The lean years are here again, to the apparent satisfaction of Germany’s Finance Minister, a Social Democrat. The rate of growth of the budgetary surplus was declining, therefore restraining expenditure was the prudent attitude, the public must rest assured that over the next few years 25 billion euros will be saved, the chance of a mildly pro-cyclical switch to austerity will not be missed. But such is the degree of credibility of prudent handling of the public finances that the markets over-reacted, the Minister had to reassure that all was really not quite so bad, equilibrium of political correctness was restored.
One naughty sister, the one named Cameralism, smiled. She knew all about surplus budgets. Her slogan is never to borrow except if you can control the value of repayment. This can be ensured if the other naughty sister, the one named Mercantilism, is ready to assist. Her slogan is to always have an external surplus. Thus the two naughty sisters are the ideal coalition, win-win against all comers, austerity at home assisted by exporting deflation abroad. Thus the timely intervention of Germany’s Economy Minister, a Christian Democrat: the external surplus, though enormous, shows signs of brittleness, what with T for Trump, C for China and B for Brexit, therefore sound policies must be preserved, competitiveness must once again be enhanced, supply side measures are appropriate, ergo austerity once again. Thus all the history of German political economy was rehearsed during the last two weeks. The naughty twins enjoyed their act.
It was only eight years ago that Yanis Varoufakis and I published our answer to the problem and would only once again wish that the science of economics could pierce through the opaque Germanic dogma of the naughty twin sisters. Here it is again as it appeared in the Monthly Review of May 4th, 2011.