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Looks like Germany's economy is failing to grow with record low inflation. Germany, the world's No.2 exporter after China, is one of Europe's strongest economies. Yet, its economy has lost a lot of steam this year, possibly due to a number of reasons, including the entire downturn of the Eurozone and the current Russia-Ukraine conflict.
Do you think Germany will fall into the same economic trap as Japan did?
Are Germany's economic fundamentals designed better than Japan's?
http://www.slate.com/blogs/business_insider/2014/11/14/the_german_economy_experiencing_japan_style_stagnation.html
Germany Is Starting to Look a Lot Like Japan
This article originally appeared in Business Insider.
Three things have happened in the last 48 hours that tell you a lot about the state of the German economy:
Inflation and GDP figures were confirmed. Germany grew by 0.1 percent in the third quarter, with inflation of 0.8 percent in October. German politicians have negotiated “schwarze null,” the first balanced budget for the country since the 1960s. Jens Weidmann, the president of Germany’s Bundesbank, played down the idea of the European Central Bank buying sovereign bonds (usually described as quantitative easing). These are all microcosms of the problems facing Germany. Growth and inflation are at very low levels, politicians (and voters) are extremely reluctant to pursue fiscal stimulus, and Germany’s monetary policy representatives are some of Europe’s most hawkish.
It’s easy to see where this is going. A relatively aging population, low inflation, low growth, and a political climate that doesn’t really seem that unhappy with any of this is precisely what happened to Japan in its lost decade (or two).
It’s easy to get wrapped up in the fact that Japan saw deflation during this period. Germany might not see that, but inflation and real growth combined, known as nominal growth, looks set to be extremely low, just like it was for Japan.
Chris Scicluna and Robert Kuenzel at Daiwa Capital Markets have some policies that might help fend off the German economy’s slump.
Here are Kuenzel and Scicluna’s policy prescriptions:
Fiscal stimulus: Germany’s budget is now practically balanced. But it’s got room within the EU’s fairly strict rules to run a deficit of up to 3 percent of GDP. Borrowing costs for the country are practically nonexistent, so it’s hard to see downsides to a little loosening here. More public investment: Thankfully, Germany has a lot of things to spend a potential stimulus on. The IMF itself has flagged up the declining quality of Germany’s famous infrastructure, so the stimulus would also have its own merits. Cut taxes: Building roads and bridges and fixing ports takes a while, and the effects are spread over a long period of time. If you want to boost German spending soon, tax cuts are the way to go about it. Structural reform: Germany’s economic reforms in the early 2000s are now lauded as an example to other nations, but it has actually slipped a little. Energy policy is in a mess after Angela Merkel’s 2011 nuclear moratorium, and with the population aging, Scicluna and Kuenzel say a decision to cut retirement ages in some sectors is “plain perverse.” If that list sounds familiar, that’s because it’s not unlike Japanese Prime Minister Shinzo Abe’s three arrows, with some public investment thrown in. There’s no monetary arm, because German monetary policy is controlled by the ECB (although Germany policymakers could stop arguing against easing).
Skeptics could reasonably argue that both Japan and Germany have a problem that can’t be solved by monetary or fiscal easing: that it’s just the standard for an aging, highly productive, and advanced economy. But if the Japanese experience has taught us anything so far, it’s that there’s very little harm in trying.
But it took 20 years for Japan to get Shinzo Abe and Haruhiko Kuroda as Japanese PM and Bank of Japan governor. Given the attitudes of many Germans, it might take just as long to get their own radicals.
See also: Germany Just Avoided Recession by a Hair
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In my opinion economic theories about growth is becoming less and less relevant as we near the end of the industrial age.
"Skeptics could reasonably argue that both Japan and Germany have a problem that can’t be solved by monetary or fiscal easing: that it’s just the standard for an aging, highly productive, and advanced economy."
Aging is a double blow not because people retire which drains funds and stops taxes but most of all because in the age of robotics most of those jobs are not replaced (which economists doesn't seem to be able to get into their heads).
The fact is that we are rather quickly moving into a state where humans need not apply for employment.
In the basic context of capitalism this means that supply is increasing while demand is decreasing, a slowdown in growth is thus to be expected and there's nothing higher retirement age or lower taxes can do about in the long run.
There's also a high focus on globalism but that ship has sailed. It doesn't matter if jobs used to move to China because moving production is already becoming unnecessary, lower wages means nothing when you don't have to pay robots.
Western society should focus on alternate ways to boost demand and most likely they will involve convincing the 1 % that their taxes needs to be raised in proportion to the gains they do with reducing labor costs and that money has to be redistributed to common people because otherwise demand will tank in the (not so) long run and not just in Germany or Japan but everywhere.
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And I wonder how does this new evidence affect your outlook on the economy of a unified Korea, Auto?
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So are we predicting mass suicides when people will no longer have jobs and robots will just be used for corporate profits?
Robotics may be implemented in manufacturing as of present but we're still a long way away before they can take over jobs like sales and even routine jobs.
For example, advanced countries still have shop assistants when we have the technology to deploy robots to take over these jobs. However robots can not (yet) give customer service, and if they do, it's very limited and not enough to satisfy the average consumer.
Growth is of huge relevance today than ever. Countries are competing with eachother over resources and economic output. That's how a country's economy and thus standard of living grows.
Japan is struggling because it's GDP just dropped by 7.1%, and it's economy is actually smaller than it was 20 years ago. Most analysts predict that Japan will no longer grow but just stagnate or maintain its current level. Some analysts are fearing the same for Germany, where recently exports have dropped by a large margin and the country is aging quite fast as well.
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All economys have to develope beyond growth anyway at some point, its not like we live in a limitless system.
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On November 15 2014 18:10 oBlade wrote: And I wonder how does this new evidence affect your outlook on the economy of a unified Korea, Auto?
On November 15 2014 18:10 oBlade wrote: And I wonder how does this new evidence affect your outlook on the economy of a unified Korea, Auto?
A unified Korea would be one of the most competitive economies in the world if economic policies are in line with South Korea's. Goldman Sachs predicts that its GDP would surpass Japan by 2045 and that's not even taking into account the $16 trillion+ USD in mineral wealth that North Korea has.
The reason why Goldman Sachs predicts this is because North Korea has a high fertility rate, much higher than neighboring East Asian nations. A higher fertility rate would boost the population of unified Korea to about 80 million, with a high proportion of young people, and thus a larger working population which would be sustained for at least a few decades depending on the fertility rate of a unified Korea.
The economic cost of reunification stands at about $1 trillion USD as a high-range estimate. Korea's economy would take a large hit for the first couple of years and then grow rapidly for the next few decades. Hyundai would likely become top 1-3 automaker in the world with a huge boost in production, more affordable steel and other metals from North Korea's abundant mineral resources. Also the recent speculation of North Korea having one of the world's largest oil reserves may enable unified Korea to become one of the largest oil exporters.
However if a unified Korea does not learn from Japan, then it will fall into the same trap of low/stagnant growth, low birth rates and deflation. Actually, South Korea is doing worse than Japan in terms of fertility rates but better than them in birth rates (due to the fact that Japan's fertility rates were already low by the 1970s, whereas South Korea's fertility rate only became low in the late 1990s/2000s).
South Korea is also falling into a massive trap of an extremely low birth rate. It's very surprising actually since South Korea does not even have a GDP per capita of $30,000 in nominal terms, but it's fertility rate is one of the world's lowest. I'm not sure what's happening in South Korea, but I think the cost of marriage and raising children is out of control there.
Therefore, if I was the president of South Korea, I would make sure the fertility rate is at least 1.5 births per woman. Even then, 1.5 births per woman is still very low and clearly not enough to sustain the population of any developed country. South Korea has a fertility rate of 1.18 births per woman, lower than that of Japan. This is extremely worrying as this means South Korea may become the fastest aging country ever recorded if this trend is not fixed right now.
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On November 15 2014 18:13 AutoEngineer wrote: So are we predicting mass suicides when people will no longer have jobs and robots will just be used for corporate profits?
Robotics may be implemented in manufacturing as of present but we're still a long way away before they can take over jobs like sales and even routine jobs.
For example, advanced countries still have shop assistants when we have the technology to deploy robots to take over these jobs. However robots can not (yet) give customer service, and if they do, it's very limited and not enough to satisfy the average consumer.
Growth is of huge relevance today than ever. Countries are competing with eachother over resources and economic output. That's how a country's economy and thus standard of living grows.
Japan is struggling because it's GDP just dropped by 7.1%, and it's economy is actually smaller than it was 20 years ago. Most analysts predict that Japan will no longer grow but just stagnate or maintain its current level. Some analysts are fearing the same for Germany, where recently exports have dropped by a large margin and the country is aging quite fast as well.
Check the link I provided, it's a short and very good introduction to the subject. Most people think robots can only be used for manufacturing (IE that we are still in the industrial age) but it's not true anymore and robotics are advancing very rapidly. As an easy example transport is still the largest employment sector in industrialized nations and we know that robots can do that better than humans already. In a personal example my girlfriend worked in a a large brewery 2 years ago that fired all warehouseworkers/truckdrivers and exchanged them for robotic trucks and one shift supervisor.
So do I think robotics will result in some dystopian future? No, I don't. Progress is inherently a good thing. I do however think it will result in some birth pains initially and yes high unemployment is related to increased suicide rates. However democracy as a system has a remarkable ability to deal with these problems. Just as no capitalistic society can deal with 40-45 % unemployment rates (when all menial and easily replaceable jobs are gone) a democratic society won't stand for it and will reform accordingly.
We will have to stop giving people merit and status in society based of the work they do which is the central focus of today since the ability to work will be meaningless for almost half of the population and instead view worth as an intrinsic human value. I think it will happen gradually and the government will have to restructure the tax plans (again you can't tax work as your primary income when no one works) and it will redistribute with made up jobs of 4-6 hours a workday to keep people feeling as a part of the community.
An alternate way of doing it would to simply take a % of all companies shares and give them to the public as part of a national (or international) fund which also redistributes a base level of income.
If you'd like to be radical on a global level the absolutely best way of dealing with a new age would probably be to simply create an international organisation which DNA tests everyone and gives people a negative child support allowance (IE the less kids you have the more cash you get). Taking care of old people is no problem with robots helping us and even with sharp negative growth rates for a while the massive surge in demand from uplifting the third world easily compensates for a shrinking population while long term population planning aiming for a peak at about 5-6 billion people would secure resources for everyone in the future.
However if you look at history from a more reasonable standpoint all this conjecture is pretty pointless because how progress happens is impossible to predict except for that it does always happen.
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There is a theory that the Japan economy isn't a bad one, low maintainable deflation is not bad and that it is the next stage of economy development.
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Yeah Japan and Germany are similar but I think you forgot their most important point in common which is that their workers are paid badly in general and I think that's the main reason why they don't see inflation. Germany is stuck in its monetarist policy
Yes call me a socialist if you want but imo the power to consume is the main motor of growth and yes the politics of Japan failed because their society is too conservative, too malthusian.
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On November 15 2014 19:49 ETisME wrote: There is a theory that the Japan economy isn't a bad one, low maintainable deflation is not bad and that it is the next stage of economy development.
Well that "theory" doesn't make any sense. It sounds like some pro-communist columnist wrote it.
The whole reason why developed economies need to grow is to maintain competitiveness.
To decrease competitiveness is like national suicide, as people will be out of jobs and there will be no drive to work.
On November 15 2014 20:08 Acertos wrote: Yeah Japan and Germany are similar but I think you forgot their most important point in common which is that their workers are paid badly in general and I think that's the main reason why they don't see inflation. Germany is stuck in its monetarist policy
Yes call me a socialist if you want but imo the power to consume is the main motor of growth and yes the politics of Japan failed because their society is too conservative, too malthusian.
I thought German workers were paid better than Japanese?
Japanese real wages have actually decreased this year while deflation is now inflation. However, inflation is still anemic at barely above 1% when the goal is 2%+.
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On November 15 2014 20:25 AutoEngineer wrote:Show nested quote +On November 15 2014 19:49 ETisME wrote: There is a theory that the Japan economy isn't a bad one, low maintainable deflation is not bad and that it is the next stage of economy development. Well that "theory" doesn't make any sense. It sounds like some pro-communist columnist wrote it. The whole reason why developed economies need to grow is to maintain competitiveness. To decrease competitiveness is like national suicide, as people will be out of jobs and there will be no drive to work. Show nested quote +On November 15 2014 20:08 Acertos wrote: Yeah Japan and Germany are similar but I think you forgot their most important point in common which is that their workers are paid badly in general and I think that's the main reason why they don't see inflation. Germany is stuck in its monetarist policy
Yes call me a socialist if you want but imo the power to consume is the main motor of growth and yes the politics of Japan failed because their society is too conservative, too malthusian. I thought German workers were paid better than Japanese? Japanese real wages have actually decreased this year while deflation is now inflation. However, inflation is still anemic at barely above 1% when the goal is 2%+.
The theory makes perfect sense. Developed economies needs to grow to maintain competitiveness but they can't because growth is limited by both a competition for resources and an increase in efficiency. If we increase production efficiency either by lowering wages or increased automation we get decreased demand which inhibits growth.
Your perfectly right that a decrease in competitive power would result in national suicide however because all countries are currently involved in a race to the bottom. But only as of now. Were heading towards a point where the primary determinant for supply will be resource cost instead of labor costs which will probably stop this race. When outsourcing production becomes meaningless because labor costs have equalized/humans need not apply to any production then other factors will determine where you choose to produce your goods.
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That raises an interesting question: Can we live without growth?
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Depends on how you see growth? Historically civilization advances because of increases in technology which makes workers more efficient which affords specialization. This is amplified by the fact that the bigger your nation is the more specialized your niche workers can become. Technology drives growth and growth drives technology because you have more people working on it. The modern age has more or less been a pyramid scheme where the new generations have always needed to be bigger to keep things running.
But say you have a stagnant society of 10 people. These 10 people all buy item A for all of the GDP. A new invention occurs which means item A now only costs half of what it used to. Those 10 people will now buy item A and can also afford item B. But in economic terms there has been no growth in this society even though people now have more stuff.
You don't need growth (either in people or in economical terms) for a civilization to advance anymore because we have reached a point where our tools are getting so advanced that it matters very little if you have 1 worker doing something or 10.
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On November 15 2014 20:52 Unentschieden wrote: That raises an interesting question: Can we live without growth?
Nope. Unless we restructure our society, a collapse is inevitable. It'll be slow, but it'll happen.
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Its all because of lack of innovation due to government regulations. I mean you can't even piss these days without government telling you which toilet to use and how much water to flush.
There you have the bureaucrats striking again in Europe banning various hair dryers, putting 60% carbon tax on air companies, putting ridiculous farming and food production regulations that are reducing efficiency in production.
Not to mention all the car regulations that pretty much restrict car design to what we know as cars for 100 years. I mean if a company wanted to develop a significantly different vehicle they'll have all sort of trouble getting it on the road, the government will kill it.
So we have massive stagnation due to lack of innovation due to too much government regulations and super high taxes. We can't expect risk taking and new stuff tried when you are forced to pay 40% and more of your income in taxes and you have additional 20% of your income going to comply with absurd amount of regulations.
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On November 16 2014 06:46 BillGates wrote: Its all because of lack of innovation due to government regulations. I mean you can't even piss these days without government telling you which toilet to use and how much water to flush.
There you have the bureaucrats striking again in Europe banning various hair dryers, putting 60% carbon tax on air companies, putting ridiculous farming and food production regulations that are reducing efficiency in production.
Not to mention all the car regulations that pretty much restrict car design to what we know as cars for 100 years. I mean if a company wanted to develop a significantly different vehicle they'll have all sort of trouble getting it on the road, the government will kill it.
So we have massive stagnation due to lack of innovation due to too much government regulations and super high taxes. We can't expect risk taking and new stuff tried when you are forced to pay 40% and more of your income in taxes and you have additional 20% of your income going to comply with absurd amount of regulations. Yet...European countries (and Japan) have among the highest % of gdp ppp into research and development.
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Cayman Islands24199 Posts
On November 15 2014 19:49 ETisME wrote: There is a theory that the Japan economy isn't a bad one, low maintainable deflation is not bad and that it is the next stage of economy development. they've been maintaining it for decades. they don't seem to like it too much
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On November 16 2014 07:42 Dangermousecatdog wrote:Show nested quote +On November 16 2014 06:46 BillGates wrote: Its all because of lack of innovation due to government regulations. I mean you can't even piss these days without government telling you which toilet to use and how much water to flush.
There you have the bureaucrats striking again in Europe banning various hair dryers, putting 60% carbon tax on air companies, putting ridiculous farming and food production regulations that are reducing efficiency in production.
Not to mention all the car regulations that pretty much restrict car design to what we know as cars for 100 years. I mean if a company wanted to develop a significantly different vehicle they'll have all sort of trouble getting it on the road, the government will kill it.
So we have massive stagnation due to lack of innovation due to too much government regulations and super high taxes. We can't expect risk taking and new stuff tried when you are forced to pay 40% and more of your income in taxes and you have additional 20% of your income going to comply with absurd amount of regulations. Yet...European countries (and Japan) have among the highest % of gdp ppp into research and development. Of course. Guess which part of the world actually comes up with high-quality products, and which part of the world is seemingly limited to creating cheap knock-offs.
The developed world has the know-how, the developing world has the labour force. This creates some "problems": 1) manufacturing creates much more economic growth than r&d; 2) r&d requires the state to invest in a highly educated workforce whereas anyone can work on an assembly line regardless of education level.
On the whole stagnation is inevitable. It is impossible to have unlimited growth on a planet with limited resources (something many economists are strangely reluctant to come to terms with).
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On November 16 2014 06:35 killa_robot wrote:Show nested quote +On November 15 2014 20:52 Unentschieden wrote: That raises an interesting question: Can we live without growth? Nope. Unless we restructure our society, a collapse is inevitable. It'll be slow, but it'll happen. As this is exactly what needs to happen. Yes, we will have to live a wonderful life withouth permanent (economic, population, energy demand,...) growth some time in the future. The race for higher and higher standards of living also has to be diverted into a different direction, more to the question what the fundamentals of happiness are instead of what the next things to consume/buy/own are. Questions of fairness between global south and global north have to be asked and answered of course but fundamentally we cannot pose the question how we restructure OUR society, rather how we can build a global society of fairness and peace.
As long as growth of wealth, happiness or whatnot, let's call it wellbeing, of one society will come at the cost of the other's wellbeing or nature, living will never be sustainable (based on current knowledge).
On the topic: aeging population might be a problem if the government continues to obey xenophobic tendencies and scapegoatism of parts of the german socienty and does not finally accept that it is an immigration-dependent country. Crashing economy I can hardly evaluate. But from my point of view the system is sick in itself and alternatives to the consumerist society have to be found anyway. And as with climate change, the hotter it gets the more people will (try to) find solutions.
The Sustainable Development Commission (UK) published a report called: "Prosperity without growth - the transition to a sustainable economy" In case you're interested in some thoughts you can access it here.
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