32 Responses to The “Anthropology” of Financial Crises

  1. Myb6 says:

    Your thesis is persuasive as far as an explanation for Germany’s employment-rate/unit-labor-cost behavior, but we end up with a similar question just a level deeper. Instead of “what about germany leads to high-employment/low-unit-labor-cost” the question becomes “what about germany leads to quality labor institutions”. More narrowly, why do german workers cooperate with a system that’s restraining their wages? They’re clearly willing to sacrifice for their firms, their labor institutions and the German unemployed/potentially-unemployed. Some combination of nationalism and cooperation-with-authority doesn’t seem far-fetched, or at least worthy of further investigation.

    Further, does low unit-labor-cost necessarily lead to current account surpluses, debt crises, and internal devaluations? Policy could have encouraged the corporate margins justifying all that German employment to be consumed or invested domestically, or the foreign-investment-bound euros to buy real or private assets instead of nominal public assets. Euro fiscal or monetary policy could reflect the whole rather than German interests. Do you really think our analysis of Germany’s motivations should change much whether the low-labor-costs are the results of labor institutions or public policy? Your point is excellent but doesn’t seem to actually conflict much with Todd’s analysis.

    I really enjoy your writing.

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  2. Pingback: Der Todd des Euro | Pseudoerasmus

  3. “what about germany leads to quality labor institutions”

    Well I don’t state it explicitly only because I assume if you’ve read other comments and posts of mine you know what I mean when I use phrases like “human capital” or “social capital” or “high trust” or even “culture”.

    Todd’s idea of culture is an old-fashioned, dated one where behavioural traits persist for no particular reason. Some mediaeval archetype of the German family circa 1000 somehow gets reflected in the social market economy.

    “does low unit-labor-cost necessarily lead to current account surpluses, debt crises, and internal devaluations?”

    Currency devaluation, if it results in a trade surplus, implies you are “exporting” unemployment to your trading partners. Sometimes your partners engage in competitive devaluation to counteract it.

    But I’ve never heard of competitive internal devaluations ! At least not deliberate ones

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  4. T. Greer says:

    This is interesting — more interesting to me, perhaps, because I am smack dab in the middle of The Great Rebalancing right now. Just finished his section on China and have not got to the second half where he focuses on the Eurozone.

    When I am finished with that book (probably some time next week) I will come back and reread this post and offer a few more substantive comments then.

    But a solid post.

    P.S. Have you ever heard of Mary O’Sullivan’s Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany ? It has been on my to read list ever since I read found it in the foot notes of Karen Ho’s Liquidated:. It seems relevant here.

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  5. I should look at it but it sounds really dull ! ( When ever the word “governance” is used the bell usually thuds not tolls.)

    Just to clarify, the above was not really a “take” on the Eurozone crisis, or a view of how the problems associated with the euro might be solved. To be honest I’m no longer all that interested in current events and policies. Rather this post was my alternate “anthropology” of the Germans and how that manifested itself in economic behaviour.

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  6. Myb6 — Near the end of the post I suggested this was not just about Germany, but something common to all the continental northern European economies. I did not elaborate because (1) the post was already pretty long ; and (2) I know Germany and its business governance structure pretty well but the other countries I would have to swot up on and, mercy, are labour-business governance issues dull !

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  7. myb6 says:

    Trust makes it easier for two parties to come to an mutually-beneficial agreement; I’m asking why employed German workers, the vast majority of whom would not face unemployment, even perceive the low-wage deal as beneficial to them in the first place.

    “Internal devaluations” purely because of the eurozone context, as discussed in your post. I’m asking whether there were alternatives where Germany kept its unemployment low without creating economic problems for its neighbors. If so, then it’s right for a Frenchman to ask why Germany did not choose such alternatives, and adjust their views of Franco-German relations accordingly.

    Putting it together: German society had a preference for the low-wage deal (why? TBD), was able to execute that preference due to high-trust/institutional quality (Pseudo, 2014), then- maybe, open to evidence otherwise- allowed that policy to harm their neighbors through inaction and active impediment (why? TBD). Couldn’t Todd’s analysis be a factor in the two remaining “TBDs”?

    Thanks again for your writing.

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  8. no no no. german workers did not choose a low wage option, unit labour costs falling does not necessarily mean wages are falling, just means wages not rising as fast as productivity, what happened in germany 1995-2005 was wage restraint esp relative to other euro economies. and the interesting part of the story is that this happened in a unionised context but still working like a freeish labour market, normally unions make labour markets inflexible… i just don’t understand how that can be described as some chauvinistic-nationalist policy of dominating neighbours.

    what might have been done before the crisis ? well nobody forced greece and portugal to expand government debt so much while their economies were growing, ireland and spain were running budget surpluses but their private sectors were borrowing huge sums for real estate speculation and that’s difficult to identify as a problem in real time. what could germany have done different that was also reasonable ? i really don’t know. the ecb might have curbed bank lending to these countries, but the fed might have done the same with capital ratios & so on in the usa and they did not, so how can you cast stones. but that’s the past. you can make a case that since the crisis germany has not been acting as a european multilateralist, it’s been acting like a selfish country — but a normal selfish country. germany could have dropped the insistence for “conditionality” as part of the bailout package but what normal country spits out hundreds of billions of € just like that without any strings to foreign countries. now for me the stupidity is bailout countries (spain, portugal, greece, ireland) didn’t use the threat of default to get better terms out of germany (and france), both their countries’ banks are heavily exposed.

    sorry for disorderly sentences i’m posting from my mobile since i lack access to a computer at the moment.

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  9. myb6 says:

    No worries about the disorder, it’s remarkable (and appreciated) that you’re even responding on your vacation!

    Wages haven’t fallen, but German workers chose a deal whereby wages in Germany were lower than they would have been otherwise, thus achieving a more competitive unit-labor-cost. That’s an opportunity cost to the workers. Why’d they take that deal?

    The US didn’t restrain bank lending but the US is feeling the pain. The German-dominated ECB didn’t restrain lending but expects the South to feel the pain. But I don’t want to shift to PIIGS/lending, despite the obvious relevance, because both Todd and your post were talking more about France/Germany and trade competitiveness. Imbalances were a political issue before the Great Recession, Germany could have shifted taxes from consumption to income/corporate &/or increased government consumption. Today Germany could do those things and support a European, not German, ECB policy (ie looser).

    Multilateralist vs normal selfish country is the crux of the issue. If Germany is a normal selfish country, other Europeans would be pretty stupid to further integrate. If German institutions are higher-quality and thus more capable of enacting the German (normally selfish) will, that actually makes the problem worse.

    Haha, I actually hope you ignore my reply for a little while and enjoy your time off.

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  10. it’s not that german workers rolled over and exposed their bellies, as i mentioned in the post the bargaining position of german firms improved when eastern europe was opened up for their investment, the interesting thing about germany is that almost seamlessly without political intervention or labour unrest wage-bargaining shifted from the level of trades unions to within-firm works councils, in france and southern europe union wages are negotiated at the national level and german like decentralisation would not be possible because either the unions’ national hierarchy would get involved or the government would step in and decentralisation might require legislation. yet this same decentralised system for germany had produced a high level of job protection and wage growth for workers during the postwar boom. i think germans (as well as japanese) are depicted as authoritarian and deferential to hierarchy because of their past but i think of them as societies based on trust, consensus and cooperation. no one has any problem with that description if it was about norway or denmark presumably because they have been too small to cause any of their neighbours problems in the past. but imo the same social force that has traditionally allowed german municipal subway systems to operate on an honour system, also permits the same decentralised industrial relations. (yes, yes, yes, today there are now many more u-bahn inspectors with their random checks than there used to be in the past, just like Japan’s paternalistic “life-time unemployment” is slowly fading away.)

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  11. myb6 says:

    Hi Pseudo,

    You are convincing on the quality of decentralized German labor institutions, however could you clarify what German workers saw to their benefit in the low-unit-labor-cost deal? Labor institutions may be less-flexible and -adaptive in other countries, but I doubt other countries’ laborers would take the German deal at all. Trust/Cooperation is not an answer here: in your example, it reduces the transaction costs between transit-riders and transit-providers, but Trust/Cooperation by itself does not explain why transit-riders want to ride the transit. In the transit case the mutual benefit of the deal to the involved parties is obvious; not so in the low-unit-labor-cost case.

    Authoritarian/Deferential vs Trust/Cooperation: could you detail why you believe the latter is more accurate? The results could look similar in macro outcomes. Also, if internal trust/cooperation leads to external predation, the distinction is irrelevant to France anyways: whether the behavior has positive- or negative-mood descriptors, France would still be stupid to integrate. German self-sacrifice, whether due to obedience or cooperation, seems to stop at the border and that should inform French decision-making.

    Many characteristics hold across the Low Countries, the Alps, Germany, and Scandinavia. But the eastern border of the macro-region (Elbe/Prussia, pre-war Austria) clearly has a relatively more imperial/expansionist history and that could have genetic or cultural consequences still relevant. If Germany=more-populous-Scandinavia is your argument, it’s something you might want to flesh out further in future posts.

    A fascinating discussion.

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  12. myb6 says:

    I’ll add that in my comments I’ve been focusing more on nationalism/authority/whatever-you’d-like-to-label-it and haven’t even mentioned stem families, because yes Todd is over-selling stem families as an explanation for that trait.

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  13. (1) from a self-interest perspective i assume it’s because german workers understood that it was in the long term interest of their own employment if the competitive position of their firms improved, i guess what i’m saying is that social trust can overcome the coordination failure that inheres in adversarial relationships. or maybe it’s not that at all, maybe there is a collectivist impulse, similar to the way japanese corporations, traditionally anyway, reassigned workers internally rather than lay them off, except in the german case it’s the workers that agreed to wage restraint. but of course that system in japan is being eroded as we speak.

    (2) where is the “external predation” ? france may have been stupid to integrate, but surely not as stupid as greece or portugal. i find the current french situation very similar to the late 1990s when the franc was shadowing the dm even as germany maintained high interest rates as part of emu and france stuck it out even though it had high unemployment. it could probably do the same now.

    (3) german self-sacrifice stops at the border… you do realise it’s the combination of france AND germany which have required austerity from greece et al ? france and germany are both seriously exposed to the debt of the eurozone economies.

    (4) german imperialist-expansionist history…what about french imperialist-expanionist history ??? liberal traditions in western germany are as strong as france’s, the western german cities had a very festive-riotous 1848, especially baden, rhineland-palatinate and the old free cities. but german unification was accomplished by prussia which had more backward traditions. i have a blog post in the works about whether the soviet truncation of DDR helped liberal consolidation in the BRD (as we used to say)

    (5) many people argue the ecb is now no longer inflation targetting it is “deflation targetting”, which would be a very amusing phrase if it wasn’t so tragic… by the way in the vein of “statistical elves can ruin our lives”… google “potential output revisions” and “cohen-setten”…

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  14. myb6 says:

    (1) We’re communicating well on this point now.
    (2) The predation is about trade balance and pre-dates the Euro, and yeah Greece/Portugal is in a much worse position than France.
    (3) Todd’s point doesn’t require a saintly France, though the creditors of France should feel their share of pain. But it’s hard to hold France to account for the trade imbalances which underlie the crisis, or Germany’s resistance to looser monetary policy at the ECB or a domestic shift from saving to consumption/investment, either of which would help France and the PIIGS.
    (4) I think we’re agreeing here: the cultural traits that Todd considers threatening exhibit a cline towards the eastern marches of the Germanic sphere, and those marches don’t group with Scandinavians, nor with the French. Whether or not there’s really a major trait discontinuity at the Rhine, we’d need to get data at the regional, not national level. This I would consider a fair criticism of Todd- he’s using his finely-grained family systems data to explain very coarse-grained macroeconomic trends.
    (5) It seems counter-productive to be so sneaky about targeting, given that to reach those very targets the ECB needs to shift market expectations!

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  15. so is our only disagreement now semantic, about the word ‘predation’ ? the euro and non-euro countries that ran current account surpluses in the 2000s are : norway, sweden, finland, denmark, austria, switzerland, the netherlands, belgium and germany. of course germany matters most but during the last decade it was a general tendency in the northern half. also the northern euro countries de facto devalued their currencies by joining the euro.

    i think the ecb’s resistance to looser money is now institutional, goes beyond germany. i don’t see how expenditure-switching will help in the short to medium term since that will take forever ! germany has already passed a minimum wage law and it won’t take effect for until some time next year.

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  16. myb6 says:

    If you’re saying the current account surpluses are the result of a general N European cultural trait, I’m open to that argument, and a post expanding your labor-institutions argument to other northern countries would be awesome. But I’m agreeing that the origin of the current account surplus need not be considered predatory, but rather the response. The political pressure to adjust was on Germany*, and the response was schadenfreude. It only got worse after the euro crisis clarified the harm to the deficit countries. It’s impossible to know for sure whether the other Northern countries would react the same way in Germany’s position; if you think so I’d listen to your case.

    *: Belgium/Denmark/Finland/Austria haven’t been consistently large surplus though the Danes are becoming so, Norway/Switzerland/Sweden aren’t euro so adjustment could be currency-based (Denmark too, ish: ERM etc), Germany is 5X the Netherlands. Politically, surplus is almost entirely a German problem.

    It’s questionable to separate the ECB’s institutional stance against inflation from German culture and public opinion. Expenditure-switching is exactly what Germany is insisting upon from the deficit countries.

    We’re in general agreement, we just differ on the degree which your ideas, as presented thus far, conflict with Todd’s cultural thesis.

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  17. You say Todd and I are not far off, but I think we are since I stress things like national variations in social capital, time preference, productivity, etc. rather than some unusual degree of selfishness on the part of one country.

    The case for Germany being unusually selfish or predatory is weak, even if you considered just the response to the crisis.

    Germany because of its size matters most, but its general unwillingness to dole out money — with or without conditionality — is simply natural. Paying for the bailouts of foreigners is not popular anywhere in the Eurozone.

    I’m all for expenditure-switching by Germany but imagine asking a country to run budget deficits of 3-4% of GDP on behalf of foreigners !

    Sure you can’t separate German preferences from ECB policy, but there’s been a north-south split in the ECB governing council for several years now.

    The problem is normal nationalism — one of nation-states caring more for their own than for foreigners. That’s not a new observation by any means, but as Craig Willy suggests in passing the general reluctance for redistribution across borders is mirrored by the general reluctance for redistribution within countries which are heterogeneous. I put in a comment over there which is still awaiting moderation, and it contains a link to ( http://www.nber.org/papers/w8524.pdf ) Its abstract has unnecessarily invidious verbiage, but the general thrust of the paper (and many others along the same lines) is that heterogeneity is negatively associated with income redistribution in general. People are more willing to share with others like themselves.

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  18. myb6 says:

    Other bailout examples do not parallel (where else is the employment situation so dire, the creditors so likewise-responsible, benefiting so much, or blocking adjustment?), expenditure- and tax-shifting is not the same as a deficit, any argument against a German deficit applies to the structural surpluses proposed for the PIIGS, monetary policy could be Zone-appropriate instead of German.

    Anyways, we’re beginning to circle, and I’m merely proposing a somewhat-narrower conclusion until you’ve strengthened the other links in the chain.

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  19. i’m not sure what we are disagreeing about because on the sheerly macro issues i agree completely. germany could shoulder most of the burden of adjustment.

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  20. A very dense blog post and discussion. I like Todd’s thesis. It has a certain explicative power, but of course doesn’t explain everything (no one factor ever does). I like most of your socio-anthropological additional explanations.
    Accounting for the superiority of the German economy is a fascinating subject. The comparison with France leads to a lot of soul-searching, but often focuses on the wrong questions.
    You mentioned discount rates in the first part : I believe that this ties into the family-structure model.
    1) German enterprises have long-term orientations (and are significantly more family-owned than comparable French companies).
    2) French capitalists are stupid, always concerned with short-term gain, with very little concern for their workers, the communities they exist in, or the wider environment. This is true in the long term : 19th century French capitalism emphasised speculation over productive investment.
    3) German workers have greater respect for hierarchy and authority, and are ready to dialogue with employers, who have a certain paternalistic respect for them
    4) French workers are independent-minded and suspicious of employers in negotiation, and rightly so (see 2)
    5) Germany has an education and training system which is closely geared to a high-added-value economy. Any country can produce good engineers, but good technicians and tradesmen is actually much harder, and Germany does it well
    6) France is still struggling with an ossified education system geared to the needs of producing the intellectual elite for a previous century, massified to teach irrelevant stuff to kids who should be in apprenticeship

    What concerns me is that the virtuous Germany is demanding that the sluggard economies toe the line, holding itself up as a paragon of virtue, but emphasising elements that have absolutely nothing to do with Germany’s advantages, and will not help other economies catch up.

    On similar themes, you may be interested in my review of Wolfgang Streeck’s newly translated book :
    European Tribune – Community, Politics & Progress.

    Wolfgang Streeck, leading figure of the Frankfurt school of philosophy, has published an incisive and compelling analysis of the interplay between capitalism and democracy in the developed world over the past forty years or so : Buying Time : The delayed crisis of democratic capitalism.

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  23. passant says:

    Very late, but I point this nonetheless. You said in the comment you did not want to lengthen the post (and your own time spent to learn it) by considering the different “Arbeitsgesetze” but without being a specialist my self, the”cassa integrazione” in Italy could be a enlightning comparative to the Kurzarbeit. It is old, was much used since the seventies, but has some slight different mechanisms (mainly size of companies involved, governement involvment I would tentatively say).
    Anf the unemployement story is very different in both countries.

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  25. Josh says:

    After the 2010 general election the Conservative-Lib Dem coalition government was formed, which had received a majority of the popular vote.

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  26. Andrew Stephan says:

    Got here from the MR re-post a couple weeks ago, but any historical/cultural theories on why Germany has better developed social trust/lower social conflict? I’ve lived in the UK, US, and Germany and your hypothesis definitely feels right to me anecdotally.

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