Angela Merkel Continues Her Reisistance to “Crass Keynesianism”

by Mario Rizzo

Macro-policy economists are in a bad way. They cannot stand dissent. The New York Times reports that Angela Merkel’s government refuses to start spending as if it were going out of style. She sees the current crisis as the result of distortions caused by excessive and misdirected credit. Paul Krugman has also expressed frustration with the German lack of enthusiasm for a big stimulus. To give the reader the feel for this apoplexy:

Right now everyone sees the need for a large, pan-European fiscal stimulus.

Everyone, that is, except the Germans. Mrs. Merkel has become Frau Nein: if there is to be a rescue of the European economy, she wants no part of it, telling a party meeting that “we’re not going to participate in this senseless race for billions.”

Last week Peer Steinbrück, Mrs. Merkel’s finance minister, went even further. Not content with refusing to develop a serious stimulus plan for his own country, he denounced the plans of other European nations. He accused Britain, in particular, of engaging in “crass Keynesianism.”

Read the rest of it. Not only must the planners circumvent, when convenient, the legislative process in the US but they demand that the whole world follow in lock-step. One World, One Macro Theory, One Policy.

See my previous posts: Planning and Democracy, Interesting Idea from Angela  Merkel in Swabia.

4 thoughts on “Angela Merkel Continues Her Reisistance to “Crass Keynesianism”

  1. Mario,
    Germany continues to hold much more sensible views than the rest of Europe. On the other hand, they also have the best labor market.

    What’s interesting to me is how much better the ECB is than the Fed. Jurgen Stark, chief economist at the ECB, has referred favorably to papers in his speeches that are empirical studies of booms & busts which lay the blame at expansions of money and credit. The head of the Bundesbank, Axel Weber, also is pretty reasonable. If you ever check out their Monthly Bulletins, they actually care what happens to monetary aggregates at the ECB.

    Not saying they’re perfect over there, but they have much more reasonable monetary policy (in addition to their fiscal policy) than in the U.S.

  2. Indeed, J. Stark must be one of the main man behind the rather reluctant responses of the ECB. In accordance with a paper I co-wrote, he has officially stated that “rolling bubbles” fuelled by too much liquidity, seem to roll from one market to another (as long as liquidity conditions are undue).
    When I met J. Stark, he was friendly and sharp minded person. His views on the importance of monetary stability seem to be close to ours.

  3. I want to thank Andreas for this very interesting contribution to an important discussion. Andreas will be a visiting fellow at NYU in the Fall, 2009.

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