Finance: Research, Policy and Anecdotes

Whenever in conversations on the Eurozone crisis people refer to my nationality, I always state that I am German and an economist but not a German economist. This is not to downplay or ignore my many links with German economists, professional and even personal, but more a clear indication that I work in a different conceptual framework than my Germany-based colleagues. There have been many occasions where I have been reminded of that; most prominently at a CEPR workshop some five years ago, where one (non-German) European economist working in the US openly asked: what’s wrong with German economists?  

Fresh of the press, Hans-Helmut Kotz (Frankfurt and formerly Bundesbank) and I have edited a Vox eBook, which tries to explain what is different (though not necessarily wrong)  about German economics.  Starting from the premise that markets know best, but that competition has to be protected by a strong state, a strong focus on rules, on ordo follows.   Ordoliberalism’s origin were founded in strong opposition to the interventionist and cartelist economic policies of the Nazis but also the macroeconomic chaos of the Weimar Republic.  This implies a strong focus on monetary stability and macroeconomic rules but also on supply- more than demand-side economics.  There is little space for aggregate demand-side policies in ordoliberalism.

The strong focus on rule has led critics to accuse ordoliberals of focusing more on principled rules than caring about the ultimate outcome.  And contracts (as much as they are to be followed) are necessarily incomplete, so that discretion is necessary.  While this can easily turn into a slippery road towards moral hazard and kicking the can down the road, a degree of sustainable flexibility is required and rules that can actually be enforced. 

The eBook combines short chapters by both academics and (former) policy makers on both sides of the debate.  Across the chapters, one can sense a certain urge to bridge the gap, critical not only to address global imbalances and help defeat the rise of populism, authoritarianism and economic nationalism, but even more critical within a monetary union where one important adjustment tool –exchanges rates – has fallen away. 

Overview