Reform in Germany: Going backwards

ANGELA MERKEL has a favourite mantra to offer troubled euro-zone countries: they should copy Germany. As she put it last autumn: “What we have done, everyone else can do.” Fifteen years ago, the chancellor’s analysis goes, her country was widely regarded as the sick man of Europe. Then it opted for fiscal austerity, cut labour costs and embraced structural reforms, turning it into an economic powerhouse.The gap between Germany and southern countries in the euro zone is indeed wide. Its economy is growing faster than most of theirs; youth unemployment in Germany is at a 20-year low, whereas it remains at record highs in Spain and Greece; and the German budget is in surplus, even as France, Italy and Spain struggle to hit deficit targets fixed in Brussels.When it comes to fiscal prudence, Mrs Merkel is a paragon. Indeed, this newspaper wishes she were a little less austere, and spent more to boost Europe’s demand. But on structural reform, her record is weak. The credit for Germany’s rebound should really go to the “Agenda 2010” reforms started by her predecessor, Gerhard Schröder, in 2003. Since then Mrs Merkel has had the odd flourish—she bravely…

via The Economist: Leaders


Reconciling Hayek’s and Keynes Views of Recessions

There is a new NBER paper by Paul Beaudry, Dana Galizia and Franck Portier and perhaps it may apply to China: Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions mainly reflect periods of needed liquidation […]

via Marginal REVOLUTION

Quotation of the Day…

(Don Boudreaux) … is from page 444 of Berkeley law professor Robert Cooter’s excellent 1994 article in the Southwestern University Law Review, “Decentralized Law for a Complex Economy”: Many intellectuals believe that centralized law is inevitable, just as they once believed that socialism is inevitable.  In fact, centralized law, like socialism, is not plausible for a technologically […]

via Cafe Hayek – Article Feed