Germany Reaps the Euro's Reward

[opebo]

It's not entirely clear that an artificial boost to the economy from an undervalued currency is a good thing in the long run though.

People basically said the same thing about Ireland 5 years ago and look how that ended up.

Ireland was running a current account deficit, so the currency obviously wasn't undervalued.

If you have common currency value and a common interest rate for the entire euro area it is going to be too strong/high for some countries and too weak/low for some countries.

In the short run it will seem nice to be on the weak/low end of things but it isn't necessarily good in the long run.

I suppose the high inflation created by these types of policies would induce lower exports though.

It is a good thing in the long run if you believe - as I do - that worldwide policy is drastically skewed towards low growth and deflation.

Basically the currency boost to Germany puts that country into a neutral position while nearly all the rest of the world is implementing very strong deflationary anti-growth policy.  Germany is still very, very far from any kind of inflation-creating policy.

[opebo]

It is absolutely hilarious that anyone is worrying about inflation at this juncture, and particularly in Germany!

[opebo]

Actually that Swedish crisis was caused by precisely the sort of 'austerity' we are seeing round the world, not by any inflation or currency based boosting.  (as if there were any similarity between Germany in 2010 and Sweden in 1990 anyway - people Germany is running at maybe, at the very most 50% of its economic potential.  Inflation is a fantasy there)

[opebo]

Well, that is not true. The austerity came as a reaction to the total collapse of the banking and real estate sectors. Just as it does now.

The collapse comes from an inadequacy of demand - a lack of government policy to redistribute to create demand.  So, yes, the extreme austerity which follows is absurdly bad policy, but the cause of the original collapse is always austerity as well (a lack of sufficient redistribution or 'inflationary' policy).

[opebo]

But Sweden had one of the world's most equal distributions in 1990 - yet hardly any other country experienced as bad a crisis as we did. And Sweden had very high inflation during the years leading up to the crisis.

So, reality disproves your theory. Are you going to change your theory or continue to ignore reality?

You can sum up the reality of the world in in 1990 in two sentences, Gustaf?  Very impressive!

One might consider the difficulties of a good economic system attempting to operate in a 'global economy' in which nearly all the rest of the world implements bad policy.

[opebo]

4. Yes, it was good for Germany to adapt and this might not have happened without the pressure that was applied.

I'm merely pointing out that East Germany has not adapted and reached the same level of competitiveness as West Germany.

What do you mean by 'adapt'?  Presumably lower wages, right?

[opebo]

lower wages, right?

It would mostly be either that or attain the same productivity as Western Germany.

Well, two points - firstly, why would any reasonable person agree to a political arrangement in which he got less wages?

And two - it is precisely the mandating of higher wages which leads to the improved productivity.

[opebo]

1. Because then he might not be unemployed, like 40% or whatever the number currently is in Eastern Germany are.

Presumably the dole in Germany is preferable to the sort of slave/subsistence level wages you're advocating they 'adapt' to.

2. This does not really make any economic sense nor is it backed up by any empirical data. In fact, how have the high wages in Eastern Germany led to higher productivity there? It has not.

It need not, but it must do so if there will ever be 'employment' there.  By mandating higher wages, we require that any 'investments' there be made at a high level of productivty.  And in the meantime the German investors must pay for the people of Eastern Germany to live on the dole.  It sounds fine to me, and this is how the globe woudl be run if anyone other than the top 1% had a voice.

[opebo]

The kind of damage this does to the social fabric of a society is almost unmeasurable. Just look at the rise of populism and xenophobia in East Germany. Look at the tension between West and East Germany as a result of the constant transfers of money. Just because you grew up as a lazy rich boy and never bothered to understand the real world you're completely unable to fathom what unemployment actually means to real people. Its effects can be extremely damaging to individuals and households.

But given the alternative - employment at 'competitive' wages (i.e. sub-subsistence level or 'third world' wages), unemployment is clearly preferable.  It is better for these people to disdain employment unless it is provided on terms they can agree to and live with.  We need not all accept the slavery they wish to impose, Gustaf.  Demand higher wages, and don't accept this bogeyman of 'competition'.

Personally I'd have a lot more respect for the working class if they'd go out and blow themselves up rather than accept $8/hour, wouldn't you?

[opebo]

It is not third world wages, you...geez. Do you have any idea what people actually make in the third world? It isn't any $8/hour.

No, but the point is that $8/hour is not preferable to blowing yourself up in Germany, US, etc.

Productivity in East Germany is not at third world levels either. I don't think they would have any problems making, say, Polish wages. .

Or American.. wages in the US are very low.  No doubt $8/hour is 'competitive' with $8/day in the third world, given certain factors such as differences in productivity and transport costs.  But that doesn't change the fact that it is unadvisable to accept $8/hour.