Home > Fiscal Policy, Germany > Give Me Some Crowding-Out
  1. john
    October 31, 2014 at 12:39 pm

    One might think at full employment and output that the marginal ROI of private projects could be expected to be relatively low. However if there are any neglected public projects (as USA has in abundance), ROI on these may actually exceed that for privates. It is possible an investment reason exists to crowd out privates.

  2. Tom
    October 31, 2014 at 4:49 pm

    Remember that the US didn’t attempt federal fiscal stimulus till about 150 years after it had a federal government and federal state. It left its wallowing states to wallow. Some are still. Look how hard it is to get a specific bailout for Detroit.

    Europe doesn’t even yet have a federal state. The only ways it could accomplish the equivalent of a federal stimulus is through explicit state-to-state transfers, something the US would never dream of, or explicit borrowing on the north’s good credit to finance the south’s fiscal stimulus. It’s just too politically rancorous. Just the effort is tearing the EU apart.

    Southern Europeans do indeed have to face the grim facts. You gave up your ability to devalue without thinking much about the long-term consequences, and now you’re in it. Germans indeed will not sympathize or be convinced of the long-term benefits of short-term altruism. You’re on your own.

    But honestly, you’ve still got a lot going for you. Try reading Hesiod’s Works and Days. And don’t be so glum.

  3. José Araújo
    November 3, 2014 at 3:03 pm

    I have troubles with the claim that Germany isn’t facing an output gap, actually I think having an output gap is intrinsic to the policies conducted by German governments.

    We just have to look into recent German policies. By lowering wages Germany has in fact produced a policy that favoured industries that incoporate labour in detriment to industried that incoporate capital and technology.

    What we see in Germany is an economic tissue full with 19 and 20 century industries, very few 21st century corporations, with labour and capital tied with in lower value activities.

    The fact Gemany has low unemployment doens’t mean that they aren’t diverging from total potential output, its obvious they are, just look into their growth rates.

    In the German economy is specializing in lower value activities, there should be a policy in place to promote higher value public/government jobs, that wouldn’t crowd private investment because there are almost infinit funds available for the german economy, but it would crowd out labour resources, which would be a very good thing for all.

  4. November 4, 2014 at 5:24 pm

    C.A. SURPLUSES not deficits!

    The deficit is on capital account; why, Keynes would ask, is it profitable for Germans to invest in infrastructure outside the Eurozone, but NOT in Germany, even when Issing says it is needed??

  5. hanno achenbach
    November 9, 2014 at 10:35 pm

    I am sorry to say it is you, Franco Saraceno, who are dead wrong. Issing is quite right to ask what textbooks you are reading.

  6. hanno achenbach
    November 21, 2014 at 2:58 pm


    About two weeks ago, I repeated Otmar Issing’s question what textbooks you are reading.

    What textbook says:

    “Germany should boldly expand domestic demand (public and private), thus overheating its economy, crowing out exports, and increasing inflation. The effect would be rebalancing of the German economy, growth in the rest of the eurozone, and relief in the rest of the world.”

    I’ll bet you a bottle of Veuve Clicquot you won’t find one.

    • José Araújo
      November 25, 2014 at 12:48 pm

      can I join on the bet?

      Hanno, just any text book on gold standard and fixed exchange rates would say that rebalancing an economy with surplus would take overheating the economy (through monetary expansion due to gold accumulation), crowding out exports on the surplus country and stimulating exports on the deficitary country.

      Since you cannot expand the monetary base in Germany without affecting the other countries on the Euro Zone, fiscal stimulus would do the trick.

      I love Veuve Clicquot by the way….

      • Hanno Achenbach
        November 25, 2014 at 1:43 pm


        You are rarely convincing, and this is no help since you have not understood the problem.

        F. Saraceno, whose position is to ask Germany for a “convergence vers le bas” (everyone in the Eurozone should be equally badly off), says Germany should – repeat: should – overheat its economy and increase inflation (i.e. impoverish its pensioners, welfare recipients and all people whose income is only revised upwards with time lags (most employees and workers).

        Now, of course, there are no textbooks that expressly mention Germany in that sense. But F. Saraceno claims that there are textbooks that support his position and that it would to lead to “relief in the rest of the world” including growth in the Eurozone.

        My question is: What textbooks recommend overheating an economy? And what textbooks say that that would help the world?

  7. hanno achenbach
    December 24, 2014 at 1:14 pm


    I had hoped for a Christmas gift – your answer to my questions above about your textbooks. I now read that you had a lot to do of late. May I still hope, nevertheless? Or was Issing right?

  1. October 31, 2014 at 1:19 pm
  2. November 4, 2014 at 9:07 am

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