Is the German Political Economy Shifting?

From Bloomberg:

German workers are mobilizing to fight for a bigger share of the export-driven recovery, arguing that wage raises are necessary to spur consumer spending in Europe’s biggest economy, an IG Metall union leader said. ...

While exports give Germany a “very strong leg to stand on,” increases are justified because the recovery is at risk without consumer spending, Schwitzer said. “If you’re only standing on one leg, you start to limp,” she said. “The second leg, domestic spending, has to be strengthened.”

Pressure is building for pay raises in Germany after years of belt-tightening. The U.S. Treasury, the European Commission, French Finance Minister Christine Lagarde and billionaire investor George Soros have all urged Chancellor Angela Merkel’s government to bolster consumption and rely less on exports to aid recovery in Europe and globally. ...

The government should use its trade surplus, the European Union’s biggest, to “foster domestic demand and ease reliance on exports that are contributing a huge trade imbalance on the euro-zone’s periphery,” said Juergen Kroeger, a director in the EU Commission’s Economic and Financial Affairs department.

“Why aren’t we paying people higher wages in this country?” he said Sept. 13 in Berlin. “That might be a start.”

Via Alex Harrowell at AFoE.

That's Great, It Starts With an Earthquake

Daniel Drezner interviewed by Megan McArdle on the consequences of the financial crisis on international politics, including the prisoner's dilemma game involving economic stimulus, and why it might lead to increased protectionism.

Which Do You Want First?

The good news or the bad news?

Good: "Fed vows to fight against deflation"

Bad: There isn't really anything much the Fed can do. The effective Funds rate has been near-zero for a good while now. Oh, and core CPI slipped for the first time since 1982, so we're already experiencing deflation despite the Fed's best efforts. We can only hope it doesn't spiral.

Of course, the Fed can still work to recapitalize banks while the Congress/Treasury engage in massive fiscal stimulus in an attempt to resuscitate the real economy. But that task will be very difficult; the one sector of the economy which had kept us out of a recession was the export sector. Now that sector is slipping fast as well. As Brad Setser says: "Ut-oh".

The problem is that recapitalization of the banks doesn't address the demand-side concerns (unless it frees up cash for cheap debt used for consumption spending). And fiscal stimulus doesn't address the supply-side concerns. Meanwhile, the currency won't depreciate (which would boost exports) because the global demand for dollars has gone back up, while global demand for our exports has gone down. We're getting hit from all sides right now, and it is unclear which policy mix is capable of stemming the tide.

Export Boom Helps Factories Too

The NYT recently ran a misleading story about US exports. The Washington Post today compounded the error by publishing an opinion piece that cites the misleading Times article to justify skepticism about trade. This seems to offer the opportunity to see if I remember how to do this.

The take away point from the NY Times' story is that good news about exports is actually troubling news. For [although] "exports are the bright spot this year in an otherwise bleak economy...the world is not suddenly snapping up made-in-America goods like aircraft, machinery and staplers. The great attraction is decidedly low-luster commodities like corn, wheat, ore and scrap metal."

It turns out, however, that the world is actually buying more planes, machinery, and staplers from the US this year than it did last year. (Okay, I don't know about staplers specifically (which I don't think have been produced in the US for ten years), but consumers goods more broadly) The graph below makes this point explicitly by comparing non-agricultural exports each month in 2007 and 2008. It clearly indicates that American exports of manufactured goods are unambiguously greater in each month of 2008 than in the same month of 2007.




If you were the curious sort, you could go to the BEA website and download the data required to conduct comparisons for civilian aircraft, capital goods (machinery), and consumer goods (and maybe even automobiles). Were you to do so, you would find that in each of these categories, the world has purchased more from the US in 2008 than it did in 2007. Thus, the export boom is helping American factories, too.