New Economic Thinking vs. Ordnungspolitik
German Minister of Finance Wolfgang Schäuble in his welcome note to an Institute of New Economic Thinking convening of some of the world's leading economic theorists and practitioners in Berlin this week wrote:
I would also like to point out that it is not just new thinking that we need. Rather, it is often equally important to recall older ideas and approaches that may have fallen out of the limelight in the meantime. For example, we in Germany have sharpened our focus on the necessity of pursuing economic and fiscal policies that are consistent with the principles of markets and competition -- what we call Ordnungspolitik. This approach can make crucial contributions to the concrete design of policies and especially institutions. In my view, Germany's "debt brake" is an institution that lays the groundwork for reliable long-term policymaking and that by itself can counteract undesriable fiscal and economic developments.
Ordnungspolitik seems to roughly translate into a government debt-averse, laissez-faire approach to economic policy that runs along similar lines to what Republican House Budget Committee Paul Ryan is promoting.
What is frightening many in Europe today is that Schäuble's views are mainstream in Germany, a current account surplus national oasis in a world plagued by debt desertification.
In other words, Germany is not only unwilling to extend a real lifeline to other sinking economies in Europe, it's using this moment in history to promote an ideological austerity that it wants to compel other nations -- when their economies are reeling -- to do the same as the price for German support.
There is sort of a feeling among many here that the European titanic is sinking and that Germany has control of all the life boats and won't let them out.
In a way, developing 'new economic thinking' is similar to researching and promoting use of renewable energy sources -- vital but it takes a long time and major investment to retrofit a world organized around traditional energy.
Soros and some others at this conference have been arguing that the very foundation of equilibrium-driven economics is wrong, that markets are instead prone to bubbles and collapse and require constant regulatory involvement.
But just as the gap between Germany on one side and Spain, Italy, Greece, Portugal, and others on the other is growing -- so too is the gap between market fundamentalists like German Finance Minister Schäuble and 'new economic thinking' market skeptics.
While millions of other-than-German Europeans may sink given Germany's tenaciousness about a debt brake for all and a conservative Ordnungspolitik, also hit hard could be President Obama's reelection aspirations. Stay tuned.