The German government celebrates its record surplus while infrastructure collapses

Bill Mitchell - billy blog » Eurozone 2020-01-15

Wednesday blog post – so only a few snippets including some discussion about Germany’s latest extreme outcome – a record fiscal surplus, which the Ministry of Finance is claiming is responsible. Judged by the fact that the economy has ground to a halt and there is a massive infrastructure deficit in the country as a result of a systematic starving of capital expenditure by the government, one has to ask: are they joking! The surplus was, in part, the result of the German government not spending allocated public investment funds because there are insufficient skilled public servants on tap to manage the projects. So the government has hacked into skilled employment first, then it finds that there are not enough qualified officials left to oversee essential projects. So capital formation contracts and the allocated funds go unspent. So, the Government records a surplus and cheers while bridges, roads, hospitals, IT infrastructure, transport infrastructure decays further. Modern day Germany – ridiculous.

Germany being irresponsible – as usual

On Monday (January 13, 2020), the German Finance Ministry announced that Germany has recorded a record fiscal surplus of some €13.5 billion.

Its – Press Release (in German) – claimed that such a result was “Klug und verantwortungsvoll handeln – Vorfahrt für Investitionen” (Acting wisely and responsibly …) and will help it increase public investment while maintaining fiscal balance over the period to 2023.

Further, there was an amount equal to €5.5 billion that was allocated to helping refugees which went unspent – so the total fiscal surplus was, in fact, around €19 billion.

Tax revenue was up and spending down as a result of negative interest rates.

While the Finance Minister Olaf Scholz claimed the ‘surplus’ would be spent on investment projects, the reality is that past allocations for infrastructure development were not spent apparently because, in part, there has been a shortage of skilled employment in the public sector such that there are not enough “skilled civil servants to process applications” (Source).

The German government is clearly ignoring the calls from European economists and the central bank officials (not the least Mario Draghi as he left the ECB job) to provide some fiscal stimulus to Europe to break the stagnation and high unemployment that the fiscal austerity has created.

And even in the context of the German economy, quite apart from its central place in the Eurozone, the pursuit of fiscal austerity is plain irresponsible.

On November 14, 2019, the German statistical agency DeStatis released the latest – National Accounts – data for the third quarter.

It found that:

1. Real GDP grew by just 0.1 per cent in the third-quarter 2019 after falling by 0.2 per cent in the second-quarter.

2. Gross value added in the goods producing sector was down by 3.1 per cent over the 12 months with manufacturing down 2.6 per cent.

3. Gross capital formation was down by 3.8 per cent in the third-quarter 2019.

4. Labour productivity growth has stagnated.

The following graph shows the evolution of real GDP since the beginning of the GFC (March-quarter 2008) to the September-quarter 2019.

Both Italy and Germany are now stagnating with Greece still in nowhere land.

The interesting point, apart from the sheer idiocy of the German position, is that the way we think about these flows for Germany or any nation that uses a foreign currency is different to the way we would construct the situation for a currency-issuing government such as Australia or the UK.

In both cases, a fiscal surplus means a net withdrawal of spending power by the government which squeezes the non-government sector for liquidity, and, once the transactions are completed causes non-government financial wealth to decline overall.

But in the case of Germany, which uses the euro as a foreign currency, the surplus allows it to put the excess flow into bank accounts somewhere and increase its spending power in periods ahead.

But talking about a currency-issuing government ‘spending’ its surplus is misleading.

A surplus results after the public spending flows into the non-government sector are below the spending withdrawals (drains) via tax flows into government.

The stock adjustments that accompany this result forces a reduction in net financial assets in the non-government sector and a reduction in debt-issuance, if the government is, unnecessarily, matching the deficits with debt sales.

But to say this provides the government with more resources to spend in the future than it did before it ran the surplus makes no sense for such a government.

It can always spend X, if desired, irrespective of whether it has run a deficit or a surplus in the previous period.

The surplus flow is accounted for and disappears from the monetary system.

Film to see if you can – Racism in Australia

I don’t often watch movies on flights, preferring to read and listen to music. But the other day I was able to watch – The Australian Dream – which I had missed when it was in the cinemas because I was away at the time.

It is about racism in Australia and traces the life of one of our greatest Australian football players Adam Goodes who was driven out of the game because fans took exception to him having a voice.

They don’t mind ‘black fellas’ being absolute stars in our local football code but when they get a voice and talk about racism then the pack turns on them.

This is what happened to Adam Goodes.

The film documents how we are unable in this country to come to terms with our history – a brutal invasion by white colonialists intent on destroying the population that had lived here for some 60,000 years.

It was a very disturbing movie.

Adam Goodes and his mother are legends.

A number of people come out well from it (Sam Grant, Michael O’Loughlin, Brett Goodes, Natalie Goodes, Tracey Holmes, Nova Peris, Nicky Winmar, Gilbert McAdam, Linda Burney, Paul Roos, John Longmire, Nathan Buckley), while others (Eddie McGuire and Andrew Bolt and all the social media heroes who hide behind their screens and vilify and pump out toxic stuff about people they do not know or have any understanding off) do not.

See it if you can.

This ABC article (September 3, 2019), written by the script writer for the movie (Stan Grant) tells you some more about it – The Australian Dream tells Adam Goodes’ story but its message is universal.

He talks about introducing the film to an American audience at the Telluride film festival in Colorado last year.

We need to change some things in this country and all nations.

February 2020 – European and UK Speaking and Lecture Tour

Here is my current schedule for February in Europe and the UK.

The ‘tba’ listings mean either I haven’t agreed yet to current proposals to speak or that the day is free of events so far.

If anyone wants to organise and event or set up a meeting, then please contact me and we will see what is possible.

Monday, February 03, 2020 – Speaking on ‘What is the meaning of political economy today?’ at Think Corner, Helsinki – 17:00 to 19:00
Tuesday, February 04, 2020 – Teaching, University of Helsinki – 16.15-17.45, Porthania P674 – all lectures are public.
Wednesday, February 05, 2020 – Teaching, University of Helsinki – 10.15-11.45, Language Centre in Fabianinkatu room 207
Thursday, February 06, 2020 – Teaching, University of Helsinki – 10.15-11.45, Main building, Hall 16
Friday, February 07, 2020 – Rome, Presentation to Parliament – details to follow.
Saturday, February 08, 2020 – Rome, Events with activists – details to follow.
Sunday, February 09, 2020 – Travel
Monday, February 10, 2020 – Breakfast presentation – ‘The future of monetary policies’ – Nordic West Group, Helsinki.
Tuesday, February 11, 2020 – Teaching, University of Helsinki – 16.15-17.45, Porthania room 723
Wednesday, February 12, 2020 – Teaching, University of Helsinki – 10.15-11.45, Language Centre in Fabianinkatu room 207
Thursday, February 13, 2020 – Teaching, University of Helsinki – 10.15-11.45, Main building, Hall 16
Friday, February 14, 2020 – Presentation, Dublin.
Saturday, February 15, 2020 – Presentation, Dublin.
Sunday, February 16, 2020 – tba
Monday, February 17, 2020 – tba
Tuesday, February 18, 2020 – Paris, Reception, French Senate, Palace of Luxembourg – 18:00
Wednesday, February 19, 2020 – Paris, events and interviews – details to follow
Thursday, February 20, 2020 – Paris, Presentation to French Senate Commission, Palace of Luxembourg – 8:30-10:30
Thursday, February 20, 2020 – London, GIMMS presentation, MMT education – afternoon – Details.
Friday, February 21, 2020 – Manchester, GIMMS presentation, The Harwood Room in the Barnes Wallis Building, University of Manchester, Details.
Saturday, February 22, 2020 – MMTed Masterclass Workshop, London, for Details and Tickets. Limited spaces available.
Sunday, February 23, 2020 – Amsterdam – Private meetings.

Music for the day

I was listening to this album this morning as I worked. It is from US jazz pianist – Bill Evans – who is best known for paying with Miles Davis but recorded a lot on his own.

This track from 1- Like Someone in Love (written by Jimmy Van Heusen, Johnny Burke in 1944) – is from the album – Time Remembered – and was recorded in 1962 but not released until the 1980s, when I acquired it.

I could write a lot about his playing style, but for now, I will leave it to the ears.

That is enough for today!