Keynes, Steinbrueck and other follies

Three posts in one hour, all virtually about the same thing, I know. They are all different at the same time that they resemble each other so much though. I also should mention that I absolutely love the fact that for the first time in my academic career (wrong word, existence) actual political discussion has caught up to what I spend my days reading. Quite fun really.

The German government (notably Herr Steinbrueck and Frau Merkel) these days are criticized by virtually everyone for their economic management and I figured I should for once actually join the chorus. Let's disregard the fact for a second that Steinbrueck was still preaching about the fundamental soundness of the German economy when the financial crisis first appeared (reminding me of Hoover in an eerie manner) and concentrate instead on today's fiscal policy.

The whole world is clamoring for deficit spending only Germany, the third biggest economy in the world and the key to prevent a recession from taking off (great metaphor I know), remains fixated on fiscal austerity. The world currently seems to be headed towards a deflationary recession (the Great Depression and Japan are the most famous predecessors) with interest rates already low (especially in the United States) and the European Central Bank fixated on its fear of inflation (inherited from the Bundesbank by the way) a monetary expansion saving the day seems doubtful. Especially because such an expansion already took place in response to the financial crisis. What is needed then according to Keynes (and Posen and Krugman, even Milton Friedman agrees) is a massive fiscal spending program.

Now, why the only German government that could push this through without much fears of electoral punishment (the current grand coalition, which really doesn't seem as grand all of a sudden) refuses to even consider this simply because it wants to balance the budget in 2011(?), something which will become impossible anyway assuming a deep recession has arrived. Why a Finance Minister who is a social-democrat would attack a labour Prime Minister for his Keynesian policies. I have no idea. The only thing I like about this is that the German problem has become an economic one only.

So, Herr Steinbrueck, Frau Merkel, Herr Glos (where are you anyway?), I'll need to find a job in the summer. Doing so in a recession won't be fun. Listen to what virtually everyone else is saying for once (trust me I have a hard time with that too usually).