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Tuesday, October 13, 2015

'A Stimulus Junkie's Lament'

Simon Wren-Lewis:

One ‘stimulus junkie’ has already had a go at this FT piece by the chief economist of the German finance ministry ...
German officials need to be very careful before they claim that recent German macro performance justifies their anti-Keynesian views, because it might just prompt people to look at what has actually happened. Germany did undertake a stimulus package in 2009. But more importantly, in the years preceding that, it built up a huge competitive advantage by undercutting its Eurozone neighbors via low wage increases. This is little different in effect from beggar my neighbor devaluation. It is a demand stimulus, but (unlike fiscal stimulus) one that steals demand from other countries. This may or may not have been intended, but it should make German officials think twice before they laud their own performance to their Eurozone neighbors. If these neighbors start getting decent macro advice and some political courage, they might start replying that Germany’s current prosperity is a result of theft. ...

    Posted by on Tuesday, October 13, 2015 at 10:02 AM in Economics, Fiscal Policy | Permalink  Comments (29)


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