The Economist has kindly published an article which provides a neat summary of what "reform" is all about. Entitled The beguiling path of non-reform- The economy is likely to slow sharply next year, but that may not be enough to revive the cause of reform, it once again explicitly endorses (as the sub-title shows) Naomi Klein's theory of Disaster Capitalism whereby more pain is needed for "reform" to finally happen.
Let me take you through a full deconstruction of the main paragraphs. The theme is, appropriately for today, religious: the God of reform shall not be spited. They don't want to give us everything? We'll have to ruin them, then.
GERMANY had no property bubble. Its workers have long settled for modest pay rises. Its businesses and its consumers have been prudent about debt. Recent governments have endured political pain to enact growth-boosting reforms. Yet none of these things will spare Europe's largest economy from the turbulence beyond its borders. In a global slowdown, Germany's three-year-old economic recovery is likely to continue, but at a slower pace. In a way this is a pity, for only the prospect of more serious meltdown could goad Germany's political leaders to make further reforms.
There are so many things in this paragraph, in the way of assumptions, implicit commentary and explicit preferences, that it's worth listing them all in separate items:
- first, the contents of "reform" is, once again, explicited. The goal of "reform" is to boost growth. Growth should have scare quotes as well these days, because it is a concept that has been perverted in recent years. As it is an average number, it does not matter who profits from it, it's supposed to be good for all, even if it takes place in the form of revenue increases benefitting only a very small majority. This is the famous "W" economy:
(Go see the famous 'W' graph over in the ET version of this diary)
And of course that does not even take into account the more substantial criticism about what growth really means when wasting scarce resources in ways that generate monetary payments appears to create such wealth. Endless, accelerating growth (with jobs, another word in dire need of scare quotes itself) is the only thing that matters;
- second, "reform" is never done. From that paragraph, it is also obvious that there is never enough reform. Growth can always be boosted a little bit more. When weak, it should be increased, when strong, it should not be compromised... Germany is a case in point: it has done plenty of "reform", as the paragraph happily notes: as per the requirements long stated in the Wall Street Journal ("The recipe isn't complicated: Reduce taxes to reduce wage costs, tighten rules on government benefits, loosen up employment protection laws"), it kept wages down (flat for most of the past 15 years), lowered labor regulation, and let corporate profits soar. Political pain came from the fact that many people were unhappy with the result, as is usually the case with reform, which has many losers and a small numbers of winners - but those are the only ones that matter of course, and the growth of their wealth can always be improved;
- a third trend seems to be haha, you losers: schadenfreude at the hapless Germans, who avoided debt and needless risk, and are still going to be forced to pay for the less prudent speculators elsewhere. There is almost glee at having been able to game the system and get away with it: the worst offenders in the asset bubble now expect to be bailed out by the not-so-reckless, and are even taunting them. Not only is "privatize the profits, socialize the losses" is back in fashion, but it is in an unprecedented in-your-face way: it's profitable, and one can get away with it, so what's not to like.
This links to a debate held previously about bailing out or not the borrowers in the subprime debacle: should those that were smart enough and prudent enough not to get into such loans, and understood that if it's too good to be true, it probably ain't true, be forced to pay to now help out those that, more or less knowingly, took loans that they'd never be able to repay (unless house prices kept on going up)? There is enough to blame to pass around, starting with the banks that totally gave up any pretense of having any lending standards, the rating agencies that validated the financial sleight-of-hand embedded in the alphabet soup of financial products back by these mortgages, and the investors that bought these without looking closely enough at what they were buying, but many of the underlying home buyers do share the blame as well, for joining the ever-higher party.
But now we are told that it is appropriate to mock the good Germans who were prudent enough (or stupid enough) to not join the wild ride, and to expect them to pay for the others' mess too...
That may sound like a lot of stuff for one tiny paragraph, but that's the strength of great orthodoxies: a lot goes unsaid, known explicitly or implicitly by all participants, taken for granted, for obvious and no longer needing justification. The rich getting richer translates into higher GDP, and that's Good and Proper and, in fact, Inevitable.
In the longer run German growth prospects will depend more on politicians' progress with reforms than on the whims of consumers. Since 2003 political leaders have helped (...)
Lately, however, Germany's leaders seem to have lost their nerve. Reforms have met popular hostility not applause; voters seem to crave economic justice more than growth. Fewer people now describe their situation as “good” or “very good” than did five years ago, when the economy was in worse shape, according to a survey by Allensbach, a pollster. More than half the population thinks that economic conditions are “unjust”.
That paragraph comes after a description of the German economy, which, as any continental European economy, is always threatened by doom and gloom, being continental (ie socialist), but has had a good stretch thanks to excellent export prospects (fancy that, actually making products that people want to buy, even if they are expensive) and strong consumer demand (fuelled, unfortunately and dismissively, by recent wage increases, and not by debt, and thus threatening inflation).
No, it was not increases in Germans' purchasing power that mattered, but reform (even though aid increases came despite the best efforts fo the reformers), of course.
Strangely enough, German voters seem to understand what reform is about - and they don't like too much that growth seems to profit only a select few. The Economist's apparent surprise at these facts does not lead them to question their model - of course not. Democracy is only good for Iraqis or Russian chess players, but not for ungrateful Germans who don't understand economics and "growth" properly.
And so the coalition has started to whittle away at Germany's growth prospects.
Any measure to share the fruits of growth threatens growth. There is NEVER a good time to share growth. Do it when there is growth, and you might kill it; do it when it's not there and you sentence the country to more stagnation; do it when it's building uo, and you might kill off recovery. There is NEVER a good time to share, it's bad. Bad. Evil. Socialist, even.
Alfred Boss of the Kiel Institute worries that “steps in the wrong direction will multiply” in the next few months. There is talk of extending the minimum wage and of tightening the regulation of temporary work, which accounts for much recent job creation. The upswing has increased the government's revenues and so the temptation to spend.
The horror. Government spending money it has! The nerve! The gall! Don't they understand that they are wasting valuable opportunities to cut taxes?! And minimum wages? People actually having money to spend and support consumption? Not being forced into shitty jobs with nasty timetables, poor pay and no benefits. Why, they might have time to thin kabout what's going on, and worse, complain! Don't they understand that they can just go in debt? Stupid uptight Germans.
So far, the reversals championed by the Social Democrats seem to be aimed at gaining big political payoffs at low economic costs. Still, driving in reverse makes it harder to bring in further reforms of health care, labour markets or the welfare state. There is little prospect of daring moves until after the 2009 election. And even then, it may take another bout of economic pain to make anything happen.
Ugh. Politicians scoring easy points that move the debate left?! That's just wrong! Shit, we'll just have to engineer a bigger crisis so that the damn buggers understand that reform shall not be spited. They don't want to give us everything? We'll have to ruin them, then.
It's all in black and white in the bible of global capitalism if you want to read it carefully.