
Germany's trade surplus is a problem - Thimothy
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03-germany-trade-surplus-problem
======
probably_wrong
(Disclaimer: I know nothing about economy, and the very little I've read made
no sense to me)

I keep reading about how Germany's "zero debt" economic policy is bad for the
country, and how bleak Germany's future is. That is, everyone seems to agree
on this... except for the Germans, who say nothing about it while they
continue being one of the top 5 economies in the world.

Lots of these analysis come from the US, which to me makes even less sense:
why would anyone listen to the country who got paralyzed when they couldn't
keep getting even more in debt? How come George Soros can suggest[1] that
Europe should go to war against Russia as a mean for stimulating the economy,
and do it with a straight face?

Every article seems to suggest that German economists are a bunch of amateurs
who don't know what they are doing. But from my layman's point of view, it
certainly doesn't look that way.

[1] [http://www.nybooks.com/articles/archives/2014/nov/20/wake-
up...](http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/)

~~~
Ygg2
It's like an algae bloom in an ocean, the German economy is strangling the
rest of the Euro zone. If all countries were to exit Euro Zone, Euro would
probably be echanged for 30-50% more than it's currently worth and then German
economy would tank.

    
    
          > Every article seems to suggest that German 
            economists are a bunch of amateurs who don't know 
            what they are doing. But from my layman's point of  
            view, it certainly doesn't look that way.
    

They aren't amateurs. In same manner, people running Ponzi Schemes aren't
dimwitted. It's a great system it benefits German export economy greatly but
it does so at expense of others.

Quick explanation: If you have weak currency, it's great for export, since
stuff produced here is cheaper than elsewhere. And if currency is strong, then
that favors imports, because your currency buys more in outsider market than
in yours.

However the more you export, the more valued currency becomes and the more you
can buy with your currency, which leads to increased import. But Germany
doesn't need to ever grow its imports, because they have other countries like
Greece, Italy, etc. to drag the value down.

What Germany is doing is eating its cake, having it too, at expense of other
states and then blaming them for not having any cake.

Because Germany doesn't import enough, other countries can't recover and to
make matters worse, they can't export since German products based on Euro and
of higher quality and equal price.

~~~
jpfr
Since the introduction of the Euro, many EU states got money a lot cheaper
than they should have, due to their association to the stronger neighbouring
economies. That started a completely irresponsible spending frenzy that was
well-received by the voting public.

Germany is trying to save the Euro zone, not tank it. The US-based economists
claim that it is possible to spend money (take on debt) to kick-start an
economy and then recoup that money by increased tax earnings. It turns out
that doesn't work any longer. Plus, many contries worldwide are already paying
interest on their debt with new debt. And they have zero margin to increase
taxes.

Some countries (including Germany, but not including the US) can still make it
out of that downwards spiral. The question is no longer, whether the EU will
tank. The question is which of the EU, the US or China will default first on
their debt. The results will be devastating and capital will flee to the non-
defaulted economic blocks.

This is a big political game played over decades. And media-based support of
one or the other school of economics is part of it.

~~~
Gibbon1
That problem with you, is your so reflexively focused on government debt that
you can't get your head around the fact that most of the Southern countries in
trouble DIDN'T HAVE LARGE GOVERNMENT DEFICITS. They had large and growing
public debt most of it related to borrowing to buy private assets. And
unsupportable wage inflation.

Go look it up, the governments of Italy, Spain, etc except for Greece weren't
borrowing beyond their means. What they were suffering from was out of control
inflows of cash. Inflows of cash in a country with it's own currency tends to
be self limiting, because as money flows in the exchange rate adjusts making
investments less attractive. (A country with a well run central bank will
actively adjust the exchange rate to prevent the inevitable panic and flight
that happens at the end of a bubble, or you have a bubble and it sucks for a
while)

Part of the problem with the Euro is weaker member countries can't control the
flow of capital into and out of the country. Yet they are on the hook for the
mal effects that result.

This is wrong.

~~~
jpfr
How does the twin deficits hypothesis fit into your world view? [1]

Capital inflow is due to a trade deficit, that is to a large part financed by
government debt (taking in money from abroad).

[1]
[http://en.wikipedia.org/wiki/Twin_deficits_hypothesis](http://en.wikipedia.org/wiki/Twin_deficits_hypothesis)

------
exar0815
The really funny thing is, that the Idea of the Euro was never well beloved by
the german government prior tho 1990. But then, the French demanded (out of
historical fear) some reassurings for allwing the German reunification and
preventing a dominant Germany in Europe again. That plan has hugely backfired,
boosting the struggling german economy after the very costly reunification in
the beginning of the 20th century.

In fact, French fear (or envy?) of the Deutsche Mark in the 80s and 90s lead
to a legenday discussion between a german and a french state official: "We
have to talk about the threat of german nuclear weapons, too!" "But we germans
have no nuclear weapons!" "Yes you have. You just call it Deutsche Mark!"

~~~
frivoal
Just curious, who said that?

~~~
exar0815
The quote circulates through a lot of the german press for about two decades,
here for example a international article from Der Spiegel

[http://www.spiegel.de/international/germany/the-price-of-
uni...](http://www.spiegel.de/international/germany/the-price-of-unity-was-
the-deutsche-mark-sacrificed-for-reunification-a-719940-2.html)

------
Eye_of_Mordor
If these were 2 people, then who is the 'problem':

* US with heavy debts?

* Germany with savings?

Germany is in a position to fix its infrastructure, but then again, this can
wait until there's a need for job creation.

Also, outstanding tax 'reforms' are more a symptom of weak political influence
by corporations, which is a good thing.

Germany isn't the US, and for this reason, it is rich.

Edit: punctuation

~~~
adventured
The US is wealthier than Germany is.

The net _mean_ wealth per adult in the US is upwards of $350,000 to $400,000.
In Germany it's half that.

The net median wealth is roughly equal (especially after US housing values
have recovered, and the stock market is near all-time highs).

Germany only has $50,000 in net median wealth per adult. They are not that
rich. France by comparison is nearly three times that; Belgium is three times
that; Australia is four times that; Italy, Japan and the UK are over twice
that.

Total assets in the US are upwards of $200 trillion according to the Federal
Reserve. Household assets alone are nearing $100 trillion (~$80 trillion net
after liabilities).

~~~
pcrh
Those numbers are heavily influenced by the value of domestic property. Most
Germans rent, for example.

Further, storing wealth in domestic property is a poor use of money.

Edit: If you look at countries by net financial wealth per adult, a quite
different picture emerges.

[https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...](https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult#List_of_OECD_countries_by_financial_wealth_per_adult.2C_2011)

~~~
adventured
I disagree. The US is the world's most valuable real estate market overall;
it's a massive market when it comes to home owners; and it's extremely liquid
as far as real estate markets go, with not only a very large number of buyers
and sellers but also a massive financial engine behind it (critical for buying
and selling).

It's clearly a perfectly good use of money. It has assisted the US in
acquiring a median net wealth as high as Germany, while having four times the
population, a very challenging feat.

~~~
pcrh
The major part of the value of domestic (as opposed to commercial) property is
that of the land on which it sits, this is a non-productive use of that land
(i.e. the land per se doesn't produce anything, unlike in agriculture). The
money in domestic real estate would be put to better use if it were instead
invested in enterprises that produced goods or services.

------
orbifold
There is a fairly interesting book written by the current finance minister of
Greece Yanis Varoufakis on the subject called "The Global Minotaur", he argues
that after Bretton Woods the trade surplus of Germany especially vis a vis the
United States was by design, as the profits of German corporations ultimately
ended up in the hands of Wall Street. On the other hand Europe lacks such a
surplus recycling mechanism, which according to him worsened the current
economic crisis in Europe.

~~~
UweSchmidt
Aparently the current finance minister of Greece has his own idea on how to
"recycle" German surplus? At least he has build a congruent worldview that
lets him sleep well at night.

The fixed exchange rate 4,20 DM == 1$ in the 1950s is usually cited as helping
German exports during the 1950s. During later decades the Deutsche Mark was
exceptionally strong, in theory harming German exports.

It's a fallacy to pick and choose events in the ultracomplex global economy
and form a story from that. Consider all the fiscal and monetary policies that
were enacted by all countries - ultimately success of an economy depends on
the intrinsic strength, regardless if it's export oriented, or if it lives
happily with a trade deficit like the US.

~~~
RobertoG
"It's a fallacy to pick and choose events in the ultracomplex global economy
and form a story from that."

You are probably right but, this has not prevented the Germans (or, at least,
the German press) to create a narrative of how the current situation is due to
how lazy the Greeks and the south Europeans are.

I suppose that they have build a congruent worldview that lets them to sleep
well at night.

~~~
UweSchmidt
Keep in mind that the German press has always strongly supported the ideal of
a unified Europe. So, I believe as a tendency they would rather underreport
problems (say, financial problems in other countries affecting Germany),
instead of giving arguments to EU critics.

I can't remember reading about "lazyness" \- maybe you read too much into it?
However the press had a look into the financial conduct of Greece - I hope
that's allowed when you're out 50 Billion €?

------
npstr
I'm from Germany, and im tired of the argument, the Germans should do
something about their export.

Export exists, because someone outside of Germany thinks goods from Germany
are better then goods from their country.

How to solve this problem? Go and produce better goods urself, instead of
crying to Germany to make their goods worse.

~~~
acd
The strong exports would be self regulating if Germany had its own currency
the deutsche mark. If you have the Dmark and people like german cars, germans
exports will rise and so will the currency deutsche mark. Like it is now,
people like german cars, but germany has the euro so it can export good cars
at an almost artificially by the euro cheap price.

Thus the south of Europe is trapped in the Euro as they do not increase
productivity as much as the north and in some product cases does not make as
good products as Germany.

The European politicians has pretended that all of europe are equal in
productivity.

The german wants to sells cars in euroes, but you do not want to support the
south permanently financially.

This is like going against the tide, its a matter of time before the Euro will
fall.

I just hope Europe will unite in peace after that event.

~~~
Ygg2
It doesn't have to end like that. I'm pretty sure United States also have
different levels of productivity between states and dollar works remarkably
well for them.

~~~
yxhuvud
USA have internal transmission mechanisms that even it out. It require a
fiscal union or some other big common spending programs.

------
tobiasu
It's always nice when our American masters tell us what to do with our money
and laws.

~~~
yxhuvud
Well, in this case you deserve rebuke, as the current policies are horrible
for the world and really bad for the Germans.

Trade imbalances are simply not sustainable, regardless of direction.

------
kriro
Why do macroeconomists focus on single countries at all? I guess you can argue
that policy changes (and taxation) can be made on a country level. For many
policy decisions this is not as true as it was pre EU. Since I'm a "micro guy"
anyway (even though I do enjoy chaotic systems etc.) I am fairly suspicious of
the aggregation mechanisms in general. If you aggregate over "what money is
used" (which seems sensible if you want to make balance of trade arguments in
the traditional, currency based sense) the Euro-zone has close to a +-0
balance of trade. Recently the chart got a bit out of whack shape wise but
it's still close to the +-0 now.

I used to be very interested in economics but have grown more and more
frustrated with the entire field. I pretty much stick to stuff that's
interesting for other reasons (multi agent based modelling, chaotic systems,
game theory etc.). As an academic in another field the entire field seems
pretty strange. Conflation of politics and economic theory is wide spread and
there seems to be a lot of "friend helps friend, outsiders suck" like
structures in place. Granted this is the case in academia in general but
economics always struck me as rather extreme in that regard.

------
dimitar
As Paul Krugman has said before[1]

This is a reflection of the following identity:

Current account = Savings – Investment

Basically, Germany is over-saving and both Germany and its trade partners are
worse off because of it.

[1]: [http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-
ge...](http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-germany/)

~~~
dmichulke
There are schools who disagree with this and say Savings = Investment because
99,9% of the money saved is put on the bank where it gets reinvested.

~~~
dimitar
Also, think of I=S as the point of where two curves intersect (saving and
investment). The point is that the savings curve is way to the right and the
investment is way to the left. The curves still intersect though, but so what?
That doesn't provide you with any judgement to which way the curves might
shift.

~~~
dmichulke
OK, I think the difference is whether the amount of money is fixed. If it
were, global investment would equal global savings.

In any case, it's locally possible to invest more (in nominal terms) than
savings, both because money supply is increasing and there are always local
imbalances.

Typically, interest rate differentials take care of this in a free market.
Reducing the interest rate in Germany would be one cure, another one would be
hiking it in the importing countries. So I don't see the blame at one side
only.

------
lispm
The US trade deficit, many of its finance institutions and its general over-
consumption is more of a problem.

------
tim333
Often surpluses and deficits are not really problems. Say for example a guy in
the US has Facebook stock which has gone up and a guy in Germany has a Porsche
he helped make. They swap, both happy but in the trade accounts it shows a big
surplus to Germany and deficit to the US because the transfer of shares is
treated as investment rather than trade. A lot of the surpluses and deficits
are in effect stuff like that.

------
cyphunk
Someone explain to me why the same argument does not apply internally within
the US. The imbalance of trade between Germany and other Eurozone partners
does indeed create winners and looser. How different is this from states
within the US. Since when did the US care about similar imbalances created
between Alabama and say California? I'm sure there are arguments against this
comparison. I'd be interested to hear them.

That aside, I "feel" (based on living in Germany) that Bernanke is correct
with his suggestions of where Germany could move. I don't think it will have
much impact on the trade deficit but it will help Germany avoid more drastic
emergencies in the future. The pay for workers is out of balance. The
investment in infrastructure is not required now but important for its future.
Currently it's infrastructure is far better off than other EU zone countries
of similar size (and many times better than the US). But if it wants to retain
it's significance 20 years from now it will need to innovate in infrastructure
or be satisfied with being that country known for making old-world things at
good quality. Germany definitely needs policies that encourage investment.
Ideally though I'd prefer that not be in housing as stable housing is probably
one of the primary social benefits in Germany. But as it stands with its
undervalued assets it's becoming a place to be bought by others. Politically
this creates interdependence which is NOT a bad thing but ultimately as the
undervaluing continues Germans are just throwing away that value as value
lost. In a globalized economy if they do not capitalize on it someone else
will. Still, none of this will do much for the trade deficit. Because while it
may take 20 years for Germany to push some of these changes, change within
other EU countries to take advantage of it will take significantly longer.
Then again, I'm not an economist so what do I know.

------
ianpurton
The article assumes that if you have a trade surplus then your bridges are
crumbling. I cross bridges in Germany everyday and they look OK to me. There
are some big projects going on here too, for example cities are burying their
ring roads underground. Not cheap.
[http://www.dorsch.de/en/news/story/article/licht-am-ende-
des...](http://www.dorsch.de/en/news/story/article/licht-am-ende-des-tunnels-
mittlerer-ring-suedwest-laeuft-auf-hochtouren/)

~~~
kuschku
The only problems would be stuff like the bridges over the Kiel Canal (and the
canal itself), and other smaller projects like that.

------
BjoernKW
Isn't he the one who thinks printing money is a sound economic policy? Pot
calling the kettle, I suppose.

Anyway, I don't think there are absolute rights and wrongs in this game. And a
game it is, the outcome of which is quite uncertain. The players (i.e. nation
states and larger economic entities such as the EU) in this game sometimes act
as opponents, sometimes they cooperate but unfortunately they're hardly
friends with a common goal or the greater good in mind. Germany's zero-debt
policy might very well prove to be the right one once the next few rounds have
been played.

Bernanke's criticism has some merit, though. Certainly, Germany's economic
policy currently severely disadvantages other EU countries and benefits from
their weakness. That definitely is a problem. However, this weakness also is
largely self-imposed by corrupt politicians or generally wide-spread
corruption. Greece for instance, economically shouldn't ever have been
admitted to the Euro but it was nonetheless because of political reasons. This
doesn't mean German politicians or Germans for that matter have any right to
be condescending towards other nations as they sometimes come across recently.
There's corruption and tremendously wasteful spending in Germany as well.
Maybe it's just not as severe as in other countries but Germany hardly is a
paragon of economic virtue itself. However, they can hardly be blamed for
trying to achieve the best for their country first. Why should they draw up
economic policies that benefit other countries which - without any
accompanying political change on their part - would likely continue as before.
Their crisis primarily isn't caused by Germany's strength but by their
comparative weakness. On the same grounds Bernanke could advise the US the cut
their grotesquely large military expenses and donate some of it to Greece so
they can pay off their debt. Not bloody likely either, I suppose ...

That said, Germany is a tremendously wealthy country that could spend a lot
more on infrastructure if it wasn't for large amounts of taxpayers' money
wasted on pointless stuff and corrupt structures. There have been talks about
a proper tax reform for more than 30 years now and by and large nothing has
happened. If there's one point of criticism that can be justly made it's that
German politics is lacking a vision and is largely guided by cowardice and
unwillingness to assume a leadership role. Some of its success in recent years
probably was mere luck.

------
jazzyk
Germany was a strong exporter even in the past, with the strong Deutsche Mark.
And they save money for the rainy day, so they can invest in R&D and
infrastructure as needed.

“Annual income twenty pounds, annual expenditure nineteen six, result
happiness. Annual income twenty pounds, annual expenditure twenty pound ought
and six, result misery.”

\-- Charles Dickens

------
steveridout
I'm still woefully ignorant about world economics. Could someone do me a
favour and answer a few basic questions about this:

1\. Is the trade surplus mainly affected by private enterprise? If that's the
case, what control does the German government have over it if the businessmen
running the companies would rather save than spend? (Interest rates are
already incredibly low.)

2\. I'm personally conservative with money, and never like to get into debt,
so from a this naive point of view, I would be very happy to know my country
has a large buffer to weather out any oncoming storms. Assuming that Germany's
position (saving) is bad for the world economy, but good for Germany, what
would make the Germans change their behaviour?

3\. What books would you recommend for a complete newcomer to learn about
macro economics?

~~~
mdemare
1\. Higher wages would lead to more expensive (and therefore lower) exports,
and to higher consumption, leading to higher imports. The government can cause
wages to rise by raising the minimum wage, raising the salary of its
employees, and hiring more government workers (e.g. for infrastructure
projects).

2\. The assumption that Germany's high saving is good for Germany is
debatable. If Germans save more than they consume, some other nation must
consume more than they save. Germany has been, and might be again in the
future, forced to bail out those countries.

3\. I can also recommend the Khan Academy lectures on economics.

~~~
steveridout
1\. True, that makes sense.

2\. But isn't Germany's position at the moment infinitely preferable to
Greece's? Obviously the situation would be better if no bail outs were
required, but if they are, I would much rather be the country with the
surplus.

3\. Good idea, I've watched a few already but should continue.

~~~
mdemare
Suppose two men are in a lake, and one man is on top, pushing the other man
down below the water surface.

Is the position of the man on top infinitely preferable to the position of the
other? Absolutely!

Is that an argument for acting as the man on top? I wouldn't say so.

------
higherpurpose
Maybe Germany shouldn't have cut the solar power subsidies so quickly.

~~~
dimitar
The interesting point is that this is a question of ideology - there are
plenty of things the Germans would love to spend on, but the government
believes that more spending would make things worse. Bernanke doesn't suggest
things that he believes are harmful or less good for Germany itself.

~~~
tormeh
Yeah, but taking up loans is the wrong way to go about it. If the German
government wants to spend more money then it should raise taxes. That's not
politically impossible, but maybe there are some obstacles to private
consumption of foreign goods and services that can be tackled simultaneously?

~~~
dimitar
If the government raises taxes and spends the extra money, it would still have
the same effect, but less of it than spending directly.

------
plongeur
The US is simply not producing and exporting anything of value and able to
compete with comparable products.

Furthermore not every country in EU is "suffering from Germany's export
surplus" \- countries like Estonia, Poland, Norway, Sweden, Denmark, ... are
doing pretty well and doing better.

What countries are supposedly suffering?

\- Portugal

\- Italy

\- Greece

\- Spain

... aka the _PIGS_ states - have a look at their economic and political
history and you will notice they were all ruled by incompetent and corrupted
governments.

Berlusconi is still active in policts ... do I need to say more? A lot of
countries in EU have issues not due to Germany but due to their very own
problems.

~~~
Ygg2
> you will notice they were all ruled by incompetent and corrupted
> governments.

Yes, governments that EU and Germany support because they only care about them
doing what they want in foreign arena, regardless of their domestic politics.

------
kfk
Not it's not. Currency is a unity of measure, it's not the foundation of an
economy. The real problem with Germany's trade surplus is that is showing how
inefficient and backwards are some of the other European countries. What would
happen if Italy, let's say, had it's own currency? They would still buy goods
from German, they would pay more, plus they would be even more unreliable as a
country since the monetary policy would be in the hands of the Berlusconis and
such (meaning: huge inflation to monetize public debt).

------
dmichulke
This article could be called "Countries' trade deficits are a problem" with
the very same logic.

------
mirekrusin
why, when something works well, some people have an urge to change it?

shouldn't it be the other way around?

why not go through Germany state policies and copy working ideas over to other
countries?

telling germans what to do sounds like a joke, people should learn from them,
not teach them how to do things.

------
tomjen3
No, it is a problem for the rest of us that we cannot make anything Germany
wants, at a price it wants.

People, especially economists, love to make macro economy some big mystery (no
doubt so that they seem important) when it really can be solved the same way
it can be solved on a smaller level.

