Thursday, October 31, 2013

Hate To Say I Told You So

Well, that did not take long. The answers to the US criticism on the German export dependence are in and they are exactly the ones which could have been expected.

Using The Right Words When Criticising German Export Dependency

This weak both the European Commission and the US Treasury Department have criticised the German export dependency. The "Report to Congress on International Economic and Exchange Rate Policies" uses untypically clear language:

Wednesday, October 30, 2013

Commission Slowly Realizing That The Commission Failed Miserably?

When one sees a question in the heading, the answer is often: "No!" Just look at the Fox Nation homepage which often asks questions, that have little to nothing to do with the article below. But in this case the answer seems to be: "Well, kinda..."

Quotas For Women On Company Boards

Merkel's conservative CDU/CSU Union and the social democrat SPD are still working towards a coalition contract. According to Sueddeutsche, they have come closer to a agreement on quotas for women for supervisory (Aufsichtsrat) and management boards (Vorstand) of the largest German companies.

Good Policy vs Policy of Good Numbers

Two press releases one year apart covering the same subject and exactly the same time. People are at risk of poverty, if they earn less than 60 percent of the median income. Severe material deprivation is a sign of social exclusion and not poverty at least in the eyes of the EU. Those three million that disappeared are probably all millionaires, who work little and don't want to spent any of their money aka self-inflicted severe material deprivation. Without further comment:

Press release 2012-10-23

About one in five people (19.9%) in Germany – some 16 millionwere affected by poverty or social exclusion in 2011 (2010: 19.7%).[..]According to the definition of the European Union (EU), there is poverty or social exclusion when one or more of the following three criteria are met by the households covered: risk of poverty, severe material deprivation, household with low work intensity.

Press release 2013-10-25

Almost one out of every six people was at risk of poverty in Germany in 2011 – that is 16.1% of the population or approximately 13 million people. The Federal Statistical Office (Destatis) also reports that their share was up somewhat on 2010 (15.8%). 

Monday, October 28, 2013

President Obama Has Damaged US Foreign Relations Even More Than Republicans Ever Could

President Obama received a lot of premature praise, especially in Europe, where almost everybody was happy that Bush's successor was a democrat. He made many promises, none of those that Europeans were looking forward to were kept. And now this weekend we saw conflicting reports about Obama's knowledge of the spy programs. Bild claimed the US president learned about eavesdropping on Merkel in 2010, while Spiegel reported that he was informed this Summer.

Republicans Are Damaging US Foreign Relations

It is not just economic damage that Republicans are causing. Their unbelievable arrogance combined with childish ignorance made Republicans say really stupid things on US television this weekend. On "Meet The Press" Representative Peter King not only made up stories about thousands of lives saved by NSA spying, he also felt the need to pretend that eavesdropping on Merkel was somehow excusable because some of the 9/11 terrorists had lived in Germany.

Thursday, October 24, 2013

Satire Lags Behind Reality

(via)Once in a while newspapers get fooled by satire because it the premise of an article feels real, and the journalists do not take the time to fact check the story, and onion style stories can end up on in the news cycle. Yesterday the opposite happened. The Postillon, a German award-winning daily political satire homepage, wrote on the issue of more and more people being dependent on basic security at old age that one could increase the bottle deposit as a "social measure" supporting those collecting bottles. A premise which feels unreal, but is close enough to the position of German politicians that it will make an excellent satirical article. Well, sadly reality was faster.

Wednesday, October 23, 2013

NSA, Merkel's Phone, And Hypocrisy

According to Spiegel, Angela Merkel's private phone "might have been tapped" "for years" by US intelligence. Of course, the Bundesregierung "unequivocally disapproves". When the revelations were still about the German citizens her Minister of the Interior Friedrich called the critics "anti-American", and "naive".

Monday, October 21, 2013

EU "Shutdown"

Now that the US shutdown is over, it seems to be time to create our own little budget crisis in Europe. The EU Commission, the European Parliament, and the Council of the European Union (member states) agreed on a budget for 2013 in 2012 under the assumption that all payments due for 2012 would be paid 2012, which just did not happen. Additionally, the member states decided to start reducing the budget, which lead to a budget which was €2.9 billion below the 2012 one. So the 2013 budget needed amending, and since currently everybody in Europe is a big fan of paying in tranches, it was decided to use several installments for the needed sum of €14 billion. Everything went fine with the first and largest one, but now we seem to have a problem.

Friday, October 18, 2013

Demographic Change, Reforms, and the Commission

Olli Rehn recently reiterated his sustainable growth for Europe story. I have shown that Greece has lost more than "just" a decade and talked about how the the secondary effects are now coming back to haunt us, among other things. Let's today address something else. Almost two months ago Mr. Rehn said at the European Forum in Alpbach:

This is not just to combat the current crisis! In the coming decade, a major drag on growth will be the decline in the working-age population in Europr[sic]. Reforms are important not only to overcome the current crisis but also to address the long-term demographic change.
 (emphasis added)
It's fascinating how this person can easily switch from very short term - look at this one not completely awful quarter: it proves that we are doing everything right, never mind the disaster we have caused since 2010 - to long term demographics. I strongly believe that anything Mr: Rehn says has to be taken with a lethal dose of salt. Here's why that is also very true for the demographic situation.

Thursday, October 17, 2013

Minimum Wage In Germany

Coalition negotiations between Merkel's CDU/CSU Union and the SPD will begin shortly. One of the major issues was the minimum wage of €8.50 per hour, that the SPD wants. Many German economists fear that jobs will be lost. They are right that this might be the case in the short term but in the long run they are absolutely wrong.

Wednesday, October 16, 2013

Automotive Industry In Europe - The Light At The End Of The Tunnel

The automotive industry in Europe was hit hard by the Great Recession. The car sales fell in every year from 2008 until 2012. The whole market shrank by 22.4 percent compared to 2007. The first half of 2013 did also not look good as registrations fell by 6.6 percent. Today, ACEA published the car registrations for September, and the situation seems to have improved significantly.

What's Happening In German Politics

First up, Germany doesn't have a new Government yet, but the Greens will not be Merkel's next coalition partner. This isn't really news, a so called grand coalition with the SPD (new labor) was much more likely from the start.

Second, Merkel prevented a new EU compromise on car emissions. She wants higher Super Credits for environmental friendly cars, which basically just means counting these vehicles more than once when calculating the average fuel consumption of the whole automotive manufacturer's fleet. I have written  about super credits (counting electrical cars more than once against the CO2 emissions of the whole fleet) before; and described why I think they are important:

Super credits have the potential to increase the production capacity of zero emission vehicles, and also give companies an incentive to accept lower profit margins on these, therefore Merkel was right to stop the current proposal.
 So, again I completely agree with Merkel to stop an idiotic regulation based on fantasy assumptions of how much development potential is left concerning conventional engines. Also, we in the current form the regulation favors plug-in hybrids. Plug-in hybrid only produce less CO2 if one ignores the fact that more needs to be used in the production for the second engine and that the current German electricity comes in large parts from coal and lignite.

Still, CO2 regulation has become important for another reason. The CDU's biggest donor is the Quant family. The BMW shareholders gave €690,000 to Merkel's party this week. Of course, one would have to be an idiot to think that the Germany's biggest party can be bought with €690.000, still the timing is absolutely mind boggling.

Instead of a discussion about the size of super credits (should electrical vehicles be counted twice or thrice against the rest of the car fleet, for example), we now have a discussion about corruption. Super credits make sense since the buyers of large cars will cross finance zero-emission vehicles and thereby make them cheaper, but I have not seen a single article in the German media talking about this fact.

Other than that nothing will be happening until the coalition contract is written, which might take a while. Also there is a very small chance that we wont see a grand coalition in the end which would mean that there would be new elections, but that is extremely unlikely.

Tuesday, October 15, 2013

Economics Isn't Science - "Economics Is Harder Than Physics" Edition

So, while Higgs and Englert got the Nobel prize in physics after the biggest machine we have ever built had produced conclusive evidence that proved them right, the "Nobel prize" in economics went to both Shiller and Fama and additionally Hansen, one of whom has been conclusively proven wrong by the biggest disaster of our time. (Yves Smith posted an excerpt of her book concerning Fama which I completely agree with)

Reading what people had to say about two contradicting ideas) both getting the same price at the same time, I came across this gem, by Justin Fox. It started out great, but seemed to completely collapse in the second paragraph.

He claimed:

This is, to a certain extent, further evidence that economics isn’t a science like physics is a science [..]. But that’s not because economists are all frauds — it’s at least partly because economics is harder than physics.
Wait what? I completely agree with the first part, but the second part is, well, interesting. I would have at least expected some kind of explanation, but non is given. The rest of the post is actually a good read, but that is a pretty big claim. Let me try to explain why economics is in some respects harder than physics and why some economists are still frauds (but often not intentionally).

Monday, October 14, 2013

On Productivity, Diversification And Engineering - Or Why Engineering Jobs Might Be Endangered By Machines

Many economists seem to believe that productivity increases come from the automation of jobs "in the middle", which has led to both a higher demand for low and high skilled labor. For example, David H. Autor and David Dorn recently wrote an article in the NYT, which is based on that believe. They argue that people performing "abstract tasks that require problem-solving, intuition, persuasion and creativity", working in professions like "law, medicine, science, engineering, advertising and design" "benefit from computers". Let me focus on engineering and design and show that these assumptions do not show the whole picture. Also, I will focus on only one industry: automotive

Helper In The Introduction Of The Euro Now Member Of Euro Sceptic Party

The Spiegel (German) has an interesting article on Wolfgang Glomb, who for years headed the department "European Monetary Union" in the German Finance Ministry. Today, he is a member of the euro sceptic AfD.

Sunday, October 13, 2013

European Growth Strategy - Staying The Course for Disaster

A few days ago some EU officials together wrote an op-ed in the WSJ claiming that "Europe's Crisis Response Is Showing Results, well of course it is; but those results just aren't good (via). In this article they had to say the following on growth:

The euro zone's economic prospects have improved over recent months. Modest GDP growth returned in the second quarter of the year. Industrial orders and output have increased, and many countries' sovereign-bond yields have decreased. Unemployment, while still much too high, appears to be stabilizing. Further modest growth is forecast for the second half of this year, and the recovery should pick up speed next year as long as we stay the course.

Saturday, October 12, 2013

Savings Banks' Head Georg Fahrenschon Says Something About Low Interest Rates

Don't like the headline? Well, i don't like Mr. Fahrenschon's supposed insight. He was a CSU politician and Bavarian finance finance minister during 2007-2011; and therefore possibly one of the responsible parties in the BayernLB and the related Hypo Group Alpe Adria disaster, which has cost billions both for Bavaria and the savings banks he is now leading.

How The German Industry Is Damaging Itself

Bertelsmann Stiftung is pushing for a smaller state and and more economic "freedom" to fire people. I can understand their current support for a free trade agreement with the US, since content providers will profit the most; and the Bertelsmann Group is Germany biggest content provider. Their fight against against worker rights also makes sense since Bertelsmann is not dependent on good workers, they are only the middle man. Also, a minimum wage would mean that it would be harder for the middle man industry to exploit workers. But for inexplicable reasons, the German industry wants the government to go in the same direction. These are firms dependent on good engineers, proficient craftsmen, and actually have a very good track record working with unions.The metal and electronics industry employers' federation has their own lobbying institution - the Initiative Neue Soziale Marktwirtschaft (INSM) - which aims at "reforming" Germany to become more like the US. In other words the INSM is trying to turn Germany into an industry free zone, like Britain; and sadly it is very much successful.

Friday, October 11, 2013

Economic Arguments on Airstrip One

Airstrip One, formerly known as United Kingdom, is headed towards political and economical irrelevance. British industrial products are for the most part nothing but the bread crumbs left over by important countries like the US, Germany, and India. All that seems to be left is the banking sector. Still economists and government officials argue as if the Island and a third still had some relevance. As if it mattered if they went for austerity or not. The small state doctrine has turned Britain into what it is today Still conservative journalists live in some kind of fantasy empire, and tend to blame immigrants (Jeremy Warner, Telegraph) for bad productivity performance. But there are only a few industrial bright spots left; and those are in part not even British anymore.

Thursday, October 10, 2013

United In Hunger

The leaders of the European non-union gave talks and wrote articles - after a single quarter of growth - to pretend that their completely failed austerity experiment was somehow a success. Schäuble and Barroso are clearly the main offenders; and Draghi, yesterday felt the need to join the chorus.

Draghi said yesterday at Harvard University:

Many commentators on this side of the Atlantic looked at the euro area and were convinced it would fail. They mistook the euro for fixed exchange-rate regime, when in fact it is an irreversible single currency. It is irreversible because it is born out of the commitment of European nations to closer integration.
Well, there's everything wrong with that. Merkel is not a fan of closer integration, she wants competences to be moved back to the executive of the countries. She is not alone in her fight against the EU institutions. Britain and the Netherlands also want less EU. Merkel will win this fight without question; the Commission is already retreating before it even has begun. The only reason why the euro hasn't failed yet is that the peoples suffer in silence. Nothing good has come out of austerity; and the troika brought mass unemployment to the program countries and damaged the social safety-net everywhere they could.

Not only that, the austerity which the fools claimed would increase investment has also damaged the production industry all over Europe. The worst part of course is the suffering they purposefully inflicted on the poor. Today the Red Cross gave their own assessment of the humanitarian aspect. IFRC Secretary General Bekele Geleta said:
Europe is facing its worst humanitarian crisis in six decades.
This is how good our leadership really is. Nobody has been able to cause more harm to Europe with the exception of Hitler. Not only that this is not a short term problem anymore. The damage they have done will be with us for decades, according to the Red Cross (pdf):

The long term consequences of this crisis have yet to surface. This report shows that the problems caused will be felt for decades even if the economy turns for the better in the near future.
Sadly, they are correct. The Red Cross are the ones who with these two sentences show more economic competence than all of the IMF, ECB and EC combined.

Even if Greece, for example, grew at an annual rate of 5 percent then the country would be back to where it was in 2007 by 2018. A more realistic 3.5 percent growth scenario would mean that Greece wouldn't make it back to 2007 levels before the next decade. 

So just how bad is the humanitarian situation in Europe, according to the Red Cross? 

  • The number of European Red Cross organisations giving out food aid has increased from 18 to 22 from 2009 to 2012.
  • Overall food aid had to be increased by 75 percent during that time.
  •  In Spain the food aid distributions went up 133 percent
  • More than half of the Greek unemployed no longer have health insurance. (just a reminder over 27 percent are unemployed)
  • Suicide rates in Greece have gone up 40 percent from 2010 to 2011
So, no it is not just some economic numbers that look bad. The Troika has brought suffering to the program countries with no upside. Austerity even as expected failed to get the debt under control, caused economic and social pain without gain; but all this does not matter to the defenders of austerity, since we have seen a single quarter of growth.

Yes the euro has not failed yet, but that is not due to good work by the parties involved or a will to come closer together. The countries are scared to be the first to leave. It is very similar to using the nuclear option. Nobody wants use it but in the end somebody will and the house of cards will fall. Europe hasn't been as divided as it is now since Adenauer and de Gaulle became friends. The people who live under this third-worldification regime are the ones that have really allowed the euro to survive; perhaps now it is time to stop stepping on them and actually switch to a policy which makes Europe better and helps the people and not a small minority of bankers.

Life Expectancy And Income

Everybody should be well aware that in the US the wealthy have a higher life expectancy than the poor. Many might be under the impression that this might be due to the poor not being able to get good medical treatment in the US. But in Germany we are seeing a very similar picture. Yes, private insurance might play some role, but the public health insurance in Germany is actually very good.

The Max-Planck-Institute (German pdf) for demographic research, showed that the life expectancy of 65 year old males who expect high pensions is in West-Germany 4.8 years higher than that of of those who get very low pensions, but still worked for their whole life. In the new Bundesländer (states) they will live 5.6 more years.

In the middle 1990ies the difference wasn't as high as it is today. The wealthy could everywhere in Germany expect to live around 3.5 years longer than those with low pensions. Women, foreigners, self-employed and state employees are not included in the study. Also only those who who worked for most of their life were included.

In Germany the so called "left wing" SPD and Merkel's CDU decided in 2007 to increase the eligibility age stepwise from 65 to 67. The reasoning at the time was that a) people live longer than in the past and b) the demographic situation made it necessary. But while it is true that wealthy people do see a steady increase in life expectancy, this is not true to the same extent for poor workers. Even worse: it is easily possible to stare at a screen until one is 67, but very much unlikely that the same is true for somebody who is for example a roofer.

This so called reform was not only nothing more than an euphemism for cuts, it also redistributes wealth from the poor to the rich. It's how the German new labor rolls, I guess.

Monday, October 7, 2013

Unions vs Companies in Germany vs US

Today two very interesting stories about unions appeared in the newspapers, an US and a German firm and two very different approaches to worker representation. VW is is negotiating with the United Automobile Workers union (UAW) about representing workers at their US plant in Tennessee; and in Germany Amazon is fighting against Verdi (German union).

Saturday, October 5, 2013

Free Trade Propaganda?

The  Bertelsmann Stiftung(Foundation) published a study today claiming that a Transatlantic Free Trade Area would increase employment by 160.000 in Germany. Together with the Munich based IFO Institute they proved that in economics there is only extremely limited knowledge of how companies operate; and how different standards in the EU and the US affect engineering. Additionally, I don't think I value life the same way they do.