Irreverent Economics

There is a good interview with Angela Merkel  in the Wall Street Journal yesterday, aptly called “Merkel Rejects Obama’s Call to Spend”

I sometimes get the impression that our leaders think they operate in  two  parallel  universes at the same time. In one universe government is too indebted,  the deficit is too high and the sharks (i.e.  the bond markets)  are  circling. In this universe it is essential to get the deficit under control with austerity being the word of the day.

In the other universe  we are heading for another downturn and it is essential to implement some stimulus packages. It is in this latter universe that some members of the G20, most prominently the US and France, are demanding that Germany stimulate its economy.

On this issue, Mrs. Merkel  got her priorities right,  and is rejecting Obama’s  call to spend. The   believe in stimulus packages is based on dubious economic reasoning, while not getting state finances under control is bound to end up in tears.

The Wall Street Journal observes  that Germany is willing to give up other cherished objectives in order to resist the  siren call of stimulus spending

Germany’s position threatens to isolate it within the G-20, likely making it difficult for it to win support for tougher financial-market regulation and its other priorities.

That is as a good trade-off as I have ever seen.

Stick you your guns