The New Yorker had an article on Matteo Renzi – the Demolition Man, they called him – in late June. Towards the end, there is an enlightening passage about the intellectual problems of the German political elite:
Monti told me that, when he was Prime Minister and visited Barack Obama at the White House, Obama admitted to being at a loss to know “how to engage Merkel on matters of economic policy.” Obama asked his advice, and Monti replied, “For Germans, economics is still part of moral philosophy, so don’t even try to suggest that the way to help Europe grow is through public spending. In Germany, growth is the reward for virtuous economics, and the word for ‘guilt’ and ‘debt’ is the same.”
It is correct to say that ‘Schuld’ means both guilt and debt in German. Sadly, it is also correct “that For Germans, economics is still part of moral philosophy”. Well, probably I would argue that the “still” there is misplaced. German economics was in a much better state during the 1950s and 1960s, perhaps through the 1970s. However, the rise of monetarism seems to have been stronger in Germany compared to other countries and that means that macroeconomics has suffered to the point where one side basically says that it does matter for GDP how much purchasing power the public holds. Supply creates its own demand, and if it doesn’t, your wages are too high.
That theory used to be called neoclassical theory and it failed in the Great Depression. It also failed in the last crisis but the zombie keeps walking because … that is a really good question. I guess that the problem in Germany is that the academic scene is more monolithic than elsewhere. Also, politicians apparently bet on the wrong horse and now are trapped with the economic advisors that got them into the mess. Admitting mistakes is something which is difficult anywhere. Especially if you ruin a couple of decades of European integration built on consensus and peace and replace it with economic ruin and nation-against-nation rhetoric.