My latest podcast is with Rudiger Bachmann. Rudi is an associate professor of economics at the University of Notre Dame and a research affiliate at the Center for Economic Policy Research. Rudi has published widely on macroeconomic issues in top journals and is an active member of the German Economic Association. He also blogs and write popular press articles for the German media. Rudi joined me on the show to discuss German macroeconomics as well as some of his own research.
Our conversation begins by noting that German macroeconomics appears to be very different than Anglo-American macroeconomics. Rudi notes that is partly a misperception problem, but there is indeed something different. What is different is how macroeconomics is currently practiced in Germany: it reflects the ordoliberalism view that stresses a rules-based approach to policy. This approach to macroeconomics makes lawyers rather than economists top advisers to policy in Germany and it reflects the lasting legacy of Walter Eucken. This view not only affects Germany, but macroeconomic policy throughout the EU.
One of the interesting issues that emerge from this discussion is that the German polity seems to worry more about repeating the mistakes of the Weimar hyperinflation in the early 1920s than the mistakes of the Great Depression in the late-1920s. The former is well known but the latter was arguably more consequential since it helped bring the Nazi to power in Germany. It is not clear why the hyperinflation experience trumps the Great Depression experience, but its experience helps shape the ordoliberalism approach to economic policy in Europe today.
Rudi and I then shift our conversation to the future of Europe. Rudi remains hopeful that EU project will survive the Eurozone crisis and other challenges now facing it.
We conclude by discussing Rudi's work on uncertainty and the business cycle and the importance of inflation expectations for consumers.
This was a fascinating conversation throughout.
You can listen to the podcast on Soundcloud, iTunes, or your favorite podcast app. You can also listen via the embedded player above. And remember to subscribe since more shows are coming.
Ruid Bachmann's homepage
Walter Eucken died in 1950. The Ordoliberals he inspired had influence in the 1950s, but clearly he was not personally influencing German thinking in the Budesrepublik in the flesh during the 1950s. He advised Ludwig Erhard who unleashed the Wirtschaftwunder by eliminating price controls in the American and French occupation zones. The Americans, far from welcoming this, opposed lifting price controls. Erhard completely took them by surprise with his cold turkey fait accompli.
The economic conditions leading to Hitler's rise are not simply the Worldwide recession undermining the von Hindenberg government. The reparations policy of the Peace Treaty of Versailles and the British blockage through 1923 were the root cause of the the hyperinflation. The hyperinflation and the ongoing economic drain from the reparations and the economic resources the victors either occupied or transferred to themselves from Germany impoverished Germans all through the 1920s. The onslaught of the worldwide depression made little difference. In his Economic Consequences of the Peace, Keynes predicted that in 20 years a new war worse than the 1914 war would happen because of "this Carthaginian peace.". I doubt he means 20 years as a precise prediction, but it was accurate within a month. Would all we economists were as accurate.