Does not the ecb need to be criticized more harshly??
The ecb is doing a reasonable job under the given circumstances, which include its own dogma
In the last few days it has become too colorful for some of our readers. They criticize us for being too sympathetic to the european central bank (ecb) and its latest billion-dollar program.One asks why we did not join the fierce criticism from the left-wing political spectrum of the ecb’s latest decisions. There it is insisted that all this helps again only the banks and the speculators, not however the normal burger.
It is also said that the central bank is completely ignoring the possibilities that exist to stimulate the economy in a way that at the same time helps to reduce inequality. The argument has even been taken up by the faz! But then the leftists should become clairvoyant. When this newspaper criticizes redistribution at the expense of the little people, it surely wants to attack something else entirely, in this case the ecb, of course, and any argument will do.
It is also said, for example by peter bofinger, that the ecb’s policy is harming german savers without promising any major successes. Finally, there is criticism from the ranks of the german bundesbank and its president that the measures brought too little to take the risks associated with them.
The euro sculpture of the ecb at night; photo: christoph f. Siekermann/cc by-sa 3.0
First of all, we must state that we criticize the ecb in principle more strongly than most others, because we clearly state that it has a fundamentally wrong world view. Still, for all its pragmatism, its policy is based on the idea that inflation and deflation are monetary phenomena. And the ecb still backs the claim that labor markets need to be made more flexible through structural reforms. We have always said that this is wrong, and we continue to say so, as z.B. Here.
A central bank is a central bank and not a government
Within this worldview, however, the ecb does quite undogmatically what a central bank can do. What distributional effects this has is secondary. A central bank is a central bank and not a government. If it does its job well, it helps everyone and the government can and should at the same time ensure more distributive justice. Whether there are really possibilities in today’s environment to combine central bank policy with a redistribution policy in favor of the lower income strata is an open question.
We have read norbert haring’s position and it does not convince us. We have said what we need to say about its most important point, helicopter money, here. The conclusion reached then holds true today:
As long as it is not possible to implement the obvious and, for the reasons mentioned above, far less problematic financing of the state by the central bank, there is no need to give further thought to gifts from the central bank to private individuals. Nevertheless, one can pull the last reins if the situation should escalate dramatically. But even then, it should first be the state that receives funds from the central bank to stimulate the economy in the conventional way. That is, the state has been deprived by means of its demand (for hopefully useful things, i.E. Not rustic goods, but infrastructure and teachers’ salaries, etc.).) generate income, but with a clearly identifiable return, which, on top of that, benefits the entirety of citizens. The burghers could then calmly continue to rely on the principle "money for performance" leave.
Central bank policy does not take place in a non-political space, but is right in the middle of politics, as can be seen from the current german criticism. You can wish for a lot of things, but a central bank cannot simply implement them. The target of criticism, however, should then be politics. We take the view, without any ifs or buts, that countercyclical government borrowing, or rather. In a monetary union of the community of states is an indispensable element for stabilizing the economy and thus for stabilizing growth. And the financing of this debt can of course be done by the central bank. For the distributional effects and the investment, d.H. It is up to the government and parliament, not the central bank, to ensure that the funds raised are used sensibly in the long term.
Doing something for savers and their old-age security…
We don’t really feel sorry for the poor german saver whom peter bofinger wants to protect against the zero interest policy. Who something for the saver and z.B. If the company wants to do something about its old-age security, it should lobby for higher wages, as we recommended yesterday to the german insurance companies. But also here the criticism must apply primarily again to the policy and also the media instead of the ecb, which sells the burger day by day saving as the roughest of all virtues.
"Experts" – as happened in the bild-zeitung – see the rapidly declining propensity of germans to save as a risk for the future with the justification, "money that is spent now instead of being saved is money that will not be used for consumption later". Their warning reads:
It is to be feared that we will be served the bill for the current extremely low propensity to save in the future, for example in the form of old-age poverty.
Apart from the fact that the germans’ propensity to save is not on the decline (the savings rate of private households is stable at 9 percent and foreign countries are indebted to us to the tune of more than. Euros), the microeconomic short circuit between today’s propensity to save and financial well-being in old age that lies behind it is unparalleled in terms of macroeconomic ignorance.
If large parts of politics and the elites, including many economists, are unable or unwilling to expose the illusion of savings, which is also behind the silly "black zero" at the state, then we should not complain about the distributional consequences of the ecb’s desperate attempts to find new and more debtors.
And the bundesbank?
Most recently, the german bundesbank – a truly sad chapter. It is fighting against something, but does not really know why. Just read a really well-conducted handelsblatt interview with board member joachim nagel. Among other things, the correct and important question of what the bundesbank would do in the event of an upward deviation of the core inflation rate in the same order of magnitude was answered with nothing at all.
The bundesbank can think of nothing but a laughable attempt to minimize the deflation problem. It even points out that there is no downward spiral of wages and prices yet. It is as if the bundesbank had ever waited in its earlier life for a visible upward spiral in wages and prices before reacting. It regularly reacted to the slightest breeze of rising wages with martial threats, and as soon as wages rose even once more sharply, it immediately struck with full force.
No, the ecb is doing a reasonable job under the given circumstances (which include its own dogma), and mario draghi is to be praised for his courage and his willingness to engage in conflict. Just imagine if the genteel monsieur trichet or the chummy wim duisenberg were still at the head of the bank! Of course, one could wish for much more courage, but we have already said it a few times: independence of such an institution does not mean that it stands above politics. The kind of untouchability that the bundesbank used to have was firstly totally inappropriate, but secondly owed to the fact that it was always careful to cater to all conservative prejudices (with the one exception of german unification, where karl-otto pohl held out against unification euphoria).
Every day we can see how ruthlessly the conservatives deal with an independent central bank that does not suit them. Nevertheless, we were also glad that the ecb finally gave up its monetarist world view. Then it could demand from the governments much more consistently what is really necessary to solve the crisis.
The text is taken with kind permission from the website flassberg-economics. Heiner flassbeck wants to try here, "to give a more rational basis to the economics of the economy". Just now is available as ebook "only germany can save the euro" by heiner flassbeck and costas lapavitsas has been published. See the exclusive excerpt in telepolis: only germany can save the euro!.