Thursday, 30 September 2010

Stupid Germans and the surpluses

Talk to any German these days about economic policy, and they will soon share with you a sense of outrage that the world is conspiring against their hyper-competitive exports. The German press never talks economics - it talks business. And what's good for business is good for a country as a whole, right? So if Germany has big surpluses, it reflects highly competitive firms. The other - like Mrs. Lagarde of France - are just envious. One COULD actually make some arguments that make sense of the German pleasure in trade surpluses. An ageing country should accumulate assets; some of these should be held abroad. The strongest argument AGAINST piling up trade surpluses is that all those shiny Audis and machine tools sold to the rest of the world buy very few things that will make Germans richer, either today or tomorrow. Michael Lewis has a brilliant book called "Short" about the financial crisis. One of the recurrent themes is how the bubble in subprime really got inflated because of the superabundance of stupid German money. His latest piece on Bloomberg gives you a flavor:
The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game.
If you export lots and import little, you have to export capital, by definition - you are lending to the rest of the world. For whatever reason, German banks - many of them state-owned - have a singular ability to populate financial markets with klutzes who cannot tell garbage from fine food. The trade surpluses which should translate into a huge foreign capital stock, ready to pay the pensions of ageing Germans, instead have a habit of going up in smoke every time a Nasdaq/subprime/bond bubble bursts. The welfare implications of that are not very hard to figure out... and you won't read in the German press about it. So either the country fixes its financial system (beloved 3 pillars and all), or it should use some of those shiny cars at home.

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