Greek spending has actually been rising

[Beet]

Everyone practicising wage restraint and having a high savings ratio has never actually been tried, except perhaps during the Great Depression. All the major countries that do that in capitalism have a big trade surplus. It is a very supply side view to say that the slack of aggregate demand in such an economy would not be a problem.

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors. Without Germany, the euro would massively devalue, and this would help the PIGS, obviously. Some have even proposed that one solution to the problem is to have Germany leave the euro by itself.

[Gustaf]

Oy.

You know, as in the DSK thread you take something someone writes, interpret it completely different and then launch a self-indulging tirade about how wrong is what the other person "says" and how right your opinion is. No wonder you are so sympathetic every time we mock people like Palin.

Just because something was negotiated and written it doesn't mean that its implementation is inevitable. Otherwise we'd have a European Constitution by now. Heck, just see what happens now with the July decisions about the bailout mechanism.
If Germans REALLY didn't want the Euro then they could have used that "overwhelming" public opposition and scuttled the entire project, Maastricht or no Maastricht.

And by saying that the Euro was "popular" here in the Mediterranean you are showing your ignorance. Here at least it was always viewed with suspicion, if not outright hostility, and the rising inflation that came with its adoption did nothing to enhance its popularity. Even during better times the populace always remembered fondly our old drachma.

The "painful" measures Germany took was a decision to increase wages by a lower % than the rest of the Eurozone countries. That was impossible to do here (and probably the other regional countries) because our wages were already lower and because of the inflation caused by the Euro. Obviously it was a sound policy decision but to the detriment of the other european economies and not exactly helpful in the supposed ongoing quest of erasing the inequalities between the EU countries.   

This is the last time I respond to you. You can now have all the fun you want by misinterpreting what I wrote and giving another lesson to your "ignorant" pupils.

Hm.

Paragraph 1 is an unfounded personal attack, trying to distract from your lack of arguments, so I'll skip that.

Paragraph 2 is sort of...eh? They did prevent the Euro for a long time. But they had to give that up in exchange for unification. And Germany wasn't very good at getting their way in the EU in those days, for reasons I've already explained. And a major treaty (THE major treaty, in fact, of EU history) is vastly different from some negotiated deal over bail-outs. And we did get the European constitution under another name. The only reason they had to change the name was because of voter rejection. This is also rather well known.

When I talk about euro popularity I was going off of poll figures around the time of the introduction. But I'll readily accept your anecdotal evidence as proof of how I'm clueless. Here, check this out: http://ec.europa.eu/public_opinion/archives/eb/eb50/eb50_en.pdf

"Looking first at the "EURO 11" countries shows that support levels are highest in Italy (88%), Luxembourg and the Netherlands (both 79%). In four further "EURO 11" countries, around 3 in 4 people are in favour of the single currency, while in 4 other countries more than half of the population supports it. Highest opposition levels are noted in Finland and Germany (both 32%), although these are significantly lower than they were in the spring of 1998.
Looking next at the "pre-in" countries shows that people in Greece (75%) are significantly more likely to support the euro than people in Denmark, the UK and Sweden are. In these three countries there are more people who oppose the euro than people who support it. However, in Sweden (-2) the gap between opponents and supporters is very small."

So, as could be expected citizens in Finland and Germany tended to correctly predict that the euro would not be good for them. I won't expect you to admit to being wrong again though. I guess I twisted your words on this one. You clearly agreed with me that Germany was the country most opposed to the euro, right? (it should be noted that Eurobarometer polls notoriously overstate support for European policies so the absolute levels here are likely to be off).

Finally, you don't seem to understand how competitiveness works. It's not a question of how high wages are but how high they are compared to productivity. Thus, there is nothing inherent saying that Greek workers have to be overpaid compared to productivity. Germany adjusted wage inflation to productivity gains, which is what most countries should do.

It's convenient though that as you're running out of arguments and is being proven factually wrong on pretty much everything you say (still waiting for some evidence on your mainstream theory on how the euro was created, btw), you decide to walk out of the debate, after hurling a couple of personal insults my way.

Is it so hard to admit to being wrong?

[Gustaf]

Everyone practicising wage restraint and having a high savings ratio has never actually been tried, except perhaps during the Great Depression. All the major countries that do that in capitalism have a big trade surplus. It is a very supply side view to say that the slack of aggregate demand in such an economy would not be a problem.

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors. Without Germany, the euro would massively devalue, and this would help the PIGS, obviously. Some have even proposed that one solution to the problem is to have Germany leave the euro by itself.

I still disagree that the main problem for mismanaged euro countries is that other countries have been doing well. Of course, if everyone else also sucked they'd be doing relatively better but it remains a weird approach, imo.

Again, though, the fact that Germany and Southern Europe are not in step economically is of course the reason why the euro was a poor idea to begin with. So I agree with that part.

The demand point is relevant, but I still think that productivity increases is what drives demand in the long run. Wages will eventually have to follow productivity which is why the German way beats the Greek in this case.

[Beet]

Everyone practicising wage restraint and having a high savings ratio has never actually been tried, except perhaps during the Great Depression. All the major countries that do that in capitalism have a big trade surplus. It is a very supply side view to say that the slack of aggregate demand in such an economy would not be a problem.

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors. Without Germany, the euro would massively devalue, and this would help the PIGS, obviously. Some have even proposed that one solution to the problem is to have Germany leave the euro by itself.

I still disagree that the main problem for mismanaged euro countries is that other countries have been doing well. Of course, if everyone else also sucked they'd be doing relatively better but it remains a weird approach, imo.

Again, though, the fact that Germany and Southern Europe are not in step economically is of course the reason why the euro was a poor idea to begin with. So I agree with that part.

The demand point is relevant, but I still think that productivity increases is what drives demand in the long run. Wages will eventually have to follow productivity which is why the German way beats the Greek in this case.

I agree that productivity drives increased demand (in the long run), but I think that the sole driver of productivity in the long run is technology, not wages. Increasing productivity by reducing or suppressing wages is a political question of distribution, not an economic question.

[Landslide Lyndon]

So, as could be expected citizens in Finland and Germany tended to correctly predict that the euro would not be good for them. I won't expect you to admit to being wrong again though. I guess I twisted your words on this one. You clearly agreed with me that Germany was the country most opposed to the euro, right? (it should be noted that Eurobarometer polls notoriously overstate support for European policies so the absolute levels here are likely to be off).

Go see a therapist. Really.

[Gustaf]

So, as could be expected citizens in Finland and Germany tended to correctly predict that the euro would not be good for them. I won't expect you to admit to being wrong again though. I guess I twisted your words on this one. You clearly agreed with me that Germany was the country most opposed to the euro, right? (it should be noted that Eurobarometer polls notoriously overstate support for European policies so the absolute levels here are likely to be off).

Go see a therapist. Really.

I need to go see a therapist because I proved you wrong? It's surprisingly common for useless posters on here to resort to some random personal insult as a last resort after having been conclusively defeated in terms of arguments.

But any time you're ready to explain how I showed that I'm clueless by stating something that was factually correct, go ahead. I find it psychologically interesting how people like you try to justify themselves in public (beyond telling me to go see a therapist. Which is rather weak. I've been called lots worse by people losing arguments to me).

[Gustaf]

Everyone practicising wage restraint and having a high savings ratio has never actually been tried, except perhaps during the Great Depression. All the major countries that do that in capitalism have a big trade surplus. It is a very supply side view to say that the slack of aggregate demand in such an economy would not be a problem.

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors. Without Germany, the euro would massively devalue, and this would help the PIGS, obviously. Some have even proposed that one solution to the problem is to have Germany leave the euro by itself.

I still disagree that the main problem for mismanaged euro countries is that other countries have been doing well. Of course, if everyone else also sucked they'd be doing relatively better but it remains a weird approach, imo.

Again, though, the fact that Germany and Southern Europe are not in step economically is of course the reason why the euro was a poor idea to begin with. So I agree with that part.

The demand point is relevant, but I still think that productivity increases is what drives demand in the long run. Wages will eventually have to follow productivity which is why the German way beats the Greek in this case.

I agree that productivity drives increased demand (in the long run), but I think that the sole driver of productivity in the long run is technology, not wages. Increasing productivity by reducing or suppressing wages is a political question of distribution, not an economic question.

I don't think we disagree on that. I'm not claiming wage decreases leads to higher productivity. Merely that if one has low productivity growth, wage growth will have to be cut to match.

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

[CARLHAYDEN]

Everyone practicising wage restraint and having a high savings ratio has never actually been tried, except perhaps during the Great Depression. All the major countries that do that in capitalism have a big trade surplus. It is a very supply side view to say that the slack of aggregate demand in such an economy would not be a problem.

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors. Without Germany, the euro would massively devalue, and this would help the PIGS, obviously. Some have even proposed that one solution to the problem is to have Germany leave the euro by itself.

I still disagree that the main problem for mismanaged euro countries is that other countries have been doing well. Of course, if everyone else also sucked they'd be doing relatively better but it remains a weird approach, imo.

Again, though, the fact that Germany and Southern Europe are not in step economically is of course the reason why the euro was a poor idea to begin with. So I agree with that part.

The demand point is relevant, but I still think that productivity increases is what drives demand in the long run. Wages will eventually have to follow productivity which is why the German way beats the Greek in this case.

I agree that productivity drives increased demand (in the long run), but I think that the sole driver of productivity in the long run is technology, not wages. Increasing productivity by reducing or suppressing wages is a political question of distribution, not an economic question.

Certainly technology has been a major driver of productivity increases over the past several decades, but, in many cases the organization of an enterprise (or reorganization if you will) can have major impacts on improving productivity.

[Landslide Lyndon]

So, as could be expected citizens in Finland and Germany tended to correctly predict that the euro would not be good for them. I won't expect you to admit to being wrong again though. I guess I twisted your words on this one. You clearly agreed with me that Germany was the country most opposed to the euro, right? (it should be noted that Eurobarometer polls notoriously overstate support for European policies so the absolute levels here are likely to be off).

Go see a therapist. Really.

I need to go see a therapist because I proved you wrong? It's surprisingly common for useless posters on here to resort to some random personal insult as a last resort after having been conclusively defeated in terms of arguments.

But any time you're ready to explain how I showed that I'm clueless by stating something that was factually correct, go ahead. I find it psychologically interesting how people like you try to justify themselves in public (beyond telling me to go see a therapist. Which is rather weak. I've been called lots worse by people losing arguments to me).

[Gustaf]

So, as could be expected citizens in Finland and Germany tended to correctly predict that the euro would not be good for them. I won't expect you to admit to being wrong again though. I guess I twisted your words on this one. You clearly agreed with me that Germany was the country most opposed to the euro, right? (it should be noted that Eurobarometer polls notoriously overstate support for European policies so the absolute levels here are likely to be off).

Go see a therapist. Really.

I need to go see a therapist because I proved you wrong? It's surprisingly common for useless posters on here to resort to some random personal insult as a last resort after having been conclusively defeated in terms of arguments.

But any time you're ready to explain how I showed that I'm clueless by stating something that was factually correct, go ahead. I find it psychologically interesting how people like you try to justify themselves in public (beyond telling me to go see a therapist. Which is rather weak. I've been called lots worse by people losing arguments to me).

I have a Napoleon-complex because I base my views on real data? I never claimed that knowledge of any of the things I mentioned here was particularly impressive. I never met anyone before who wasn't aware of it so I hardly think it's a sign of megalomania. But I've understood you're a bit of an expert on psychology so I guess I should defer to your analysis.

But I hope none of the hard work in picking apart my narcissism distracts you from backing up your claims in this thread. If you can prove me clueless I'll gladly accept being a narcissist as well.

[Beet]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

[Gustaf]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

[opebo]

The effect of Germany practicing wage restraint has not been good for the euro, because it is undercutting its neighbors.

I still disagree that the main problem for mismanaged euro countries is that other countries have been doing well.

But don't you see, this defintion of 'doing well' is not a reasonable one - it is destructive of the regional (and in some cases global economy).

Borrowing and spending, and paying people as much as possible is a postive boon to the world economy, but 'competing' and racing to the bottom is just a road to ruin and harkens back to mercantilism.  You might 'win' for a while playing that game, but in the end everyone loses if we don't install an anti-competitive inflationary Keynesian redistributionist regime.

[Beet]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

[Gustaf]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

[Beet]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

Well then the economy would depressed, because everyone is very productive, but there is not enough aggregate demand.

[republicanism]

If your point is that it's problematic to force all the euro countries to adopt the same policies and the same level of competitiveness, I agree. That's why the euro is such a bad idea in the first place and should not have been adopted.

Today, I have to agree with you.
I used to support the Euro until this year, but when I see that Greece, Portugal, Ireland, Spain are going to lose their sovereignty and their democracy, and are forced to roll back the social achievements of the last 30 years, I have to change my mind.

If I have to choose between the Euro and democracy, I take the latter.

[Gustaf]

If your point is that it's problematic to force all the euro countries to adopt the same policies and the same level of competitiveness, I agree. That's why the euro is such a bad idea in the first place and should not have been adopted.

Today, I have to agree with you.
I used to support the Euro until this year, but when I see that Greece, Portugal, Ireland, Spain are going to lose their sovereignty and their democracy, and are forced to roll back the social achievements of the last 30 years, I have to change my mind.

If I have to choose between the Euro and democracy, I take the latter.

Yup. Since the euro means losing monetary policy as a tool to combat recession fiscal policy must be used instead. Weirdly, this has traditionally been liked by the left, which makes no sense to me - it means, in the end, to turn the core of politics (budget decisions) away from political considerations and make it into a tool wielded by economic experts. That's what we see happening now in the eurozone and the reactions to this dismantling of democracy and sovereignty is also happening. And it isn't looking pretty.

[Gustaf]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

Well then the economy would depressed, because everyone is very productive, but there is not enough aggregate demand.

But this again boils down to the same point. If you think supply is exceeding demand, isn't it more reasonable to increase demand than to decrease supply? Wouldn't the latter just shrink the economy? If you forced 10% of the German workforce to lose their jobs and sit at home, Germany would export a lot less and produce a lot less. But it wouldn't help the world economy much, would it?

[Beet]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

Well then the economy would depressed, because everyone is very productive, but there is not enough aggregate demand.

But this again boils down to the same point. If you think supply is exceeding demand, isn't it more reasonable to increase demand than to decrease supply? Wouldn't the latter just shrink the economy? If you forced 10% of the German workforce to lose their jobs and sit at home, Germany would export a lot less and produce a lot less. But it wouldn't help the world economy much, would it?

Who said anything about forcing 10% of the German workforce to lose their jobs and sit at home? I think the goal is to increase demand, not decrease supply. However, if you cut wages in every European country with the goal of increasing competitiveness, so that every European country was like Germany, and there was no external demand to soak up the trade surplus that others now soak up for Germany, the result would be that, even at those reduced level of wages, there is not enough demand to support those jobs (assuming that the workers are not extended credit irresponsibly beyond their ability to repay). So a lot of those workers would be laid off again. I think your proposal is the one that results in unemployment, not mine.

[Gustaf]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

Well then the economy would depressed, because everyone is very productive, but there is not enough aggregate demand.

But this again boils down to the same point. If you think supply is exceeding demand, isn't it more reasonable to increase demand than to decrease supply? Wouldn't the latter just shrink the economy? If you forced 10% of the German workforce to lose their jobs and sit at home, Germany would export a lot less and produce a lot less. But it wouldn't help the world economy much, would it?

Who said anything about forcing 10% of the German workforce to lose their jobs and sit at home? I think the goal is to increase demand, not decrease supply. However, if you cut wages in every European country with the goal of increasing competitiveness, so that every European country was like Germany, and there was no external demand to soak up the trade surplus that others now soak up for Germany, the result would be that, even at those reduced level of wages, there is not enough demand to support those jobs (assuming that the workers are not extended credit irresponsibly beyond their ability to repay). So a lot of those workers would be laid off again. I think your proposal is the one that results in unemployment, not mine.

Essentially, we seem to agree that there is a problem in that German workers are more productive than Greek ones. You seem to be arguing that this should be solved by German workers lowering their productivity (one way of doing this, on average, would be to just fire a lot of German workers). I think Greek productivity should be stimulated as a first solution.

My main point is that the problem is not that German workers are too productive but rather that Greek ones are not productive enough.

I think that if productivity was increased demand would go up (or be sustained at higher levels than would otherwise be possible). We will have to accept lower demand than was the case under the unsustainable regime of overspending.

[Beet]

In other words, I think the root of the problem is not that Germany cut back on wage growth relative to Greece but that they increased productivity relative to Greece (and especially relative to the countries' wage growth).

And why not? If Germany had had high wage growth to match its productivity growth, it would be contributing much less to the imbalances in the region. Not only that but most German workers would be better off.

Right, but isn't that a bit marginal? What I mean is that German workers were overpaid about a decade ago. They rectified that. You're claiming that they went too far, if I read you correctly.

However, that seems to imply that the Germans should have anticipated the weaker Euro economies letting their competitiveness go to hell and slowed down to match them.

Germany might be worried about competing with China and the US as well, for example. While I get the argument in technical terms, I'm not convinced of its merits in the long-term. Shouldn't the goal be for the other countries to catch up in productivity growth terms rather than Germany letting inflation run amok?

The eurozone economy is $11 trillion. If the entire eurozone had a trade surplus the same percentage of GDP as Germany, it would be a roughly $550 billion surplus. Who would absorb that?

Well, if no one wants to absorb it, there won't be a surplus that big, right?

Well then the economy would depressed, because everyone is very productive, but there is not enough aggregate demand.

But this again boils down to the same point. If you think supply is exceeding demand, isn't it more reasonable to increase demand than to decrease supply? Wouldn't the latter just shrink the economy? If you forced 10% of the German workforce to lose their jobs and sit at home, Germany would export a lot less and produce a lot less. But it wouldn't help the world economy much, would it?

Who said anything about forcing 10% of the German workforce to lose their jobs and sit at home? I think the goal is to increase demand, not decrease supply. However, if you cut wages in every European country with the goal of increasing competitiveness, so that every European country was like Germany, and there was no external demand to soak up the trade surplus that others now soak up for Germany, the result would be that, even at those reduced level of wages, there is not enough demand to support those jobs (assuming that the workers are not extended credit irresponsibly beyond their ability to repay). So a lot of those workers would be laid off again. I think your proposal is the one that results in unemployment, not mine.

Essentially, we seem to agree that there is a problem in that German workers are more productive than Greek ones. You seem to be arguing that this should be solved by German workers lowering their productivity (one way of doing this, on average, would be to just fire a lot of German workers). I think Greek productivity should be stimulated as a first solution.

My main point is that the problem is not that German workers are too productive but rather that Greek ones are not productive enough.

I think that if productivity was increased demand would go up (or be sustained at higher levels than would otherwise be possible). We will have to accept lower demand than was the case under the unsustainable regime of overspending.

I think the problem is not just productivity, it is also one of distribution. First of all you have to ask yourself what you mean by productivity. There are two ways to be productive. The first way, is to produce more goods for a certain amount of time spent. That is one definition of productivity. The other way, is to produce more goods for a less amount of money paid in wages. We cannot confuse these two things. The latter, is a great deal of what Germany has done.

I do not think this would be helpful because it creates an imbalance in supply and demand. It is not that workers are producing more, rather they are producing the same amount but they are getting paid less for it. Or they are producing more but they are not getting paid any more. In either case, the benefits of production are not realized. The company cannot sell the goods being produced, because the workers cannot afford it. So he must sell it abroad. But if he does not sell it abroad, then he must lay off workers.

The problem with the German model is that its apparent success has come at the cost of others. And even if all the other countries in Europe became like Germany, they would be no different. Were they to replicate German success, then it would have to come at the cost of others, as well. The reason, is that in this economic model there is not enough aggregate demand. Only when there is enough demand, meaning higher wages, to match productive capability, will the capitalistic system of exchange be balanced.

[Gustaf]

Ok, I never heard anyone use productivity in the second sense, so that's not what I've been saying here. I've been meaning productivity as in producing things in a certain time. Reputable sources like Wikipedia agree with me on this: http://en.wikipedia.org/wiki/Productivity

Now, German economy was stagnant a decade ago. Most people, I think, agreed that this was largely because they had an over-paid workforce. That is, wages were too high relative to productivity. This was also true of other countries in Europe. Germany got its act together, they didn't.

For me this reasoning is something like there being a bunch of alcoholics not doing their job properly. One of them finally goes through rehab and can now do the job that everyone did on his own. So the other alcoholics are fired. Then they complain. "If you were still an alcoholic, we would all still have jobs. Your success is built on us not being sober."

Firstly, that just seems plain wrong, morally if nothing else. It's hardly fair to claim that someone shouldn't have the right to go through rehab for solidarity reasons. Secondly, it seems dubious. If everyone sobered up they would be able to do more productive work, demand would thus be higher, etc. And thirdly, someone else who's sober might come along and kick them all out on the pavement at any time.

http://www.ecb.int/pub/pdf/scpops/ecbocp90.pdf Look at the table on page 18. While it shows that Germany has indeed has the relatively lowest wage growth, it shows that Greece has had by far the highest. Furthermore, they explain it like this:

"As can be seen in Table 3, all euro area countries except Germany and, to a lesser extent, Austria, have recorded wage growth for many years persistently above the euro area average during the past 14 years (see Chapter 5). The major factor behind this divergence between Germany and the rest of the euro area is an adjustment process in Germany following unifi cation. Wage growth in Germany in the immediate aftermath of unifi cation exceeded that in the rest of the euro area countries by an accumulated 30% between 1991 and 1994, and with productivity differentials being much smaller, relative unit labour costs rose by a similar extent as did wages in Germany. With adjustment via a devaluation of the D-Mark not being an option, and with productivity differentials remaining rather limited, wage growth had to fall substantially below that in the rest of the euro area in order to restore competitiveness. This process started in the second half of the 1990s and gained momentum in the past few years."

You may also note that in table 19, when wage growth rate relative to the euro area, excluding Germany, is calculated Greece still soars higher than the average by a similar figure (3.6% higher without Germany, 4.1% with Germany).

During a similar time-period (2001-2006) Greek productivity rose by on average 2.9% compared to a eurozone average of 1.2%. As is evident from this, Greek wages rose faster than productivity thus eroding their competitiveness. Germany had slightly higher prod. growth than the euro average and lower wage growth.

Basically, while there is something to your story of Germany holding back wage increases, it is also clear that a) this was an adjustment that might well have been motivated by concerns about competitiveness and b) that Greece isn't simply being hurt by Germany's actions here, but by their own decision to let wages run away from productivity.

PS: I'm interested in what you think Germany should have done in the early 2000s? Continue to slide behind all other nations in terms of cost-efficiency due to overcompensation? Why should they kill their own economy to make things marginally better for mismanaged economies elsewhere in Europe? 

[Beet]

Ok, I never heard anyone use productivity in the second sense, so that's not what I've been saying here. I've been meaning productivity as in producing things in a certain time. Reputable sources like Wikipedia agree with me on this: http://en.wikipedia.org/wiki/Productivity

Now, German economy was stagnant a decade ago. Most people, I think, agreed that this was largely because they had an over-paid workforce. That is, wages were too high relative to productivity. This was also true of other countries in Europe. Germany got its act together, they didn't.

For me this reasoning is something like there being a bunch of alcoholics not doing their job properly. One of them finally goes through rehab and can now do the job that everyone did on his own. So the other alcoholics are fired. Then they complain. "If you were still an alcoholic, we would all still have jobs. Your success is built on us not being sober."

Firstly, that just seems plain wrong, morally if nothing else. It's hardly fair to claim that someone shouldn't have the right to go through rehab for solidarity reasons. Secondly, it seems dubious. If everyone sobered up they would be able to do more productive work, demand would thus be higher, etc. And thirdly, someone else who's sober might come along and kick them all out on the pavement at any time.

You write: "It's hardly fair to claim that someone shouldn't have the right to go through rehab for solidarity reasons." Of course, and I'm not claiming that. Germany has every right to do what it did, and I have sympathy for its current position. However, the effects should not be denied, when you are talking about other countries following in its path.

You write: "If everyone sobered up they would be able to do more productive work, demand would thus be higher." Here's my question to you in this story. One person has sobered up here, so why is demand not already higher? You say that he has improved his work so much that he can now do the same job as all the other alcoholics. So shouldn't it be reasonable, if demand follows supply in this manner, that he has also increased his demand so much that it is equal to all the others' demand combined? And if so, why should the other alcoholics get punished? Since the factory now has that much more demand, it should continue to keep on both the newly sobered worker and the alcoholics.

And if that were the case, there would be no complaint by me. Not only would the newly sobered worker be many times more productive, but he would also be handsomely rewarded by many times as much consumption. The problem is that this newly productive worker has increased his productive capacity many times more than he has increased his demand. So your reply of "demand follows supply" did not apply.

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Most certainly. I agree that Greece let its own wages run away from productivity, and this must be cut. I am not saying the Greeks have no blame here.

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I do not know what Germany should have done (I think this is a political question as well as economic with some inherently subjective factors and can only be decided by the voters).

My only point is that Germany chose this path, but this path cannot be evaluated only on its effect on Germany. As I am sure you know Germany's current account surplus surged and the growth has come largely from international trade. Due to this, your suggestion that every country become like Germany is impracticable, because under a perfect model they would all have to run a huge trade surplus.

" The restraint of the German Joe the Plummer, here called “Otto Normalverbraucher” (Otto Average-User) is not a new phenomena. He sits on his cash for years, already. That is no mystery; from the economic growth, he sees hardly anything back on his pay slip. An investigation executed by the economic institute DIW from Berlin, of which the results were published last week, showed that Germany employees LOST 2.5% in real income over the last ten years. The hardest hits were suffered at the bottom of the salary scales: some employees lost over 22% of real income."

http://blogs.minyanville.com/ernst-labruyere/2011/07/25/germany-an-economic-miracle-or-the-result-of-growing-imbalances-in-europe/

This shows that Germany is just like a worker that is much more productive (you can call him a former alcoholic if you like), and is kicking his co-workers out of work, because he has not increased his consumption to match his production. The reason is that his pay his not increased commiserate to what he deserves. This is causing social instability currently in the euro zone and contributing to what could be a worldwide financial crisis.

[Gustaf]

I realize that it sucks for Southern Europe that they suck. I still think it's wrong to frame this problem as "Germany is too efficient. If they only produced less the world would be better off"

I'm sorry, but I just don't think economics works or should work that way.

I think that if all countries pursued a policy where wages reflected productivity instead of being allowed to sky-rocket the world economy would be better off than if all countries pursued a policy where wages are allowed to soar out of control.

Basically, I think forcing Greece to be more like Germany is a better idea than to try and turn Germany into Greece.

It seems like we're in agreement on a lot of it, but my main objection is really the notion that the problem in Europe is that Germany exports too much. I'd rather say that it's that Greece can't compete with these exports and that's what should be fixed.