Thursday, October 31, 2013

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:

Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area, as well as for the world economy. Stronger domestic demand growth in surplus European economies, particularly in Germany, would help to facilitate a durable rebalancing of imbalances in the euro area.
While this is true, the report is still using the wrong words. What actually needs to be done is to use words that the typical German can relate to. Currently there is still strong support for Merkel's policies by the citizens. High exports are seen as a sign of economic strength. So let me suggest a few other words:

Instead of "anemic pace of domestic demand growth" "artificially low wages" should be used. This would not change the meaning at all because the latter is actually the reason for the former. Germans are proud that their products sell well everywhere in the world. A lot of the criticism is understood as a demand for lowering exports. So, the typical reaction to a report like the one above is "are we supposed to built worse cars?" "America could also start designing better industrial products!". Here's currently 37 pages of arguments like that. But let's continue:

To ease the adjustment process within the euro area, countries with large and persistent surplus need to take action to boost domestic demand growth and shrink their surpluses.
Germans do not care about the others, if they did they would not have reelected Merkel. The primary reason why those countries are in the situation is that they are stupid and lazy debt countries. So, no that will not change German public opinion. Instead the sentence could be: "Countries with large and persistent surpluses achieve those in part through high wealth inequality, as can be seen in the ECB household survey, higher real wages for the bottom 50 percent would not only make Germany a fairer country, but also reduce the unhealthy dependence on other countries buying more than they can afford."

Of course, it would be quite silly for the US Treasury to argue along those lines, because they seem to think that keeping Wallstreet afloat at the expense of Mainstreet and therefore every hard working American is somehow good policy, but others should  show that being export dependent comes at the price of high inequality and stagnating real wages. 

The best part of this argument is that it would completely bypass the overwhelmed German government. Wages are the business of unions and employers. If public opinion can be changed so that after 15 years of stagnating real wages it is finally time that the workers see a fair share of the profits then Germany will start to do what is needed automatically. "Employees in Germany have been ripped off long enough it is time that they get the wages they deserve", is an argument that every German (except for economists) can relate to.

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