PART FOUR:  TWO OTHER PROBLEMS OF THE GERMANY ECONOMY WORTH ANALYZING IN PASSING

                                     The First Problem:

 Germany's Vulnerable Dependence on Export-Driven GDP Growth

1. The German export-performance, admirable as it is, depends in large measure on the shared euro among all 17 member-countries in the Eurozone. How so?

Tersely put, by being in the Eurozone, German firms are able to export their products at a highly competitive currency rate --- not just outside the Eurozone, but inside it too.  That's because the "real" exchange rate between Germany and the 16 other member-countries in the Eurozone is lower for Germany than for almost any of its trade-partners inside it in "purchasing power parity" terms.   

What does the "real" exchange rate of a national currency mean?  Well, it contrasts with the "nominal" exchange rate that prevails in foreign exchange markets, as when you're in Germany and go into a bank and exchange $US for Euros.  What the "real" exchange rate does is take into account the different price and wage rates that prevail across countries trading with one another. 

Here's a concise definition taken from this site:  The  real exchange rate refers to the  . . .

‘. . .  purchasing power of two currencies relative to one another. While two currencies may have a certain exchange rate on the foreign exchange market ---[buggy: that exchange rate called the "nominal" rate] -- this does not mean that goods and services purchased with one currency cost the equivalent amounts in another currency. This is due to different inflation rates with different currencies. Real exchange rates are thus calculated as a nominal exchange rate adjusted for the different rates of inflation between the two currencies'   

And also, prof bug adds, adjusted additionally for different wage levels too in the production of similar goods and services. 

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INTRODUCTORY COMMENTS 

What follows is the third part of a lengthy series of analytical comments about the German economy.  The first two parts, please note carefully, have been posted by in a thread at The Economist, and can be found here. Be sure to read The Economist's brief article that started the comments, and then prof bug's two posts ---the initial one at bottom of the online page --- before you proceed to the third installment below. 

Oh, almost forgot.  There's a fourth part, all finished, that the buggy professor will post here tomorrow. 

 PART THREE: REMAINING WEAKNESSES IN THE GERMAN SYSTEM OF EMPLOYMENT

Part two of this series, you might recall from The Economist thread, underscored the successes of the German economy's impressive reforms of its job market since 2005.  In that year --- a boom year for the global economy --  the German rate of unemployment was a staggeringly high 12.5%.  Yes, in a fast-growing worldwide economy.  And yet in 2011, a year of at best sluggish economic growth in most of the world, the German rate had fallen to 5.5%.  That latter figure uses  OECD standardized criteria across its member-countries.  (The USA Department of Labor, please note --- which uses the same standardized criteria --- nonetheless adjusts German and other countries' unemployment data, sometimes up, sometimes down, if it finds even minor discrepancies with USA data collecting and analysis.  For what it's worth, as you'll see later, it adjusted German unemployment upward to a rate of 6.3% for February 2012.  The equivalent rate for the USA was 8.3%---still way behind the German performance.) 

 Dig deeper though, and as the second buggy post in this series  hinted at a couple of times, the German job performance since the start of the Great Recession in late 2007 turns out --- like the USA's - to be less than glittering. 

Specifically:

I. . To the 5.5% official rate --- or 2.8 million jobless Germans still looking for employment ---there are another 7.3 million Germans in "non-standard" or "atypical" jobs to use OECD jargon.

• These jobs, as noted in part two of this comment-series, come in a variety of ways: one- or two-euro jobs, short-term jobs, and involuntary part-time jobs . . . some of which involve additional welfare benefits, others that don't like internships. (Ralf Jeremias, a German academic specializing in the labor-market changes in his country, estimated that there were 7.3 million Germans in these jobs, most of whom, remember, are not there voluntarily. They have no choice. Either they lose their unemployment subsidies or other government- benefits, or they don't have such benefits but would like to have full-time or better paying part-time jobs. For the Jeremias article, click here: lhttp://onlinelibrary.wiley.com/doi/10.1111/j.1743-4580.2010.00308.x/abstract )

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Today's Buggy Topic Deals With . . .

. . . The subject set out at the start here.  Only prof bug's long commentary is found in a posted comment left at the Financial Times.  Click here for the bugged out stuff.  Note that you may have to register free to access the FT.

Oh, almost forgot.  There's another lengthy commentary on the recent successes and problems of the German economy that the buggy prof left in a thread at The Economist a couple of weeks back.  Having forgotten about it, he will find some time later today to link here to that commentary.

Today's Topic Is . . .

Explained accurately enough by the subject-title above.  The three lengthy buggy posts left at the Financial Times can be found here. 

Note that to access them and the commentary that prompted the relevant thread require that you register (free) at the FT online.  Be sure to read the lead-commentary by Andrew Roberts, a good British historian.  You'll also notice, if you read the other posted replies, their high-quality, not to mention the civility with which the posters treat one another. No surprise really.  The FT is an outstanding international daily out of London and elsewhere.

Today's Buggy Stuff

. . . Is found at the Marginal Revolution, a web site run by a moderate libertarian economist.  Click here for the three buggy posts.

There's an unusually stimulating economic blog, which deals with policy-oriented issues in informative, largely non-technical ways, called Worthwhile Canadian Initiative.      Created and run by a monetarist economist in Canada, Professor Nick Rowe --- with posts now and then by some other Canadian economists --- the blog has drawn more and more thoughtful followers because of Rowe's beliefs as a monetarist that both Canada and the US should deal with their ongoing economic stagnation by means of steady monetary stimulus on the part of the two countries' central bank.   In particular, the two banks should directly target NGDP --- nominal GDP (non-inflation adjusted GDP growth) --- that would stimulate a certain real level of economic growth and reduce unemployment to more acceptable levels.

Note that Professor Rowe isn't the only prominent advocate of what's called market monetarism.  Others include Scott Sumner, Lars Christensen, David Beckworth, Josh Hendrickson , and Bill Woolsey

The Theory

It's fairly new, dating back at most a few years ago, and it has only recently come into prominence as the major economic countries in the democratic industrial world continue to stagger on with low GDP growth --- this, mind you, whether or not their governments have pursued fiscal stimuli as in the US or austerity in West Europe (or variations of both in Japan).  For a good if very brief top-skimming account, click here.  For a recent defense of the theory of market monetarism, click here.   And for the best blog by a market monetarist along with Nick Rowe's, click here for Scott Sumner's very readable work.  And for a very stimulating exchange between John Taylor --- a Republican (like Greg Mankiw) who is a New Keynesian and favors the Federal Reserve targeting mainly low inflation (the Taylor rule) --- and several of these market monetarists, click here.

Buggy's Post

Prof bug himself embraces this new market monetarism.  It is far superior to original Keynesianism, with its stress on fiscal stimuli.  In fact, it's hard to find clear cases of discretionary (deliberate) fiscal deficits in the advanced industrial world: only FDR (and Hoover) in the 1930s, Nazi German at the same time, and the US again in the John Kennedy era (the resulting inflation of it and the Vietnam war playing havoc with the stimuli) and again in 2009-2010 in the current Obama era.  (As for the IS-LM model trotted out by Brad Delong and Paul Krugman, prof bug happened to have studied at Oxford with its creator, Professor John Hicks, a Nobel prize-winner, who always had qualms about its simplicities and explicitly argued for its being discarded in a 1980 article. Click here.)  New Keynesianism, which sought to deal with the New Classical Economics out of Chicago, Minnesota, Washington University in St. Louis, and elsewhere by grounding it in micro-economic behavior with more dynamic inter-temporal modeling, has always preferred monetary policy as a way of dealing with serious recessions, mainly by following the Taylor rule. 

Compared with all of these alternative macro-economic approaches --- including the New Classical Real Business Cycle Theory (fiscal and monetary policies can't influence GDP growth or unemployment levels by counter-cyclical targeting) --- market monetarists' stress on targeting NGDP in order to raise real GDP growth and reduce unemployment seems far superior.  Even a New Keynesian like Christina Romer (who also favored fiscal stimuli when she headed Obama's Council of Economic Advisers) has come around to embracing NGDP as the target.  Click here.   Even some of the Federal Reserve Governors, though a minority, have moved in that direction recently (click).

On To the Buggy Post

The "beauty of NGDP target as its proponents see it," according to the Wall Street Journal link two lines up,

" is that it doesn't differentiate between inflation and real GDP. So it doesn't matter whether the gap is closed by three parts inflation and one part real GDP or one part inflation and three parts real GDP. The point is that the gap gets closed, because the Fed is able to be as aggressive as it needs to be, and the economy avoids a prolonged slump and chronically high unemployment a la the Great Depression. And by targeting NGDP, or a stated goal for the total size of the economy, instead of a 3% or 5% inflation rate, the Fed is better able to avoid the backlash that might otherwise undermine its ability to achieve said objective."

And so the key issue is whether or not the Bernanke-led Fed and its governing members in the regions, along with key economic actors in the government and private spheres, will tolerate a rise in inflation in order to bring the economy back to full-employment (the natural rate) by closing the gap between existing GDP and potential GDP . . . the long-run trend.  Market monetarists believe that as the Fed closes the gap, its ability to then reign in inflation and reduce it to something like 2.0 to 3.0% yearly quickly and effectively.  Prof bug doesn't disagree.  He does wonder in his long posted comment at Worthwhile Canadian Initiative whether the public itself (voters) will accept the tradeoff. 

Click here for the relevant thread.  And meanwhile, be grateful that a new monetarist revolution seems to be unfolding before our eyes . . . thanks to a few relatively unknown economists whose persuasive, fairly non-technical arguments have begun to move center-stage in macroeconomics.

Today's Buggy Topic

It's found in a thread at the Chronicle of Higher Education, a very good weekly that features, among other things, some readable mind-jogging essays by scholars from different disciplines.  The Chronicle also has specialists who recommend different readings --- books or articles --- for the general educated public.  It's in one of those recommended blogs that you'll find prof bug's recommendations, all missed, strangely, by not just the impressive blogger (Ms. Mentor), but by a couple of dozen posters.  Click here for the buggy stuff, along with the blog and the comments left by other posters. 

Please Note

To access the blog, you may have to register free when you reach the Chronicle.  Note, too, that the Chronicle also sponsors the best daily online source about philosophy, the arts, music, literature, and now and then the social and natural sciences.  Called Arts and Letters Daily, that web site was created about a decade or so ago by a former UC Santa Barbara Ph.D. philosopher, Dennis Dutton, who ended up in a philosophy department in New Zealand.  Professor Dutton died, alas, a few months ago, but not before he left us his pioneering web-site for universal usage. 

Click here for Arts and Letters Daily.  When you're there, be sure to look over the large number of useful links to other sites, including  SciTech Daily.  Oh, just remembered.  If you have trouble registering for the Chronicle of Higher Education, you'll find a link at Arts and Letters Daily to the relevant Chronicle page in the A&L's left-hand column near the very top, entitled "Nota Bene" in bold type.  The link there is called "Novel Academic Novels".

 Oh Oh

Busy the last two months with intensive work on improving his kung-fu --- a big buggy mix of various Chinese martial arts that he's practiced over the years--- prof  bug, it turns out, hasn't posted here since early April (2011) . . . much to his surprise.  Here, by way of a new start, is a commentary left by the buggy professor in yesterday's Financial Times. 

The Subject 

The thread that started the comments' section is by an FT editor, a specialist in international affairs.  It deals with China's future as a likely great-power rival to the USA global position on a wide range of power-laden indices: economic, military, innovative potential on both of these, soft power, and diplomatic influence.  As a fast-moving survey, it's a good journalistic article and well worth reading.  Click here for the article and the comments section.  Note that if you haven't already done so, you will have to register (all free) to access the link.  Considering the high quality of the Financial Times, it's well worth the effort . . . the FT unrivaled when it comes to global economic affairs.   Yes, better the Wall Street Journal (another good source of commentary).   And as good as the weekly Economist.

Prof Bug's Comment Deals With . . .

Only one aspect of American power and influence, our educational system at all levels . . . prompted by the widespread misconception that American education, at any rate below the university level, is noticeably deficient in comparative international perspective.  As prof bug shows, not for the first time, mind you, the misconception is fed and lives on as a notorious urban myth.

INTRODUCTORY OBSERVATIONS

Today's Buggy Comments Were Intended . . .

. . . as a carefully thought-out reply, however quickly written up, to a posted commentary at Understanding Society . . .  a web-site run by Professor Daniel Little, a philosopher at the University of Michigan and also its current chancellor. It's a stimulating web-site, or perhaps more accurately put, a provocative site.   On it, Professor Little --- a talented philosopher specializing in the epistemological nature of the social sciences --- displays his abundant talents in long posts with lots of historical and contemporary examples.

Why the Term Provocative Here?

Well, in a nutshell, Professor Little emerges as a radical liberal reformer of an idealist sort --- and for that matter, at times, a Marxist--- whose ideological concerns seem to motivate his understanding of societal processes, not least as they shape the personality structures of individuals strictly and solely. They do this, strictly and solely, through a variety of socializing influences: first the family, then peer-groups, schools at all levels, the media, later on careers, and other institutional societal influences . . . including, needless to add, our political and economic institutions at all levels.  (Click here for the Little commentary.)

Enter the problems with such a rigorously outside-in understanding of how an individuals' mental world, both cognitive and emotional, develops from infancy onward.  What's missing?  By now, you've probably guessed it: inside-out influences, specific to each individual --- yes, even siblings who share on an average 50% of their parents' idiosyncratic genes --- that derive from genetic inheritance and help shape the personality development, cognitive and emotional, of each human being in interaction with socializing influences. 

Wait though. 

For a few moments, put these genetic influences on hold.  Instead, focus your mind on what likely motivates Professor Little's total neglect of such inside-out causal matters. 

The Answer: f

In plain English, Professor Little's theoretical perspective faithfully mirrors both radical-idealist and Marxist views of our individual- and wider group-lives; specifically, it explains all the big problems in human societies like capitalist America as being due wholly to a tight web of harmful and repressive institutions that sustain widely shared cultural beliefs and values built into the nature of capitalism of the American sort. These repressive institutions, starting with families, schools, churches, the media, and the like, are underpinned by a mix of economic and political power ---- usually hidden from view.  (This radical-idealist bias held by Prof. Little, please observe, isn't just speculative.  It shows up explicitly in dozens of his posted commentaries over the years.  For that matter, prof bug even replied to some of them earlier, not, mind you, at Professor Little's site, but rather at Economist's View when its blogger, Professor Mark Thoma, would link to Professor Little's commentaries.)

The outcome of this single-minded perspective, shared by the radical left and some others?

Simply said, the mental world of socially created Americans en masse (to stay with our society) is shot through with false-consciousness

And So, What To Do?

The answer again: Carry out radical political reform that alters the institutionalized socializing actors --- and voilà, with enough reform, not only will the various inequalities of power, income, and status in American life alter for the better, but average people will be more tolerant and compassionate while crime, especially committed by some of the poor, will diminish markedly . . . and all because inequalities have markedly declined.  Less inequality across societies will, supposedly, entail greater longevity as well.

Note carefully now.

In this sort of Marxist or radical-idealist world-view, the pre-condition of such sweeping reform is to lay bare the false beliefs in peoples' individual consciousness about American life that have been culture-engendered and initially caused and then reinforced by a hefty host of institutionalized socializing agencies. These false beliefs, it goes without saying, don't serve the real interests of the American people, and especially poor Americans.  Hence the need for radical institutional and cultural changes . . . with, the key point here, no limit on the reformers' radically benevolent changes due to other, non-societal influences that shape the average American (or other peoples') mental life, all of which are ignored by Professor Little. 

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