Wednesday, 6 November 2013

Germany should ignore critics of its trade surplus.

At least until those critics produce a coherent solution for the disparities in competitiveness between Germany and the EZ periphery.
Martin Wolf (my favourite economics commentator) occupies a square foot of today’s Financial Times backing America’s criticism of Germany’s trade surplus. Unfortunately Wolf is not up to his usual standards.
Like many critics of Germany he doesn’t tell us exactly what the solution is. Well here’s a solution.
Germany could boost demand within Germany by enough to raise inflation to perhaps 3% or so. If inflation in the periphery remained constant (and unfortunately it would probably rise as a result of extra inflation in Germany) then the burden of dealing with differences in competitiveness would be born a bit more by Germany and a bit less by the periphery.
Though frankly it would take YEARS of that 3% inflation to solve the problem. Anyway, that’s about as much as Germany is morally obliged to do, I think.
So there you are: a solution of a sort by yours truly in under 200 words. But if you want to read Wolf’s failure to provide a solution in over 1,000 words feel free. And there are millions of words of hot air out there which completely fail to identify the core problem, never mind provide a solution. E.g. see the post just below about Scott Sumner. No doubt the careers of the relevant academics, commentators, journalists, etc will be enhanced by that hot air production. There again: feel free.

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