribune - Is the German position sustainable?

Underscoring Germany's revival, Ernst & Young, the financial services firm, reported that almost three-quarters of the small and medium-sized companies in the country's industrial Mittelstand were having difficulties finding enough qualified workers.
At barely 2% GDP growth after a deep recession, I'd say the economy is not growing so fast it's run out of workers. I suspect the issue is there are not enough qualified workers at the wage rates being offered, a "problem" that is also chronic in the US. That's why the EU is designing systems of qualified immigrant exploitation such as the blue card.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 09:42:19 AM EST
[ Parent ]
So the "solution" is obviously to cut welfare in order to force workers to work for lower rates of pay...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 25th, 2011 at 10:47:10 AM EST
[ Parent ]
Growth in the industrial Mittelstand may be higher than in the overall German economy. A mismatch between skills supply and demand has been a problem in Germany for years, as you can see in this graph which shows the position of European countries on the Beveridge curve

While low offered wage rates for skilled workers might be a factor, it is certainly not the only one: cultural preference for non-technical, non-manual jobs is an important factor, too.

"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet

by Melanchthon on Tue Jan 25th, 2011 at 12:06:19 PM EST
[ Parent ]
In what sectors is that German shortage of qualified workers?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 12:13:39 PM EST
[ Parent ]
I didn't find sectoral data. The article you quoted mentions the industrial companies. According to Deutshe Welle: Despite Demand, Germany Attracts Few Skilled Foreign Workers
The crunch is particularly acute in areas such as engineering, the metal and electronics industry and the services sector.
. By the way, I don't find the reasons claimed by Wissing convincing.

"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet
by Melanchthon on Tue Jan 25th, 2011 at 12:28:11 PM EST
[ Parent ]
particularly acutein areas such as engineering, the metal and electronics industry and the services sector

"particularly acute just about everywhere"

It's not like the skilled workers in the metal industry and the services industry overlap...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 12:55:41 PM EST
[ Parent ]
Melanchthon:
cultural preference for non-technical, non-manual jobs is an important factor

But, supposedly, Germany has strength in that area: ie it better trains highly-skilled technical-manual operatives. It's one of the reasons often given to explain why Germany exports (by those who tend to deny competitive deflation by wage depression).

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 12:31:30 PM EST
[ Parent ]
Is not what is reported on Germany same as is reported in the rest of the west, in effect that the young avoid the math-heavy subjects?

If that is true (and not just an attempt to avoid paying the salaries that would attract the young to math-haevy subjects), an interesting question is why. Perhaps it is not the immorality of youth, but a rational response to a society that is de-industrialising?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Jan 26th, 2011 at 07:35:06 AM EST
[ Parent ]
It may be a rational response to the recent Western reality for some of the high paying jobs. Electrical engineering, one of the more difficult subjects, gives you a degree where you're qualified to relocate to the Far East. An MD and about 40 years of slave labor will allow you to pay off your school loans. Law degree, possibly never.

Meanwhile, real estate developers, financial hucksters, and religious zealots are able to bring in the bucks.

by asdf on Wed Jan 26th, 2011 at 07:58:46 AM EST
[ Parent ]
asdf: Electrical engineering, one of the more difficult subjects, gives you a degree where you're qualified to your job will relocate to the Far East.

(Fixed it for you)

by Bernard on Wed Jan 26th, 2011 at 03:49:56 PM EST
[ Parent ]
A lot of factors to take into account there.  Electrical engineering is applicable to a lot of different jobs, as I recall.  Governments are always looking for them, and the pay/benefits are decent.  A lot of private companies had openings for them even when I was job-hunting before the move to DC (when the job market was pretty shitty).

In fact, of the three, I think I might take the electrical engineering degree, given the choice.  No chance of the big payouts down the road, but a lot less chance of financial disaster.

MD -- depends on the field, but, yeah, I agree it's generally not nearly as lucrative as the public perceives it.  But salaries differ enormously by your area of expertise.  You'll probably struggle as a pediatrician, but you'll probably do pretty well as an open-heart surgeon.

Law -- forget it.  It's not worth it anymore.  People bought the idea that a law degree was a ticket to the good life, but unless you're coming out of a prestigious school with a lot of connections to the big boys you're not going to do very well for quite a while.

Real estate is the only one where I'd disagree strongly.  At least in the US, the developers have lost their asses since the bubble burst.  That ship has sailed.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu Jan 27th, 2011 at 12:43:32 PM EST
[ Parent ]
Actually, people who can do math are pretty well remunerated in the post-industrial society.

I don't actually believe that young people are avoiding math-heavy subjects to the extent that is usually presumed. It may well simply be that a larger share of youths obtain higher education, and that of the additional "market share" a smaller fraction obtain math-heavy degrees. That would reduce the average as measured against those who obtain higher education, without reduction in the average as measured against the whole population.

This is at least plausible, because the math-heavy subjects have always been associated with academia, whereas many disciplines that used to involve a large degree of vocational (and therefore undocumented) training have recently become associated (more or less nominally, more or less voluntarily) with academic degrees. Whether this development is A Good Thing or not is another story...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 02:27:32 PM EST
[ Parent ]
JakeS:
I don't actually believe that young people are avoiding math-heavy subjects to the extent that is usually presumed.

Thinking about it, I have to agree. As far as I know, the last 20 years Sweden has got many more math-heavy educations, with more students. So it is probably a false, yet common, idea.

JakeS:

It may well simply be that a larger share of youths obtain higher education, and that of the additional "market share" a smaller fraction obtain math-heavy degrees. That would reduce the average as measured against those who obtain higher education, without reduction in the average as measured against the whole population.

That may be it, but looking at my alma mater the last 20 years, I think the percentage of math-heavy students has increased.

I wonder where this idea comes from? The laziness of youth (as always, see Socrates)? The asians are winning because they are morally superior (industrial policy and lack of colonial forces to steal their stuff having nothing to do with it)? An even greater percentage is needed, and the way to get government to increase training is to claim a shift in attitudes?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Jan 27th, 2011 at 11:55:18 AM EST
[ Parent ]
I think the idea comes from the fact that the proficiency of the best math students in secondary education has declined. This is, to the best of my knowledge, indisputable.

There are various reasons for that. Less ambitious curricula; the transition of secondary education from an elite to a mass institution; deterioration of math proficiency of (the best) primary school graduates (which again has a variety of causes); greater uptake in tertiary education forcing institutions of higher education to recruit beyond the very best; and so on. Much can and has been written about the relative importance (and, for that matter, the existence) of these effects. But from the point of view of the institutions of higher education, it boils down to an impression that since the young people they see are less proficient at math, it must mean that young people in general are less proficient at math.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 07:01:40 PM EST
[ Parent ]
The person who made that graph should have his data analysis license revoked.

Incidentally, Mitchell considers Beveridge curves empirically and theoretically suspect, even when they are actually done correctly. I haven't dissected the paper he bases his claims on, though, so I'll reserve judgement as to whether he's right about that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 01:10:25 AM EST
[ Parent ]
JakeS:
The person who made that graph should have his data analysis license revoked.

An explanation of why would be a positive.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 02:23:46 AM EST
[ Parent ]
It's what physicists call a "shotgun plot." I haven't checked, but it would greatly surprise me if you could find any meaningful sort of correlation in that data, nevermind enough to justify curve fitting. And even if you have a good theoretical reason to want to fit a curve to this sort of data, the amount of scatter means that if you start fitting anything noticeably more complicated than a straight line, you'll end up fitting to the noise rather than any signal that might or might not be there.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 02:44:34 AM EST
[ Parent ]
The fit could be to a straigth line in a log-log plot...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:27:11 AM EST
[ Parent ]
Unlikely. Look at how the points are distributed. A straight line fitted to a log-log plot would have been much flatter, unless you enforced some sort of theoretically derived intercept, which is a bad sort of thing to do unless you know some tricks for doing it without screwing things up.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 07:03:08 AM EST
[ Parent ]
I was thinking more of a circle...
by asdf on Wed Jan 26th, 2011 at 07:56:22 AM EST
[ Parent ]
billy blog » Blog Archive » Nobel prize - hardly noble

The economy is in underemployment equilibrium, and it is not a mistake. So what drives the economy to this underemployment equilibrium where workers are involuntarily unemployed?

Modern Monetary Theory (MMT) shows us clearly that involuntary unemployment arises when the private sector, in aggregate, desires to earn the monetary unit of account, but doesn't desire to spend all it earns. Firms do not hire because they cannot sell the output that would be produced. In this situation, nominal (or real) wage cuts per se do not clear the labour market, unless those cuts somehow eliminate the desire of the private sector to net save, and thereby increase (investment) spending.

The only entity that can provide the non-government sector with net financial assets (net savings) and thereby simultaneously accommodate any net desire to save and eliminate unemployment is the government sector. It does this by (deficit) spending. The obvious conclusion is that unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.

Fantastic.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 05:13:56 AM EST
[ Parent ]
Makes me feel less dumb.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Jan 26th, 2011 at 06:47:16 AM EST
[ Parent ]
What about letting companies turn depreciation (ie investments) into costs right away? That should spur investment.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jan 26th, 2011 at 08:38:22 AM EST
[ Parent ]
What do you mean? "marking to second-hand market" the productive assets of a firm?

And, depreciation is an investment?

If you front-load depreciation, wouldn't that risk making firms balance-sheet insolvent?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 09:40:08 AM EST
[ Parent ]
What I'm saying is that today when you invest in something, like say a ship, you can depreciate it over say 20 years. This means that you can count 1/20th of the cost of the ship as a cost per year, for the coming 20 years. This reduces your booked profits and hence lowers your tax.

By turning all investments into costs, immediately (ie you can reduce your booked profits with the entire cost of the ship, right now) investments will be spurred, as every euro of investments will mean roughly 25 cents less in tax (given a corporate tax of 25 %). And money today is far more valuable than the same amount of money as an income stream spread over 20 years.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Jan 26th, 2011 at 10:34:38 AM EST
[ Parent ]
What you're proposing would be to book the tax savings in the first year, and nothing for the following 19 years.

But also, depreciation can only be booked as a cost because it also impairs the asset. You cannot claim a 100% loss for tax purposes and still claim your asset is worth 100%, now can you?

The point of depreciation is that the value of the future income from the investment is reduced as time passes because there's less useful life left on the asset, as well as the asset being damaged with use. But the reason that's booked for tax purposes is that it's also booked for firm valuation purposes.

Money today being more valuable than money tomorrow is probably implicit in the depreciation as well. Or it could be, for a second-order effect.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 10:43:06 AM EST
[ Parent ]
Migeru:
But the reason that's booked for tax purposes is that it's also booked for firm valuation purposes.

Starvid is seeing it from the income statement side, where the investment would be booked as 100% cost in year 1 (therefore lower profit => less tax). While of course there's the balance sheet to be considered: if you book 100% in year 1, then the asset has no value on year 2's balance sheet. Which would be a false image of the company's value. (I know that's what you're saying, I'm just putting it another way).

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 11:03:50 AM EST
[ Parent ]
Gah, this hinges on the difference between a cash flow statement and an income statement. Depreciation is a cost but not a cash outlay...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 11:10:40 AM EST
[ Parent ]
Don't follow you on cash flow. Annual taxation is based on (roughly speaking) income minus costs ie the income statement.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 11:31:25 AM EST
[ Parent ]
There ARE considerations other than the tax benefit, though one would hardly know it from the discourse in the business sections of the popular press. Double entry what?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jan 27th, 2011 at 03:30:14 PM EST
[ Parent ]
Sure you would get a pretty funny situation, if you took all the tax credit in year one but also wiped out the entire book value of the asset in year 2! :D

What I'm proposing is not that though: the balance sheet value of the asset should still be depreciated by 5 % per year, but the entire tax credit should be allowed to be claimed year 1. I think this might very well be the most efficient tax cut ever, bang-for-the-buck-wise.

Now, please rip it to pieces. :)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jan 27th, 2011 at 08:03:44 PM EST
[ Parent ]
There's no good reason to not write down the asset at the same time you depreciate it for tax purposes. You're never going to become insolvent due to tax-motivated write-downs, because your tax incentive stops when your income for the fiscal year hits zero. It can't go negative due to accelerated depreciation, since you don't get money back in taxes when you're bleeding money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 11:07:19 PM EST
[ Parent ]
This may be purely national, but in France you can certainly count a deficit in Year N, by either getting a refund on tax paid in Year N-1, (carryback), or by carrying forward to reduce next year's (or over several) taxable profit.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 28th, 2011 at 02:16:50 AM EST
[ Parent ]
The reason is to if you do write if off all at once, you're going to have a balance sheet which doesn't give a fair view of your actual assets. That €40 million tanker is still worth €40 million in year 2, or at least €38 million. Creating hidden values in balance sheets doesn't help anyone.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jan 28th, 2011 at 06:36:22 AM EST
[ Parent ]
You're always going to have a balance sheet that doesn't give a fair view of your assets - most fixed assets last longer than you depreciate them over (that's why coal looks so cheap; all the plants are fully depreciated, but remain functional).

And I disagree on hidden assets being of no help. They serve to stabilise balance sheets against cyclical variations. And, for the most part, it is not unreasonable to mark assets up during a downturn and depreciate them faster during an upturn. Because the conventional wisdom during an upturn tends to overvalue assets, so marking assets up during the nadir of the business cycle means you're more likely to get a realistic valuation, while depreciating assets faster during the upturn will make it less likely that you overshoot the long-term value of your firm.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 28th, 2011 at 11:23:55 AM EST
[ Parent ]
You're always going to have a balance sheet that doesn't give a fair view of your assets

This is no reason to make balance sheets less transparent than they need be. If so, we could just abolish balance sheets outright.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jan 29th, 2011 at 03:29:18 PM EST
[ Parent ]
This could be done as a political choice, certainly. I'm not sure it would be hugely successful as stimulus, because I doubt if companies make major investment decisions (we were discussing 20-year depreciation) for tax reasons. It might trip a few switches, though.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 28th, 2011 at 02:11:30 AM EST
[ Parent ]
This wholoe discussion is nothing new. many Governments, including the UK have allowed for accelerated tax depreciation, or 100% tax write off in the year of investment, and this does not have to be reflected in the asset register. Instead, you can record a liability for tax refund repayment in the balance sheet, which is amortised, cash less, over the economic life of the investment.

The whole point of this kind of incentive is to make it attractive within a certain time window to make an investment, threby bringing investment forward.

having reclaimed 100 % tax credit on the investment in year one, you are unable in subsequent years to use the accounting depreciation on that specific asset to offset corporate tax, so you future marginal tax rate increases.

by senilebiker on Sat Jan 29th, 2011 at 07:48:45 AM EST
[ Parent ]
It seems this is a pretty ordinary policy in Europe. And here I thought I was onto something new. :P

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jan 29th, 2011 at 03:31:26 PM EST
[ Parent ]
It is in fact (I now find) practised in France re targeted investments, most recently photo-voltaic.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jan 31st, 2011 at 09:58:11 AM EST
[ Parent ]
That is of debatable value as a form of stimulus, since firms invest in the expectation of demand. No expectation of demand, no investment, no matter how many tax breaks you give them.

Now, I quite like accelerated depreciation for another reason. It artificially reduces the size of people's balance sheets. And since crises occur when people overestimate their balance sheets...

Incidentally, the Danish tax code already permits depreciation times that are rather on the short end (around five years) for most goods except electronics.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 02:32:43 PM EST
[ Parent ]
Depreciating computers in three years makes sense when we are dealing with Intel and Microsoft.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jan 27th, 2011 at 03:31:39 PM EST
[ Parent ]
Or with Moore's Law generally.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 27th, 2011 at 03:57:56 PM EST
[ Parent ]
Yes, the "except for electronics" was supposed to refer to depreciation times being short, not to depreciation times being five years (IIRC, consumer electronics are depreciated over three years).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 07:02:53 PM EST
[ Parent ]
No expectation of demand, no investment, no matter how many tax breaks you give them.

True, but this tax cut would lower the internal rate of return required for investments, and hence increase investment, ceteris paribus. Furthermore, it would shift the economy towards higher capital intensity and hence allow higher salaries as the salary fraction of the total cost mass is lower for capital intensive business. This would, however, amount to industrial policy (gasp! oh noes!).


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jan 27th, 2011 at 08:05:16 PM EST
[ Parent ]
As stimulus goes, tax credits are a notoriously weak tool. The Americans have a great deal of experience in this matter, given their proclivity for fiddling with tax cuts when they should be building infrastructure. Their results are unimpressive.

As a structural policy tool, I quite like accelerated depreciation for its shrinking effect on balance sheets. But I strongly doubt that it's going to substantially alter the capital structure of a country. Although you could probably combine it with a reduction in the deduction for outgoing interest, and end up with a package that would discourage excessive leverage while remaining more or less distributionally neutral.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 11:33:28 PM EST
[ Parent ]
Tax credits are viewed as a good in and of themselves by the US RW, provided they primarily benefit the wealthy. Calling one a tool is just to put a condom on it, for the protection of the wearer.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 29th, 2011 at 05:57:52 PM EST
[ Parent ]
Migeru:
at the wage rates being offered

I think that's the point that, at least, Eurointelligence was making: that employers will need to offer more in a tight market.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 12:33:06 PM EST
[ Parent ]
Given that labour supply is largely inelastic w.r.t. wages, I suspect that the reason for the lack of qualified labour is not so much underpaying as the arrogant expectation that actually training labour to become qualified is Somebody Else's Problem.

A tight labour market doesn't mean that employers pay more in order to get more labour, because more labour will not be forthcoming at non-prohibitive price increases. What it means is that the price of labour will be set by the minimum that is required for demand destruction rather than the minimum required to prevent riots, sabotage, blockades and other disruptive direct action.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 12:55:27 AM EST
[ Parent ]
JakeS:
I suspect that the reason for the lack of qualified labour is not so much underpaying as the arrogant expectation that actually training labour to become qualified is Somebody Else's Problem.

But, as I suggest above, Germany is widely reputed to be a country that succeeds rather well in training skilled workers for the "middle" jobs that are manual but require technical capacity. That reputation may have been based on past performance only and the neolibs may have changed everything, but that would have to be demonstrated.

JakeS:

A tight labour market doesn't mean that employers pay more in order to get more labour

In the real world, employers don't "pay more to get more labour". They may offer more, in a competitive situation, in an attempt to attract what skilled labour is in fact available. There is always a margin of unemployed workers, or workers interested in changing jobs, particularly changing up. Increases at the margin will gradually tend to raise wages in general in the sector, since all workers (and their unions, though I admit I'm not sure what the collective bargaining situation is wrt the Mittelstand) will be aware of them.

JakeS:

the price of labour will be set by the minimum that is required for demand destruction

Don't quite get this. How does it apply to production for export?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 02:21:31 AM EST
[ Parent ]
But, as I suggest above, Germany is widely reputed to be a country that succeeds rather well in training skilled workers for the "middle" jobs that are manual but require technical capacity.

That doesn't necessarily prevent them from whining about it.

In the real world, employers don't "pay more to get more labour". They may offer more, in a competitive situation, in an attempt to attract what skilled labour is in fact available.

Yes. That's what I argued.

Don't quite get this. How does it apply to production for export?

You have a largely inflexible upper limit to how much labour your population can provide. When you hit that limit, a game of chicken begins between the consumers of labour, and prices go up until enough consumers of labour back out. When the utilisation goes significantly below that limit (i.e. when unemployment rises enough that employers do not have to engage in a bidding war), prices drop to whatever level organised labour is able to defend through political and/or monopoly power.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 03:03:21 AM EST
[ Parent ]
JakeS:
That doesn't necessarily prevent them from whining about it.

Of course not, but does Germany have a decent system of vocational training for these technical/manual posts any more, or doesn't it, is the question that seems relevant.

JakeS:

a game of chicken begins between the consumers of labour, and prices go up until enough consumers of labour back out

In an economy that has depressed wages over a long period and is export-oriented, there might be quite some room for wages to rise before reaching labour-market demand destruction.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 05:14:05 AM EST
[ Parent ]
afew:
does Germany have a decent system of vocational training for these technical/manual posts any more, or doesn't it
It's quite possible that the system of vocational training is no longer what it is trumpeted to have been.

Back in the 1970's there were already novels about "involuntary unemployment" among youth looking for vocational training.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 05:26:21 AM EST
[ Parent ]
It's pretty certain that it is not what it used to be or was reputed to be. But the dual education system is still there, and Mittelstand companies train apprentices (under some constraint).

The Apprentice: Germany's Answer to Jobless Youth - BusinessWeek

Lately, though, [2009], the system has come under stress through factors related to both the current downturn and long-term changes in the global labor market. The number of apprenticeships slumped more than 10% between 2000 and 2005, recovering only after the government threatened to compel companies to take more trainees. German officials expect the number to dip again this year because of the financial crisis.

The point you make here seems to me generally valid (and spot-on concerning France, for instance), and has surely taken its toll in Germany. But the relative position of Germany in this regard would still seem to me to suggest that it takes vocational training more seriously than a good many other developed economies.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 06:06:00 AM EST
[ Parent ]
afew:
The number of apprenticeships slumped more than 10% between 2000 and 2005, recovering only after the government threatened to compel companies to take more trainees.
Did the same thing happen in the 70's?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 06:43:09 AM EST
[ Parent ]
The only discussion I can find is in a Dutch Central Planning Research Memorandum comparing German and Dutch apprenticeship systems (1995).

The author says there was a dip in the '70s then a rise in the '80s, that cannot be ascribed to demographic factors. (From points gleaned elsewhere, it's likely to be cyclical: companies pruning back in a downturn, then catching up).

1985-1995, the author says the decline is linked to demography. Afaik the decline has continued, leading to the government intervention in the mid-'00s that re-established the situation somewhat before the downturn.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 08:31:16 AM EST
[ Parent ]
But whan unemployment is at 7%, twice the historical norm and definitely not a "full employment" level, where's the pressure to raise wages?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 05:29:06 AM EST
[ Parent ]
If you're an employer looking for rare skilled resources on the labour market, the existence of large numbers of unemployed persons who don't possess the necessary skills will not solve your problem.

Either you are going to spend money training the unskilled, (for an uncertain future result), or you offer more wages now for workers who are likely to be immediately productive.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 05:49:36 AM EST
[ Parent ]
So training the unskilled is everyone else's problem, resulting in a decreasing pool of "workers who are likely to be immediately productive", large numbers of unemployed persons, and business complaints that the educational system doesn't train in "rare skills".

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 05:58:42 AM EST
[ Parent ]
And in increased wages..?
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 06:06:53 AM EST
[ Parent ]
That is unpossible.

In any case, without speding in in-house training you get increasing wages for a shrinking group of rarely skilled workers, chasing after whom is a zero-sum game for the firms involved.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 06:30:24 AM EST
[ Parent ]
So, to follow you, German employers are dumb enough to obey your first point out of ideological stubbornness, but smart enough to collectively realize your second?
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 08:37:24 AM EST
[ Parent ]
Both points are consistent with narrow self-interest.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 09:23:42 AM EST
[ Parent ]
So are offering more (in a squeeze) to hire or poach skilled people from competitors, and kicking the "human capital" can down the road bacause of the greater costs involved. It depends on how each employer defines his narrow self-interest.

If there has in fact been a decline in in-house training because of the slump (and demography), then possibly the government will need to intervene to encourage picking it up again. But that will take time. Attempting to attract skilled labour from elsewhere may plug some gaps, but it will also take time (and may not play well with German opinion).

My point is not to say the Ernst & Young report is accurate and that Germany is running into a tight skilled-labour market for middling manufacturors - I (we) don't have the answer to that. But it may be the case, or soon become so, because the availability of skilled labour is surely a limiting factor on German export expansion.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 10:25:56 AM EST
[ Parent ]
The issue here is that in-house training internalizes as a cost a societal benefit, so it is not individually "optimal" according to naïve homo oeconomicus reasoning.

Basically, if you train an employee and they leave the firm before their higher productivity has paid off your training investment, you lose out. If they leave to go to a competitor, they win without investing in the training. So it may be individually optimal not to train, and to poach trained workers from competitors. But if nobody trains, soon the industry as a whole has no more workers to hire.

The only way out of that is collective/societal, either through an industry-wide training scheme, or government intervention. Or if a given firm is large enough to have market power and to have its own large in-house training scheme which can afford to lose some percentage of its trainees early. But small or medium enterprises are not in a position to train many more than one person at a time, so to them the risk of losing a trainee is unacceptably high.

In any case, even within the same industry, there is a common ground applicable to all firms which can be taught to anyone wishing to join the industry, but then there's in-house procedures, technologies, hardware and software, etc, which will take months to learn in any case. So industry-wide training, or school training is not a substitute for in-house training.

I mean, when they say they don't have qualified computer science people coming out of the universities, are they saying people come out of university functionally illiterate (not being able to learn a new computer system/language in a relatively short period of time, on the job)?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 10:54:58 AM EST
[ Parent ]
I don't think we disagree on the first part of your comment. As to the final question, I really don't know, but that does sound like business concern trolling.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 11:14:48 AM EST
[ Parent ]
My
self-serving rhetoric of businesses
upthread

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 11:22:40 AM EST
[ Parent ]
Yes, except that the FT piece talks about skilled manufacturing workers, not IT grads.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 11:35:55 AM EST
[ Parent ]
I mean, when they say they don't have qualified computer science people coming out of the universities, are they saying people come out of university functionally illiterate (not being able to learn a new computer system/language in a relatively short period of time, on the job)?

They're saying that the typical UK comp sci graduate knows Java and perhaps Flash, but has no experience of C/C++/etc, assembler, or deep hardware engineering - never mind clever stuff like kernel hacking or compiler design.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 11:24:43 AM EST
[ Parent ]
How many firms need kernel hackers? Seriously.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 11:27:09 AM EST
[ Parent ]
How many firms need someone with a Phd in string theory?

Actually if you're building Linux systems for business, kernel skills aren't irrelevant. You may not be building a new OS, but you will need to know why abusing the kernel or making wrong assumptions about it can cause problems.

But most employers just want some evidence of cognitive skills and task completion. They're not too worried about specifics.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 11:34:21 AM EST
[ Parent ]
ThatBritGuy:
most employers just want some evidence of cognitive skills and task completion. They're not too worried about specifics.
Then what is the skill shortage about?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 11:39:07 AM EST
[ Parent ]
They're not convinced by the evidence of cognitive skills and task completion?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 12:54:27 PM EST
[ Parent ]
And the universities are?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:04:19 PM EST
[ Parent ]
The universities are paid to be.

The problem in the UK is more that there are too many cartoon universities offering cartoon courses.

I looked up my old alma mater and the course content isn't any easier than when I did it - but the course has been extended with an additional year and now leads directly to a masters.

This seems sensible. But other unis are offering comedy comp sci with a bit of Android development and a few essays.

The differences are obvious with experience, but perhaps not so obvious to eighteen year olds.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 04:15:48 PM EST
[ Parent ]
In an economy that has depressed wages over a long period and is export-oriented, there might be quite some room for wages to rise before reaching labour-market demand destruction.

Yep.

This is precisely what employers do not want to happen. Which is why they start whining as soon as the bidding war starts.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 07:00:38 AM EST
[ Parent ]
So it's not whining for whining's sake, but is symptomatic of a squeeze.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 08:32:23 AM EST
[ Parent ]
Symptomatic of the risk of a squeeze within their planning horizon. That might mean that the squeeze is already here, or it might mean that they believe that there's a credible risk that it might happen a couple of years down the road.

Or they might be concern trolling for an expansion of the labour force (read: destruction of the pension system and turning higher education into vocational training) on general principles.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 02:43:22 PM EST
[ Parent ]
The second proposition is pretty unconvincing, given the type of labour we're talking about here - manufacturing workers who go through some form of vocational training anyway.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 03:09:44 PM EST
[ Parent ]
These arguments may be assuming rationality where none exists.

Conservatives aren't known for their grasp of reality. They're more likely to practice frog-twitch economics - kill the economy, dissect it, electrocute it, say 'hmm' when it twitches, then throw it away and try to find a new economy to torture.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 03:21:06 PM EST
[ Parent ]
German Mittelstand manufacturors are, in general, seen as having more than a nodding acquaintance with reality.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 04:08:36 PM EST
[ Parent ]
Maybe technological reality, but I submit they're likely to be Austrian gold bugs when it comes to economics.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:13:12 PM EST
[ Parent ]
But destruction of the pension system is right up their alley.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 03:32:36 PM EST
[ Parent ]
Yeah.

It may be concern trolling, of course. But I think availability of skilled manufacturing labour is a factor to watch in Germany, since it may well cramp their style.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 04:07:00 PM EST
[ Parent ]
JakeS:
the arrogant expectation that actually training labour to become qualified is Somebody Else's Problem
Governments seem to have completely bought into the idea that training labour to the specification of individual firms is not the job of the firm.

Evidently, outside training cannot be to the spec of a firm, but somehow the idea that people will be hired and trained for the first few months to adapt their generic skills to thespecifics of the firm has disappeared.

So you end up, in the best of cases, with well-meaning governments wasting money on subsidies to train unemployed workers for jobs thet there's no guarantee will be there at the end of the training. And business still complaining that (say) univesities don't teach students about their in-house processes.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:30:55 AM EST
[ Parent ]
I suspect the issue is there are not enough qualified workers at the wage rates being offered,

I doubt that this is the case. Qualified workers have very strong incentives to work, even in the generous European welfare states. These kind of people do not become unemployed because they "choose" to. Further, it would go against protestant work ethic.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Jan 26th, 2011 at 08:28:39 AM EST
[ Parent ]
Technology jobs pay relatively badly outside the City and below middle management levels.

Typical pay for code monkeys and engineers can be as low as £25k in the UK. You might get £35k with a few years of experience and £50k-£75k as a consultant who can point to ten years of successful projects.

Better than the UK average, but hardly generous, especially compared to the sums you can earn doing something useless in finance.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 08:35:32 AM EST
[ Parent ]
Good compared to being on welfare...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jan 26th, 2011 at 08:40:27 AM EST
[ Parent ]
But bad compared to other work that pays better.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 08:41:36 AM EST
[ Parent ]
That's the reason for the push to include immigrants with high-skilled knowledge.. if this does not change they will have to equilibrate the wages of the "elite" with the elite of the "know-how".. and then it is clear that the apocalypse will be near... since people who know will have the same power that people who are bankers.

The end of the world as we know it.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Jan 26th, 2011 at 01:20:50 PM EST
[ Parent ]
People with useful knowledge will never be dangerous until they realise how they're being conned and manipulated by economic nonsense.

Engineers naturally seem to gravitate rightwards, and they're easy meat for libertarian promises of rugged self-apotheosis, and for narratives that describe the economy as a simple set of interlocking parts with rigid laws that - unfortunately, but inevitably - destroy real human rights and social responsibilities.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jan 26th, 2011 at 03:25:37 PM EST
[ Parent ]
You do not think that a significant mass of not-conned  people can develop if we ever get to 30% of very well paid highly-skilled workers?

Well, yes it could certainly happen, highly-skilled and no knowledge. Yes... I hope not.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Jan 27th, 2011 at 10:29:17 AM EST
[ Parent ]
they will have to equilibrate the wages of the "elite" with the elite of the "know-how"..

A partial return to the 1960's world dominated by the Technostructure as described by Galbraith?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:06:26 PM EST
[ Parent ]
Starvid:
Qualified workers have very strong incentives to work, even in the generous European welfare states. These kind of people do not become unemployed because they "choose" to.
Nobody does, even unqualified workers... If nothing else, because the "generous European welfare states" don't allow people to stay on benefits for ever. After less than 2 years unemployed, you're likely to end up homeless "even in Europe".

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 11:25:53 AM EST
[ Parent ]
Not in Sweden... The only homeless people in Sweden are either students who can't find a place to live because there aren't enough houses in university towns, or chronic drunks/narcotics users, often with severe mental problems. These unfortunates have their plight increased by the somewhat retarded Swedish narcotics and mental care policies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jan 27th, 2011 at 08:10:35 PM EST
[ Parent ]
From a brief trawl of Swedish government homeless statistics.

less than 2/3 of Swedish homeless have drink or drug problems,(Just over 2/3 of male, less than half of female) and it's hard to tell which are the cause or effect of the homelessness., only just over 1/3 of Swedish homeless have mental health problems. A maximum of 9% fall under the no other group, which would include students

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Thu Jan 27th, 2011 at 09:15:52 PM EST
[ Parent ]
I bet this depends on the given definition of homelessness, like people over 18 still living at home, and so on.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jan 28th, 2011 at 06:40:06 AM EST
[ Parent ]
In what universe does someone living with their parents qualify as "homeless"?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 28th, 2011 at 07:17:41 AM EST
[ Parent ]
The Swedish one, possibly...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jan 28th, 2011 at 04:37:49 PM EST
[ Parent ]
This is the main problem for a highly oligarchac modern economy... once India and China also need high-skilled workers...low wages in this segment will be over...

I think it will reconfigure social relations in the future completely... and I do not know exactly how things will turn out.. but when 30% of the job force have huge huge leverage (and soon salaries) and 30% have nil.. what would happen with the other 30%.. and with the elite?

Beats me.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Jan 26th, 2011 at 01:13:52 PM EST
[ Parent ]
once India and China also need high-skilled workers...low wages in this segment will be over...

In the long run we're all dead...

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jan 27th, 2011 at 08:11:45 PM EST
[ Parent ]
disposable income up 3.4%

And I am sure it is up in that segment of the population where it will do the most good.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jan 25th, 2011 at 12:43:22 PM EST
[ Parent ]
If that disposable income is spent it will be inflationary, and the Bundesbank won't like it.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 12:56:28 PM EST
[ Parent ]
My guess it that most of it went to the top few percent of the income spectrum and it will be saved.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jan 25th, 2011 at 12:58:24 PM EST
[ Parent ]
would i be right in inferring from the point of your comment that this could be interpreted as germany starting to see the folly of throwaway consumerism, and pumping rope-a-dope get-rich-quick bubble consumer confidence tricks?

 thus getting back to an older attitude about saving for a rainy day?

(not even wrong? lol)

and would that be because they have all their eggs in an export-driven economy, that has not benefited the domectic rank and file factory drone very much, (other than he/she having a job at all)?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jan 25th, 2011 at 07:14:41 PM EST
[ Parent ]
European Tribune - Is the German position sustainable?
whether the ugly spectre of (gasp!) wage inflation will strike
The German government shouldn't be too worried about that one:
Brüderle backs big pay rises as economy booms - The Local
Workers hungry to share in the spoils of Germany's booming economy through higher wages have been given encouragement from a surprising place: the country's pro-business Economy Minister Rainer Brüderle.
Now, to talk about a "booming German economy" in October 2010 is a bit too celebratory, but still...


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 04:54:49 AM EST
The German government, or just the FDP's Brüderle?

Mind you, if the German administration as a whole were willing to accept a sizeable dose of wage inflation, wouldn't that be pushback against the deflationary years and a means of rebalancing the relative situation of eurozone countries?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 08:28:13 AM EST
[ Parent ]
I suspect that German neo-libs see themselves as competing on a global basis with the US, China, BRIC etc. - not with peripheral EU economies...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 25th, 2011 at 10:49:29 AM EST
[ Parent ]
The neo-libs (FDP) are merely trying to stay alive, capturing a popular sentiment to stay above the 5% representation threshold. They're in an emergency situation, and will try anything. That doesn't presume that they'll stick to fighting for anything more than token higher wages after the elections, if even that.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Tue Jan 25th, 2011 at 12:43:10 PM EST
[ Parent ]
I wasn't suggesting the German neolibs would be interested, but that we at ET might see some wage inflation in Germany as a rebalancing factor.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jan 26th, 2011 at 02:30:34 AM EST
[ Parent ]
European Tribune - Is the German position sustainable?
three-quarters of the small and medium-sized companies in the country's industrial Mittelstand were having difficulties finding enough qualified workers.

... German business organisations have called for easier immigration rules for skilled workers to tackle the shortage.

Not to worry...

Spain's curse of emigration is Germany's gain

These men, labourers and agricultural workers, were part of the great migration from Spain. Now, in 2011, it would appear the exercise is about to be repeated -- except this time professional young Spaniards would be making the trip instead of sons of the soil.

The trend is revealed in Der Spiegel. The aim is to partially solve the German deficiency in young talent, especially those affected by the Spanish economic crash. According to the German magazine, the subject will be high on the agenda of the German-Spanish summit to be held in Madrid on February 3 and to be attended by German Chancellor Angela Merkel and Spanish Premier José Luis Rodríguez Zapatero. The discussion will form a bilateral labour agreement between the two countries. It is not only Spain that will benefit, but other nations in the south and the east of Europe which are suffering from the double whammy of a debt crisis and unemployment.

It is understood that young qualified Spaniards and Portuguese are the preferred candidates in Germany because of the ease of movement between the neighbours.



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 04:57:38 AM EST
The obvious model for this is the USA. Boom states become bust states, waves of "internal" migration are common and ongoing.

Language and culture are fast losing their strength as barriers, especially as the target population are young and well-educated.

Is this/will this become a significant factor in re-balancing the Eurozone's internal economic tensions? The backwater-ization of the regions providing the emigrants is a danger.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Jan 25th, 2011 at 06:31:17 AM EST
[ Parent ]
The consequence of such migratory flows is deflation in Spain, which makes Spain's debts to Germany even harder to pay in nominal terms as Spain's nominal GDP contracts.

So you still need fiscal transfers...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 06:38:35 AM EST
[ Parent ]
Yes, and as Krugman reminded us, the US does fiscal transfers.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 08:30:36 AM EST
[ Parent ]
And Germany within itself.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 08:54:45 AM EST
[ Parent ]
My niece embodies this trend.  Four years ago, at the hight of the building boom, she was a Director of an Archaeological firm employing hundreds doing digs around the motorways and other developments sprouting up everywhere.  Then the business collapsed and she was one of the last to leave, did a master in Project Management, part time, and is now employed by a financial services company in Frankfurt.  Another Niece is in Scotland, a nephew in Australia, both my daughters are considering their options abroad.  I hope they leave the lights on for me!

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 25th, 2011 at 10:56:36 AM EST
[ Parent ]
Frank Schnittger:
she was a Director of an Archaeological firm employing hundreds doing digs around the motorways and other developments ... and is now employed by a financial services company in Frankfurt
Is there any hope of halting, let alone reversing, the progress of financialisation? Note she moved to Germany but not to be part of the famed "exports base" of the German economy but to join the parasitic sector (said from a parasite to another parasite).

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 11:42:27 AM EST
[ Parent ]
Her firm is a small firm (8 employees) specialising in micro-financial support of small development projects in Latin America - so the term "financial services" is quite broadly applied in this case.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 25th, 2011 at 12:17:57 PM EST
[ Parent ]


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Jan 25th, 2011 at 05:35:26 PM EST
[ Parent ]
I'd get a wind turbine only the national electricity utility would insist I supply them with power for free... there are no feed it tariffs


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 25th, 2011 at 07:52:08 PM EST
[ Parent ]
I was talking with my aunt about that. She did not get how is possible that people with good formation be them engineers, architects or anyone with a smart head are unemployed. Move around!!!

As much as I hate the present monetary policy, I must agree that well-trained people unemployment in Spain comes from a lack of desire to move around and take a job in antoher country.

Spain talks endlessly about reforms and reforms .. most fo them are crazy leading Spain to more years of distresss. And of the reforms which are really needed (mainly 3), one will be done more or less properly (privatize cajas and use the government money to give credit), another one in the complete opposite direction of what is required (labor law and pension reform) and the other one is just not talked about (force people to learn english or german or french and move around!!!!.. and then we will pay you heavily if you come back).

xzy stuff.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Jan 26th, 2011 at 01:29:12 PM EST
[ Parent ]
Spaniards won't even move around within Spain. And, what's saddest, employers won't hire either. I remember a couple of years ago one of our interns had an interview with HR to take a permanent position, and they asked him whether he liked his hometown - it was almost as if it were too much of a risk to hire someone from outside Madrid for fear they would leave to go back home in short order.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:03:22 PM EST
[ Parent ]
Better parties, for one thing.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jan 27th, 2011 at 07:37:15 AM EST
[ Parent ]
Seconded.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Jan 27th, 2011 at 10:30:37 AM EST
[ Parent ]
"Education" reform.. but in universities and TV series.. ..everywhere... Make the people who travel cool.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Jan 27th, 2011 at 10:33:27 AM EST
[ Parent ]
Businessmen Regret Leaving Merkel in Peril Over Euro (Update1) - Bloomberg.com

Jan. 25 (Bloomberg) -- German executives are standing on the sidelines as Chancellor Angela Merkel struggles with an electorate questioning the cost of bailing out debt-laden neighbors to save the euro.

German companies were among the greatest advocates of the single currency at its inception in 1999, having contended for decades with a surging deutsche mark that hammered exports every time European neighbors devalued their way out of recession. Now that they've reaped the benefits of the euro, executives are questioning whether they should be doing more to back up Merkel.

"We've forgotten to stress how important the euro is and how good it is for our business," said Joerg Schneider, chief financial officer of Munich Re, the world's largest reinsurance company. "We haven't pointed out enough that the euro is a massive export-support instrument for Germany."

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jan 25th, 2011 at 03:13:21 PM EST
wow, sounds like they've been reading migeru!

it really is hiding in plain sight, once someone's intelligent explanation has removed the blinkers.

now this message needs to drown the vitriolic 'lazy southerners' BS that has been used to stir up the xenophobia and other social divisions!

those irresponsible pseudopundits should all be forced to go work in 40C august greek or sicilian mid-afternoon, and then apologise...

are there any studies about the human brain working 'better*' in cooler weather, i wonder.

* value of better as 'better at rational long distance cognitive skills'

and then all these cool headed nordics all want to go retire in the carefree, inefficient, slipshod, messy and colourful, sensually rich southern parts, and then bitch about how badly run they are...

which is true, especially seen from their point of view!

but you can suck on a warm juicy peach hours rom plucking while queueing for your umpteenth fruit-less altercation with some bureaucorporate placeholder, who got his gig because his uncle got it for him through giving some pol/big fish a discount on something.

whine through your wine, basically.

a friend got back from germany today after a 4 day visit, and in 3 hours on a monday morning sorted new passport, insurance plan, and some other issue that would have taken weeks if not months to botch up here in bel paese.

3 hours!

blame it on the heat i guess, i don't know what else explains it, other that the pretty much the only thing anyone might want to do in germany is work their ass off to get the money to gtfo asap.

somewhere where the sight of chimneys don't give you the shivers, and the sky turns blue every so often, just for a tantalising, torturing reminder of what you're giving up to become a more productive euro-ratracer.

whoop de doo. more chemicals and autobahn juggernauts all around.

 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jan 25th, 2011 at 07:38:07 PM EST
[ Parent ]
More likely they've been reading Martin Wolf, Wolfgang Münchau or any of a number of German economists who are not insane.

Insanity being an apparent requirement for employment as an economist in the German government or Bundesbank...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:44:15 AM EST
[ Parent ]
are these insane ones the ones Marshall Auerback calls the 'hard money' crowd?

why is that term used?

TIA

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Jan 26th, 2011 at 08:47:07 AM EST
[ Parent ]
They're called the "hard money crowd" because they fancy themselves to be proponents of "solid" or "sound" money - that is, low inflation.

Less charitably, they could be called the "hard money crowd" because they are in favour of pretending that their domestic currency is a hard currency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 26th, 2011 at 02:50:54 PM EST
[ Parent ]
You can also call them Austrians.

They definitely behave like gold bugs, their gold being the Deutsche Mark.

In their futile attempt to preserve their net worth in a deleveraging, they kill the economy and their own net worth with it.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jan 26th, 2011 at 04:10:09 PM EST
[ Parent ]
And as we've entered a Dark Age of Macroeconomics(tm) they probably haven't even heard of the Paradox of Thrift...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jan 27th, 2011 at 08:14:53 PM EST
[ Parent ]
..but it is whether it is sustainable.

It is sustainable as long as they don't have housing bubble. That means it is very sustainable. Unless the periphery defaults and germans are put pay the banks themselves.

by kjr63 on Wed Jan 26th, 2011 at 01:26:08 PM EST
Please excuse the drive-by, no time as of yet to research and post, but please be aware that there are serious investigations underway as well as the potential (repeat, only potential)  for top German politicians to be charged in allowing shoddy bank practices.

regarding the investigation of Beckstein, Der Spiegel quoted the investigation as using the phrase "gross negligence."

perhaps some German-speakers can enlighten us further?

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Thu Jan 27th, 2011 at 05:08:22 AM EST
Do you have some German keywords I can try to search Spiegel.de? The ones I'm coming up with by back-translating your rumour are not working...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 27th, 2011 at 05:32:20 AM EST
[ Parent ]
by gk (gk (gk quattro due due sette @gmail.com)) on Thu Jan 27th, 2011 at 05:43:05 AM EST
[ Parent ]
Right, from January 3 2010.

Banken: Blindflug ins Desaster - SPIEGEL ONLINE - Nachrichten - WirtschaftBanks: flying blindly into disaster - Spiegel Online - News - Economy
Wer haftet für das Fiasko der Banken, an denen der Staat beteiligt ist? Nur die Manager, die Milliarden mit hochspekulativen Anlagen verzockten, oder auch die Politiker in den Aufsichtsgremien, die ebenso skrupel- wie ahnungslos alles abnickten?Who is responsible for the Banking fiasco the State is involved in? Only the managers who botched highly speculative investments, or also the politicians in the supervisory institutions, who were both clueless and unscrupulous in nodding off on everything?


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 27th, 2011 at 06:00:59 AM EST
[ Parent ]
Strong words indeed: Banken: Blindflug ins Desaster - SPIEGEL ONLINE - Nachrichten - Wirtschaft
2. Teil: System der organisierten Verantwortungslosigkeit
Part 2: a system of organised irresponsibility.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 27th, 2011 at 06:02:50 AM EST
[ Parent ]
grob fahrlässig, beckstein, blindflug ins desaster (Spiegel)


"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Thu Jan 27th, 2011 at 05:44:01 AM EST
[ Parent ]
Spiegel appears to focus on the crisis of the Landesbanken which, like the Spanish Cajas are notorious for their structural political ties.

Landesbank - Wikipedia, the free encyclopedia

The Landesbanken in Germany are a group of state owned banks of a type unique to Germany. They are regionally organised and their business is predominantly wholesale banking. They are also the head banking institution of the local and regional bases Sparkassen (= saving banks).


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 27th, 2011 at 06:04:18 AM EST
[ Parent ]
Remember the very cheap and fishy loan LB Bayern(?) extented to the Olkiluoto nuclear consortium? I'm sure Siemens had nothing to do with that...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jan 27th, 2011 at 08:16:40 PM EST
[ Parent ]
Germany has an upcoming Whammy of sorts, yes?, with the reductions in the military in the very near future, which I've heard will put about a third or a fourth of their people into the 'normal' workforce at the same time that Germany will have a "double" gymnasium class entering the workforce/university tract as they're eliminating the 13th year of gymnasium and therefore graduating both 12th and 13th graders this year only.

That should be a challenge, I think. I'm not sure how many years the military cuts will take, though I don't think it's all at once, but the well-trained military folk will certainly create additional competition for good jobs at a time when there are already unemployment stresses.

Karen in Bischofswiesen

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Sun Jan 30th, 2011 at 02:44:21 PM EST
at the same time that Germany will have a "double" gymnasium class entering the workforce/university tract as they're eliminating the 13th year of gymnasium and therefore graduating both 12th and 13th graders this year only.

I thought educational policy was determined at the state level in Germany? Is this one state or several that are doing this?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jan 30th, 2011 at 03:58:08 PM EST
[ Parent ]
The person who gave me this info is someone I think of as very well-informed and has a high position in the German military, but not in education. So I've tried a little research online to clarify this, and I found this link: http://en.wikipedia.org/wiki/Primary_education#Germany
which was recently updated and seems to suggest that there will be only up to 12th grade Germany-wide.  Then I found this link, but it's just a blog entry by a student in a particular area, claiming that 13th grade is being eliminated, so that doesn't actually clarify, either: http://rileyjquinlan.blogspot.com/  (entry under Nov. 25, 2010).
OH - But then there's THIS link that says "most" states in Germany are shortening the gymnasium period. Sorry I haven't yet determined which states those are.  http://en.wikipedia.org/wiki/Twelfth_grade#Germany

Karen in Bischofswiesen

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Mon Jan 31st, 2011 at 05:19:12 AM EST
[ Parent ]
Eurozone Inflation - NYTimes.com

Wolfgang Munchau agonizes over European inflation targets; he worries that rising German inflation may lead the ECB to raise rates, which would be disastrous for troubled peripheral economies.

I wrote about this a couple of weeks ago. Trying to keep German inflation low means imposing harsh deflation on the European periphery, as it tries to get costs and prices back in line.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jan 31st, 2011 at 08:59:24 AM EST
EuroIntelligence: EU started work on Brady plan for Greece
Wolfgang Münchau on inflation

In his FT column, Wolfgang Münchau asks the question whether German is overheating, and its implications on ECB policy, and eurozone stability. He says the monoculture of Germany's economy, combined with low unemployment at the start of the economic cycle have already led to severe labour shortages, putting pressure on wages. He expects big wage rise this year, which will start to affects average labour costs next year. Combined with rising energy prices, a significant build-up of inflationary pressures is likely. The ECB will probably decide to increase interest rates relatively soon. Delaying the rate increase would trigger corrective action later, with interest rates rising to the high single digits, and jeopardise the recovery of the banking sectors in Spain, and even Germany. His conclusion that an inflation target of less than 2 per cent is too tough for a monetary union like the eurozone.



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 09:18:24 AM EST
[ Parent ]
European Tribune: Get your economic analysis eight months early.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jan 31st, 2011 at 09:43:05 AM EST
[ Parent ]
... for the better part of half a year at that point.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jan 31st, 2011 at 09:43:48 AM EST
[ Parent ]
ET: preaching in the desert.

ET: the Cassandra complex.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 09:51:33 AM EST
[ Parent ]
So the ECB is supposed to raise rates because wages in Germany are no longer stagnant?

That's pure politics. Especially considering the politics of increasing energy costs, and the entirely political reality of speculation-driven commodity price increases.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jan 31st, 2011 at 09:57:25 AM EST
[ Parent ]
What do you mean? That Economics is Politics? Nooooo!!!

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 10:02:23 AM EST
[ Parent ]
Maybe we should just start using the old name for economics again: political economy.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Feb 1st, 2011 at 08:14:30 AM EST
[ Parent ]
ThatBritGuy:
So the ECB is supposed to raise rates because wages in Germany are no longer stagnant?
Well, if you replace ECB with Bundesbank it begins to make sense...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 10:07:50 AM EST
[ Parent ]
Well, if you replace ECB with Bundesbank Wall St it begins to make sense...

FIFY

NeoLib 101 - there is no such thing as a good wage increase.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jan 31st, 2011 at 10:44:26 AM EST
[ Parent ]
Stop blaming Wall St, this is a fully homegrown European insanity.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 10:48:16 AM EST
[ Parent ]
Did the ECB write the neoliberal rule book, or did it import it?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jan 31st, 2011 at 10:55:36 AM EST
[ Parent ]
I think they're faithfully implementing the original Austrian version.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 11:06:58 AM EST
[ Parent ]
I hope not.

From the usual source:

The Austrian praxeological method is based on the heavy use of logical deduction from what they assert to be undeniable, self-evident axioms or irrefutable facts about human existence. The primary axiom from which Austrian economists deduce further certain conclusions is the action axiom, which holds that humans take conscious action toward chosen goals.[43] Austrian economists focus on goal-directed action and say that it is undeniable because in order to deny action, one would have to employ action in the act of denial.

Methodology is the one area where Austrian economists differ most significantly from other schools of economic thought. Mainstream schools such as the neoclassical economists, the Chicago school of economics, the Keynesians and New Keynesians, adopt "empirical" mathematical and statistical methods, and focus on induction to construct and test theories--while Austrian economists reject this approach in favor of deduction and logically deduced inferences. According to Austrian economists, deduction is preferred, since if performed correctly, it leads to certain conclusions and inferences that must be true if the underlying assumptions are accurate. However Austrian economist Robert Murphy has stated that those using Austrian theories can still err in their interpretations of history, even if based on a theory formulated by deduction.[44] Caplan makes a similar point about quantitative significance, explaining that a theory, such as one which logically relates minimum wage and unemployment, tells nothing of the approximate quantity of change in unemployment one can expect upon minimum wage increases.

Austrian economists hold that induction does not assure certainty like deduction, as real world economic data are inherently ambiguous and subject to a multitude of influences which cannot be separated or quantified, one cause or correlation from another. Austrians therefore claim that mainstream economics has no way of verifying cause and effect in real work economic events, since economic data which can be correlated to multiple potential chains of causation.[45] Mainstream economists counter that conclusions that can be reached by pure logical deduction are limited and weak.[46]

Critics of the Austrian school contend that by rejecting mathematics and econometrics, it has failed to contribute significantly to modern economics. Additionally, they contend that its methods currently consist of post-hoc analysis and do not generate testable implications; therefore, they fail the test of falsifiability as prescribed by the scientific method.[10][47] Austrian economists counter that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-be actions.

So are they assuming inflation is an inevitable outcome of conscious economic choice? I.e. thinking causes inflation?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jan 31st, 2011 at 01:43:01 PM EST
[ Parent ]
the "Austrian theory" of the business cycle--a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire.

- Krugman

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Feb 1st, 2011 at 08:21:21 AM EST
[ Parent ]
Slate Magazine: The Hangover Theory by Paul Krugman on December 4, 1998
A few weeks ago, a journalist devoted a substantial part of a profile of yours truly to my failure to pay due attention to the "Austrian theory" of the business cycle--a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire. Oh well. But the incident set me thinking--not so much about that particular theory as about the general worldview behind it. Call it the overinvestment theory of recessions, or "liquidationism," or just call it the "hangover theory." It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion.

...

The many variants of the hangover theory all go something like this: In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity--of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.

Except for that last bit about the virtues of recessions, this is not a bad story about investment cycles. Anyone who has watched the ups and downs of, say, Boston's real estate market over the past 20 years can tell you that episodes in which overoptimism and overbuilding are followed by a bleary-eyed morning after are very much a part of real life. But let's ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole? Don't say that it's obvious--although investment cycles clearly are associated with economywide recessions and recoveries in practice, a theory is supposed to explain observed correlations, not just assume them. And in fact the key to the Keynesian revolution in economic thought--a revolution that made hangover theory in general and Austrian theory in particular as obsolete as epicycles--was John Maynard Keynes' realization that the crucial question was not why investment demand sometimes declines, but why such declines cause the whole economy to slump.



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Feb 1st, 2011 at 08:52:53 AM EST
[ Parent ]
I realised this morning that my political energy was being used not to scream incoherently like a crazy person every time I was exposed to anything said by a politician about the economy.
by Colman (colman at eurotrib.com) on Mon Jan 31st, 2011 at 10:24:09 AM EST
[ Parent ]
Migeru:
the monoculture of Germany's economy, combined with low unemployment at the start of the economic cycle have already led to severe labour shortages, putting pressure on wages. He expects big wage rise this year, which will start to affects average labour costs next year
I'm sure the timing of this is just a coincidence: Thousands of highly-qualified Spanish jobseekers hoping to emigrate to northern Europe
ARCHITECTS, engineers and other specialist technically-qualified young people from Spain have been clogging up websites offering jobs in Germany with applications ever since chancellor Angela Merkel announced that the country was seeking unemployed Spaniards.

With Spain's unemployment rate at 20.33 per cent - rising to 40 per cent among the under-35s - Merkel is now actively seeking highly-qualified jobseekers from Spain to mop up the deficit in professionals in Germany's employment market.

She intended to make this public at the Spanish-German summit meeting in Madrid on February 3, but already, thousands of jobseekers from Spain are making plans to emigrate north.

So, Spanish qualified workers migrate to Germany, depressing labour costs there and relieving the pressure to reduce labour costs in Spain, which is precisely the wrong kind of macroeconomic feedback you need to set up between Spain and Germany.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 10:12:11 AM EST
[ Parent ]
Just this weekend in Eurointelligence: Those second round effects - again
They are talking about inflation again. Yesterday Germany published some preliminary data for January inflation, showing a relatively moderate rise of 2%, but the rise of inflation in Belgium to 3.2% is quite spooky. Core eurozone inflation remains subdued, but is edging up above its long-run average. Two ECB board members, Lorenzo Bini Smaghi and Manuel  Gonzales Paramo went out yesterday to warn about the second round effects of commodity price hikes. Bini-Smaghi said a permanent and repeated rise in import prices would affect domestic inflation. The ECB is very obviously embarking on a verbal campaign to warn financial markets and wagesetters  that it will not tolerate a rise in inflation. Euro zone interest rate futures fell  yesterday, according to Reuters, and the yield on two-year German debt hit a 15-month high at 1.387%.
They've been complaining about talk of "second round effects" for the whole month of January, since it first became known that EU inflation had exceeded 2%...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 09:59:12 AM EST
[ Parent ]
EuroIntelligence.com: EU started work on Brady plan for Greece
Angela Merkel's new strategy seems to be to accept the need for an economic government of the eurozone, but to ensure that it deals mostly with macroeconomically irrelevant issues. Der Spiegel has some concrete details of what Merkel actually means by a common economic government. It turns out the big idea is the harmonisation of the pension age (something not really necessary given that pensions systems remain nationally funded, and very different in structure.) Merkel also wants the rest of the eurozone to adopt Germany's version of a debt-brake, a self imposed balance budget rule. In other words, economic government means forcing the rest of the eurozone to adopt Germany's economic and social policies. (Since this is not going to happen, one wonders what the purpose  of this proposal might be. None of this would have prevented the crisis had this been in place ten years ago. None of this will get us out of the crisis. One still gets the impression that Berlin is pussyfooting on crisis resolution.)


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 09:15:48 AM EST


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