May 31, 2017
Using arithmetic in economic policy debates is always dangerous, but that would seem to be the implication of the NYT’s designation of Germany’s $64.8 billion trade surplus with the United States as “mammoth.” Since China’s $347.0 billion trade surplus was more than five times as large, it would seem that China’s surplus has to be five times massive. It usually is not talked about that way in the NYT and elsewhere.
Remarkably, the piece never focused on the real explanation for Germany’s large trade surplus. It insists on running budget surpluses, even though there continues to be widespread unemployment throughout the euro zone. This policy is far more harmful to the other euro zone countries than the United States.
If Germany ran budget deficits it would directly pull in more imports from its euro zone partners (and the United States), thereby boosting demand and output in France, Italy, Greece and elsewhere. It would also see somewhat more rapid inflation, which would make other countries’ goods and services relatively more competitive. Also, a more rapidly growing euro zone economy would likely increase the value of the euro, making U.S. goods and services more competitive compared with those produced in the euro zone.
Germany doesn’t boost demand in this way apparently because the country is tied up with nearly century old superstitions about inflation. Just as many people in the United States deny global warming in spite of massive evidence that it is real and humans are causing it, millions of Germans, including those in leadership positions, claim that modest increases in the inflation rate could lead to the sort of hyper-inflation the country experienced under Weimar, following World War I. There is absolutely no evidence to support this view, but it seems to guide German economic policy.
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