Back in 2005, just before the general elections, a group of economists drafted the Hamburger Appell (pdf). It was signed by more than 250 German economists, just prior to the general elections 2005 (which brought about the Große Koalition). Let’s have a look at the first sentences (my translation):
Die wirtschaftspolitische Debatte m Deutschland wird verstärkt von Vorstellungen geprägt, die einen erschreckenden Mangel an ökonomischem Sachverstand erkennen lassen. Dies ist um so besorgniserregender, als Deutschland sich in einer tiefen, strukturellen Krise befindet, die drastische und schmerzhafte Reformen verlangt.
The economic policy debate in Germany is dominated by a frame of reference that shows an alarming lack of understanding in economics. This is all the more cause for concern since Germany is in the middle of a deep structural crisis which demands drastic and hurtful reforms.
The Hamburger Appell continues (I use excerpts, which are out of context but represent the main ideas):
Die gesamtwirtschaftliche Nachfrage ist eine bedeutende und komplex strukturierte ökonomische Größe, die sich einer nachhaltigen Steuerung weitestgehend entzieht.
Aggregate demand is an important and complex determinant, which cannot be influenced in a sustainable way. (1)
Deshalb sind die Arbeitskosten ein Schlüssel zur Überwindung der deutschen Wachstumsschwäche.
Therefore the cost of labor is the key to overcoming the weak growth of the German economy. (2)
Die Konsolidierung der Staatsfinanzen erfordert weitreichende Einschnitte in allen Bereichen der öffentlichen Ausgaben.
The consolidation of public finances demand far-reaching cuts in all areas of public spending. (3)
Während im Rahmen des Strukturwandels notwendigerweise auftretende Arbeitsplatzverluste in den Medien sehr stark thematisiert werden, fehlen klare Aussagen zu den positiven Auswirkungen der Globalisierung.
While job losses related to structural change have been made a topic by the media, positive statements about the positive implications of globalization are lacking. (4)
The sub-prime crisis started in summer 2007, just 2 years later. Let me comment the main points of the Hamburger Appell as I put them above, statement by statement.
(1) The fiscal stimulus has by now shown that demand management can work, and that only it can do the job in times of dire crisis. Demand management has actually saved the day, and not once.
(2) Labor costs are not the key, but a key to growth. Falling real wages have led to German export growth. Since Germany exported more than it imported, it acquired foreign monies. These were invested in toxic waste assets by the dysfunctional financial system. Germany exported Mercedes-Benz cars, and got in return toxic waste in the form of non-performing US assets. Are Germans better off now? I would not think so.
(3) See point (1). Public spending, the supposed brake on growth and stability, has turned out to bring, well, growth and stability.
(4) The whining about the oh-so liberal media is all too familiar from the US, where the Bush administration and their cronies made millions while the common man suffered from a weak job market. The Handelsblatt reported that the German Keynes-Gesellschaft published a statement in spring that no media reported. So much for the liberal media hypothesis. (Why oh why can’t we have a better press corps?)
As the article continues to argue, it is hard to see how the economists who were wrong all the way about the economy would now concede their defeat and make way for more pragmatic economists who are not bound by dogma. And let me get that clear: contrary to the article, there were no Keynesian professors from the university of Oldenburg at the conference at Karlsruhe. Actually, I am a post-doc and my colleague is a PhD student, and we do not consider ourselves Keynesians. We like to think of ourselves as (macro)economists.