Jörg Bibow

Germany in crisis: the unification challenge, macroeconomic policy shocks and traditions, and EMU

Conventional wisdom blames Germanys ongoing economic and fiscal crisis on the unification shock of the early 1990s and structural problems in labour markets. Challenging this view, this paper offers a fresh assessment that focuses on macroeconomic demand management. It is shown that Germanys fiscal crisis cannot be attributed to unification per se; it arose as a consequence of ill‐guided macroeconomic policies pursued in response to that event. Many structural problems that popped up along the way were mere symptoms of persistent macroeconomic mismanagement and protracted domestic demand stagnation. Arguably, systematically ill‐guided macroeconomic policies of this type are potent enough to wreck any real world economy, no matter how flexible it may be. Because Germany provided the blueprint for Europes stability‐oriented macroeconomic policy regime, it comes as no surprise that a peculiar repeat of certain symptoms that started to arise in Germany a decade ago may now be observed across the euro area—protracted domestic demand weakness and inflation stickiness because of ‘tax‐push inflation’ in particular.

On Keynesian Theories of Liquidity Preference

This essay offers a macroeconomic perspective on the interaction between the financial system and the level of economic activity, focusing on the relationship between liquidity preference, investment, and the role of confidence. The analysis builds on the distinction between portfolio decisions on the one hand, and production and spending decisions on the other. Two prominent Keynesian theories of liquidity preference, those of J. Tobin and J. R. Hicks, are assessed. It is argued that while both of these theories offer illuminating insights into particular aspects of Keyness monetary thought, they must be qualified in respect of their bearing on the theory of liquidity preference. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

The Euroland crisis and Germany’s euro trilemma

This paper investigates the causes behind the Euroland crisis, particularly Germany’s role in it. It is argued that the crisis is not primarily a ‘sovereign debt crisis’, but rather a (twin) banking and balance of payments crisis. Intra-area competitiveness and current account imbalances, and the corresponding debt flows that such imbalances give rise to, are at the heart of the matter, and they ultimately go back to competitive wage restraint on Germany’s part since the late 1990s. Germany broke the golden rule of a monetary union: commitment to a common inflation rate. As a result, the country faces a trilemma of its own making and must make a critical choice, since it cannot have it all – perpetual export surpluses, a no transfer/no bailout monetary union, and a ‘clean,’ independent central bank. Misdiagnosis and the wrongly prescribed medication of austerity have made the situation worse by adding a growth crisis to the potpourri of internal stresses that threaten the euro’s survival. The crisis in Euroland poses a global ‘too big to fail’ threat, and presents a moral hazard of perhaps unprecedented scale to the global community.

On the origin and rise of central bank independence in West Germany.

Abstract This paper investigates the (re-)establishment of central banking in West Germany after 1945 and the history of the Bundesbank Act of 1957. The main focus is on the early emphasis on central bank independence, which at the time represented a German peculiarity. The paper inquires whether contemporary German economic thought may have provided a theoretical case for this peculiar tradition and scrutinizes the political calculus that motivated some key actors in the play. Contrary to conventional wisdom, important contradictions between the postulate of central bank independence and Ordoliberalism are identified. JEL Classification Codes: B22, B31, E50

Assessing the ECB's Performance since the Global Slowdown: A Structural Policy Bias Coming Home to Roost?

This paper assesses the ECB’s performance, which the author finds to be seriously lacking but which is of paramount importance to understanding euroland’s ongoing stagnation and fragility. A main finding is that the series of policy blunders which characterized the bank’s conduct features a bias. Institutions as well as personalities appear to be behind the bank’s tendency to err systematically in one direction. Curiously, this bias is adverse not only to growth, but to price stability. The author shows that viewing the ECB through inflation- targeting lenses is very misleading, since that view does not reflect the bank’s perspective at all, and that standard Taylor rule exercises are superfluous. The ECB’s words and deeds may be far more consistent than is widely held, without making them any less detrimental to economic performance.

A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics

This paper critically assesses the rise of central bank independence (CBI) as an apparent success story in modern monetary economics. As to the observed rise in CBI since the late 1980s, we single out the role of peculiar German traditions in spreading CBI across continental Europe, while its global spread may be largely attributable to the rise of neoliberalism. As to the empirical evidence alleged to support CBI, we are struck by the nonexistence of any compelling evidence for such a case. The theoretical support for CBI ostensibly provided by modeling exercises on the so-called time-inconsistency problem in monetary policy is found equally wanting. Ironically, New Classical modelers promoting the idea of maximum CBI unwittingly reinstalled a (New Classical) “benevolent dictator” fiction in disguise. Post Keynesian critiques of CBI focus on the money neutrality postulate as well as potential conflicts between CBI and fundamental democratic values. John Maynard Keynes’s own contributions on the issue of CBI are found worth revisiting.

On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer

This paper investigates the causes of western Germanys remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germanys fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germanys dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbanks dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

Uncertainty, Conventional Behavior, and Economic Sociology

This paper addresses the problem of the conceptualization of social structure and its relationship to human agency in economic sociology. The background is provided by John Maynard Keyness observations on the effects of uncertainty and conventional behavior on the stock market; the analysis consists of a comparison of the social ontologies of the French Intersubjectivist School and the Economics as Social Theory Project in the light of these observations. The theoretical argument is followed by concrete examples drawn from a prominent recent study of the stock market boom of the 1990s.

How Germany’s anti-Keynesianism has brought Europe to its knees

ABSTRACT This paper investigates the (lack of any lasting) impact of John Maynard Keynes’s General Theory on economic policy-making in Germany. The analysis highlights the interplay between economic history and the history of ideas in shaping policy-making in postwar (West) Germany. The paper argues that Germany learned the wrong lessons from its own history and misread the true sources of its postwar success. Monetary mythology and the Bundesbank, with its distinctive anti-inflationary bias, feature prominently in this collective odyssey. The analysis shows that the crisis of the euro today is largely the consequence of Germany’s peculiar anti-Keynesianism.