Best Way to Write About Reinhart-Rogoff for a Neoliberal

So for a typical German VWLer (yes, in Germany macro is abbreviated in the three big economic disasters) believes that R-R have to be right somehow. The best way for them to talk about flawed research is shown in the Fazit-blog of one of the biggest German newspapers (FAZ), for which several of the paper's editors provide their insight.The defense is creative to say the least:

• The average results of Herndon-Ash-Pollin aren't far off the median results of R-R, those were "preferred" by the authors, therefore the paper isn't all that flawed or something, Who cares about that math stuff.
• The post avoids any discussion about causation. The word used is "Zusammenhang"; it does mean correlation but also connection, interrelationship, and link. The correct word would have been "Korrelation". Who cares about words and stuff. Probably those fools who als still believe that math is important.
• The 90 % nonsense isn't mentioned anywhere in the post.

Well, OK  I do actually expect that VWLer compare averages and medians. Also, I am not at all surprised that they willfully use the wrong term, or that they do not once mention what the discussion is actually about. What has me mildly puzzled, though, is that there is another blog post by the name of "Zu viele Schulden machen arm"(to much debt makes [countries] poor), for it clearly shows that they assumed causation, used the 90 % nonsense as prove and did not care at all about the median and instead used R-R's averages (my translation):

Somewhere above this threshold [90 % debt to GDP] growth suffers and does so significantly.

The economy of the examined countries grew at least 3 % on average as long as the public debt remained under 90 % of GDP, but countries with phases of higher debt did on average not even reach the zero line and instead contracted.

Other researchers [no link provided, so I assume he means Limbaugh, Beck et. al.] soon found out that typically the debt grew before the growth slowed.

This was a cross post of a column in the Sunday FAZ (FAS) paper. My personal guess is that P. Welter, who wrote the blog post in defense of R-R, actually tries to get his colleague fired.

Perhaps, I should have a shot at becoming a FAZ editor. I can use flawed research, show any number of false results, quote mine somebody, pretend that I am doing Quality Journalism, and demand money from Google for the great service I provide to the society.

First World Self-Defense

The German language is pretty messed up. For example, instead of the we use der/die/das male/female/neutral the, but the language doesn't really follow this rule. A table is male, a girl is neutral, and butter is female in the north and male in Bavaria. A word ending in -er or -or is usually male so the professor is der Professor and therefore male. Since, it is a job, we needed some solution for female professors. We use an -in at the end of basically every job description if we mean a woman. If we talk about both male and female persons, some use ProfessorInnen or Professor/innen or Professor*innen. Others like me think it is just a job description and we should just do it the English way and use Professor neutrally. The University Leipzig has chosen a different path, since the choice was either having feminists cry, or writing in a way that looks outright horrible, they will now use the female descriptor for everybody. Rather a totally pointless additional syllable than wasting time with this never ending discussion, seems to have been the thinking of the male professor who came up with this and for now nobody seems to be making a sad face(e: but some seem to be angry that the solution for a non-problem seems to be trolling).

According to Spiegel, gender expert for the European Commission, Prof. Dr. oec. Maier described this as an act of "self-defense"(of course what else - this makes so much sense since it was a male professor's idea). Because she does not "feel meant" if professor is used as a job description - she probably hates English. This whole nonsense is worse than the kilometer  vs. miles discussion. There might be a even better solution: let's just use abbreviations, since she obviously has no problem whatsoever with those being used without defining her as male or female. Since, it is kind of hard to just say Dr, we could use Dring (Dr.-Ing.) for engineers and Droec (Dr. oec.) for economists with the additional benefit that one can easily hear what the PhD is worth.

Blockupy Demo in Frankfurt

On Saturday a large protest against the failed austerity policy took place in Frankfurt. Even though the weather in Germany was pretty awful, 7.000 people marched through the City in what was a authorized protest. Sadly Hessonian police is not a fan of constitutional rights and stopped the protest after only 30 minutes. They encircled 900 protesters on no basis whatsoever - some were masked according to police which was the main reason for the action (apparently sun glasses seem to count) - and held them for nine hours. Police lied about the number of demonstrators (claiming 200-400 of actually 911) held for no reason. According to journalists there, they lied about violence of protesters. The whole operation was planned beforehand, to force the march away from the ECB. Again the route was authorized so the police had no right to interfere in what can in hindsight only be described as willful escalation on part of the executive branch.

The silly attempt to whitewash their own actions on Sunday failed miserably according to HR and ended in "disgrace" calls by journalists. Others called it an "orgy of violence". Journalists themselves were attacked by police officers during the march and claims that there was no other choice than to use pepper spray and batons were answered with "I think you must have been at a different event than me."

On Sunday Merkel's spokesperson Seibert tweeted that freedom of opinion and assembly are constitutional rights, but obviously only in Turkey. Why should the German government care about rights of German citizens, when it is so much easier to just point at somebody else?

BRegierung mahnt in d. #Türkei zu Besonnenheit. Meinungs- u. Versammlungsfreiheit sind Grundrechte, Staat muss verhältnismäßig reagieren.
— Steffen Seibert (@RegSprecher) 3. Juni 2013

According to Sueddeutsche 200 protesters and 21 police officers were injured possibly including officers injured. The police confiscated a total of 907 items including an unspecified number of sun glasses in what is quite frankly a successful attempt to make fools of themselves.

Günther Oettinger - archetypical EU official

Günther Oettinger, CDU polititian and Commissioner for Energy, last week complained about amongst other things that France isn't planning to weaken the weakest by increasing the retirement age and reforming the labor market to reduce labor costs. He also moaned about starry-eyed idealism (Gutmenschentum - "good human being-ness"). I don't care at all what he has to say, since he is the last person who should talk about others not saving enough. There is a reason why he is in his current job and that's what I want to talk about because I think it will show what is one of the main problems of the EU institutions in general.

Günther Oettinger became Minister-President of Baden-Württemberg in 2005. The Bundesland at that point had not seen a single Government without CDU participation since 1952. His (Mappus took over in 2010 when Oettinger got the Commissioner job) was the last CDU led government because in 2011 the Greens and the SPD won the election, making Baden-Württemberg the first state with a Green Minister-President. This was mostly due to Stuttgart 21, a plan to redesign the railway system around Stuttgart including a new underground central station for Baden-Württemberg's capital. In 2007 he agreed to the Bundesland paying € 950 million of the total project costs of € 2.8 billion. Today six years later € 6.8 billion seems to be a more realistic number with estimates ranging from € 5.3 billion to € 8.7 billion. Of course, Oettinger was aware that the original costs were nonsensical, he just believed that a more realistic price tag would be "difficult to communicate". He ordered that no more calculations should be made. 

Now, after a look at Oettingers track record as Minister-President who together with the even worse performance of Mappus, who followed for a little over a year, made possible what seemed extremely unlikely when he took over - his party losing power after ruling comfortably for more than half a century, let's look at why he has a problem with decent human beings(Gutmenschen). In the eulogy for the former Minister-President Filbinger Oettinger in 2007 he said:

Hans Filbinger was not a national socialist. To the contrary: he was an opponent of the NS-Regime. But he could not withdraw from the constraints of the regime like millions of others. [..] It needs to be noted that: there is no verdict by Hans Filbinger, which caused a person to lose his life. (he probably wanted to say that Filbinger never sentenced anybody to death)

Hans Filbinger joined the National Socialist German Students' League in 1933 and in 1937 the NSDAP itself. From 1943 onwards he was judge and prosecutor in the Kriegsmarine. The last of his four participitation in death sentences (two in each of his roles) was as prosecutor in January 1945 in this case for deserting.  On March 15th 1945 he personally gave the order to fire.

So after Oettinger talked blatant nonsense at the funeral of a typical "Mitläufer" (follower) - Filbinger was definitely part of the system and did in no way work against it and sueddeutsche rightly called him "bloodjudge". It took him several days to distance himself from his own words after decent people (Gutmenschen) including Merkel ripped the nonsense, he had said, to pieces. This basically should, in my opinion, have marked the end of his career. Of course, instead he went on to become EU Commissioner. In a leaked US cable this event was described thusly:

Chancellor Angela Merkel nominated Baden-Wuerttemberg (BW) Minister President Guenther Oettinger as EU Energy Commissioner primarily to remove an unloved lame duck from an important CDU bastion

The phrase lame duck is in my opinion a overly diplomatic description of his track record in Baden-Wurttemberg - but that's to be expected from a diplomatic corps even in internal documents. After the eulogy incident Sueddeutsche described him as "smart, but not the sharpest knife in the drawer", and that is what makes him an absolutely typical EU Commissioner in my book. It isn't that he lied about the cost of his most important project, or his defense of a typical NSDAP member and participant in crimes, it is his just not being good enough for a job as minister president, but being too good to get rid of all together, that makes him the EU official archetype.

Germany overheating?

R-R scared of Germany overheating? Via Brad DeLong:

We don’t see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical.  Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany’s balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB…

A few points:

1. Germany cannot, will not, and probably isn't even allowed to agree to hair cuts that affect us due to the no bail out clause.
2. Overheating in Germany? I would go along with Bavaria and Baden-Württemberg being at full employment but the other states? Especially eastern ones, really? Also every 5th employee in Germany is working for less than € 10.36, the actual number in this case might even be allot worse since companies with less than 10 employees do not have to report those numbers. Some overheating might therefore actually be helpful.  Inflation in Germany was at 1.1 % in April. German 10 bunds are at 1.5 % as of now. So nothing is pointing towards an imminent threat of Germany overheating. Now to be fair. We are actually seeing pockets of some inflation. Munich (capital of Bavaria) is the prime example. We have come to a point where "being chosen" to be the one who is "allowed to rent" a flat in the city and therefore pay is almost an honor. Also in that are even getting a quotation from a craftsman can be close to impossible at realistic prices around munich. But, again we are talking about some areas; there is absolutely no reason to believe that at the moment that Germany is even close to overheating. I'll go even further, there is a lot of room for stimulus before Germany as a whole will experience significant inflation.
3. Pro cyclical? I don't know what the current fantasy is in the US about German growth, but here in the real world, we barely managed to stay out of a new recession.
4. I expect that the actions by the Bundesbank in the last few years, have significantly reduced its influence within the ECB. The Bundesbank will in June openly fight against the ECB's OMT programme before the German constitutional court. In case the court follows the Bundesbank opinion, the situation might significantly change in the euro zone. If it does not, the Bundesbank's influence will probably be largely wiped out within the ECB. So either there might be extensive backtracking totally independent of "overheating", or the ECB will be basically free of the nay sayer Weidmann.

Fear Not - We Got It Covered

Prof. Krugman is deeply worried about the nightmare happening in Portugal:

And anyone playing any role in our current economic debate, whether as an actual policy maker or as an analyst giving advice from the sidelines, should be focused, above all, on how and why we’re allowing this nightmare to happen all over again three generations after the Great Depression.

 Well, Schäuble recognized the danger and has a solution according to FAZ; he even wrote a letter to his college the economics minister Rösler stating:

I think, that we should additionally offer bilateral German help. [This will lead to] a noticeably faster working support with visible, also psychologically effective results in reasonable time.

Rösler had a spokesperson answer:

The real economy in southern Europe will be helped if especially small and medium sized companies have easier access to the capital marked.

 This is in my opinion a rather awkward form of communication, but who am I to question the geniuses that believe that one billion euros in a little cheaper credit will produce visible results in Spain. Nothing is decided, yet, but the German government are discussing "intensively" and we don't have any numbers on Portugal, but it's probably not the time to hold one's breath.

Also, Germany might (pretty unlikely though) see a SPD led government in September. They are all for reduced austerity and higher taxes. Yeah, that "plan" comes from combined thinking of the Greens and Steinbrück (SPD's chancellor candidate who called Grillo a "clown". So the chances for even a small expansion in the core are zero.

Awesome times if you are a cynic in Germany. Not only are right and left competing about who has the better non-plan, no, we, gladly, also do not have to read articles about what our current policy is actually doing to the crisis countries. Yes, they do write about the high youth unemployment but just the numbers. Cold, efficient, German reporting. Want feely, feelings? Go read this story about how some fox was saved somewhere. Youth unemployment actually isn't all that bad. If you also count those who are currently at university and therefore not yet out of a job, you will see that only 20 % of young people are unemployed in Spain. This reporting is so efficient that recession isn't mentioned anywhere in the article. But "new deal" is, as if this idea actually had any chance of doing anything(this has nothing to do whatsoever with the actual new deal, it is, well a cynical joke) .

So fear not Prof. Krugman - Germany has it covered. No actual change in policy is necessary, all we needed was to steal a few words, relabel some funds, add one billion euros, stir occasionally and everything will be fine. So, yes the euro will go, but in the mean time we are doing everything necessary to ensure that it will do so with a bang.

New Deal for Europe

Germany and France have come up with a "plan" to "solve" the youth unemployment problem in Europe. The European Investmank Bank will provide up to € 60 billion in cheaper loans to companies, that hire. They decided to call this drop in the occean "New Deal for Europe". This is either really cynical or just outright stupid. The first is probably true since this sum is so small that even polititians should realize that it won't change much for the millions of unemployed in Europe. 

€ 60 billion for seven years is around 8.5 billion per year. Last time I checked GDP for the euro zone was around € 9.5 trillion in current prices and falling at a rate of 0.4 % larger than the not even 0.1 % of additional funds they are proposing for this year. The Association of German Chambers of Industry and Commerce just reduced the its 2013 growth expectation from 0.7 % to 0.3 % in current euros that is about 10 billion. So our government is proposing a "New Deal" for all of Europe that is smaller than the damage they are letting happen to the German economy in the name of growth inducing austerity.

But fear not there is additional € 22 billion of relabled EU funds coming. Because releabling money solves problems in todays economy. "Germany and France are expected to lead" German employment minister von der Leyen said according to FAZ. The others should all follow on what is all to obviously the way into the Abbyss. But hey we at least come up with funny names ("New Deal", "Growth Innitiative") for aweful ideas, what are the others doing to make the journey more comfortable?

Weidmann in way over his head?

Weidmann is giving interview after interview is full of buzz words, but he does not make it clear what he actually wants. He is all for unnamed "reforms" and for that he thinks "reform pressure" is necessary. He could have a parrot answer the questions. For example yesterday in an interview with WAZ Weidmann answered to the question: "what would you say to the governments of countries with a youth a youth unemployment rate of above 50 %?"

Youth unemployment is indeed at dreadful levels in some countries. However, short-lived pump-priming and spending programmes and ever larger debts for subsequent generations will not create the sustainable employment which is urgently needed. For young people in particular, it is about prospects for the future. And these can only be offered by competitive enterprises and a sound economic structure. Therefore, putting reforms on hold would not help.

Seriously, what the hell is this supposed to mean? There is no plan in there. It is just stuff. Nonsensical, self-contradicting stuff. It seems to be based on the assumption that the next Siemens or BMW will plop up out of thin air in Greece, if only the government carries on with the destruction of the prospect of young people, imposed by people like Weidmann. We reduce the size of the public sector and suddenly a wild, well funded and competitive battery company appears, changing transportation forever, or something? We privatize an airport and suddenly twice as many planes - powered by newly developed Greek SCRAM jets - land? Perhaps, it would be best if he did not tell those countries anything, considering that "reforms" he supported have already caused extremely high youth unemployment with zero hope for future generations, and also ever  increasing debt. A person, so disconnected from reality, giving the same advice over and over again, even after it has miserably failed to deliver anything that he has thought it would, is in way over his head.

Or perhaps by "reforms" he means that he wants the Nazis of Golden Dawn in power in Greece. Then I would say that his advice has a great chance of success. Just like when we tried the exact same "reforms" which lead to catastrophic unemployment and then the original Nazis in the early 1930ies.

P.s.: a personal message to Weidmann: Please, please, please Mr. Weidmann refrain from advising France. Nobody will be helped by a nuclear power, who happens to be our neighbour, with the 60 % youth unemployment that Your ideas of a "saving" policy will bring to France (yeah he does not mention austerity in the actual interview in German: "Das ist für mich kein Sparen."). Please, pretty please go advise Mongolia or Indonesia or any other country of Your choosing as long as it isn't one that can wipe us of the map once Your ideas produce exactly the same results they have consistently caused in the past. Go bring confidence and reforms to someone else. You can also tell those people how it "has become difficult" to "maintain the real value of assets" with the dreadful inflation of 1.4 % we are currently facing. Were You actually confident in Your confidence scheme Spain or Italy government bonds would be worth a look.

Two Sinns and Soros

Felix Salmon published a pretty gloomy post on the euro crisis based on a debate between Soros and Sinn. Now some of what this Sinn is writing seems to be at odds with what the German Prof. Sinn thinks. We are either talking about a person who is extremely flexible when it comes to his positions, or actually different persons, sharing the same name, profession, and awesome beard. So, since it would be quite strange to let the German Prof. Sinn answer to himself, I will to make it easier to keep the two apart call the one debating Soros just Sinn.

Sinn claims:

Leaving the euro zone is precisely what the newly founded “Alternative for Germany” party, which draws support from a wide swath of society, is demanding.

This is actually not correct. The AfD (German pdf) does in fact say that a return to the DM should not be off the table and that each country should have the right to chose its own currency in a democratic referendum, but it will also accept "smaller and more stable monetary unions". The kicker here is how they want to achieve such a new euro:

 We demand that Germany enforces this right to leave the euro by vetoing further emergency loans by the ESM

Wir fordern, dass Deutschland dieses Austrittsrecht aus dem Euro erzwingt, indem es weitere Hilfskredite des ESM mit seinem Veto blockiert

Prof. Sinn is closer to the AfD here than Soros is. In an interview on May 6th 2013 with Welt he stated:

When a country can't make due with the euro because it is not competitive it would be better for it to leave. Germany should stop artificially keeping such countries in the euro with ever increasing public loans, which will never be payed back.

Well, Prof. Sinn's position is in fact the same as the AfD's it is just note formulated as, well, precise or honest for that matter. In another interview with FAZ he said that the "arguments of the party are for the most part reasonable." So if Prof. Sinn, who thinks that Bernd Lucke et. al. "know what they are talking about", is in the eyes of Sinn probably playing with napalm.

Sinn goes on to write:

In order to regain competitiveness, the southern countries will have to reduce their goods prices, while the northern countries will have to accept higher inflation.

Prof. Sinn is against wage increases above 3 % in Germany because they should be lower than productivity growth (how exactly is that supposed to make us less competitive compared to the other countries?).  He claims that we would need a inflation of 5.5 % in Germany for a decade to achieve this without deflation in other euro zone countries, but how is that supposed to happen without wage hikes, higher government spending, or lower taxes (he was all for lower taxes a few years back, but now: *crickets*), and while industry production is stagnating? Sinn also feels that blaming Germany for austerity is "unfair" because, well, we "mitigate" the crisis. Here both Sinns agree for once and both complain that we are spending the most money and still nobody loves our government, but Prof. Sinn quite bluntly states that what "we are letting happen" in Greece is a "catastrophe" but he claims that we have "little say" (he mentions the ECB but forgets about the ESM) and still are the "old maid".

This is something the expert Hans-Werner Sinn (obviously a third and absolutely unrelated person to the other Sinns) cannot agree with. He argued in December 2012 that Germany can "force through anything" since we have veto power in the ESM.

 It is sad that the German quality journalism (TM) lets him get away with it. We are talking about a man who wants to go forward almost exactly like the AfD does, but warns that others might help the party. He believes that Germany has little say in austerity decisions, but at the same time can force through any decision. He thinks Germany should accept higher inflation, but he is against wage increases and stimulus programs  that would make that possible in a time where monetary policy has "lost its impact". So, not only has Hans-Werner Sinn "deliberately distorted and obfuscated [Soros'] argument" he is also quite capable of doublethink.

New Orders - end of the negative trend?

I like to show the following graph of new orders from the beginning of 2011 until February 2013 when people talk about the "powerhouse" Germany that is "withstanding" the recession in Europe:

New orders have been declining for the last two years. Yesterday the March numbers were released and seasonally adjusted (X-12-Arima) they were up 2.2 % compared to February. The economics ministry declared that "the industry seems to gradually overcome its phase of weakness". So, the second positive month in a row has them less excited than last month. Back then the statement was that the "industry IS more and more overcoming its phase of weakness". The non-adjusted new orders were pretty bad for this month. March is usually the strongest month of the year, but this year the Easter holiday reduced the workdays by two compared to 2012 and it was also significantly colder than usual, seasonal adjustment might therefore be quite tricky.

So are we seeing a new trend or is this just an one-off? The statistisches Bundesamt also uses another method for seasonal adjustments. It is called BV4.1 and in addition to seasonal adjustment it also has a useful trend cycle component. Here we see stagnation since June last year. at around 102.9 % (SA up 1.9 %), so the economics ministry is rightly careful in its assessment of the current situation. These two positive months in a row are a genuinely good sign but they do not indicate a new trend yet. The falling IFO business climate index indicates that we should not get our hopes up. Also lets not forget the euro crisis. It therefore seems unlikely that these positive numbers are more than just a blip.