Wednesday, 23 January 2013
More on Monti=Brüning
As discussed in the last post, Monti evidently does not resemble the 'Helbich Brüning' very much. And neither did Brüning. There is a good argument that Brüning's policies were far less conditioned by reparation payments or the 1929 financial crisis, but rather by contemporary mainstream economics. Albrecht Ritschl has pointed out (paper in German) that Brüning carried out policies, that Joseph Schumpeter had already recommended in an article in 1928. Schumpeter's argument was that strong unions and the power of left wing parties in the Weimar Republic had led to an excessive increase in wages and redistributive taxation. The resulting squeeze on profits prevented capital accumulation, investments and hence economic growth. For Schumpeter, Germany was already in recession in 1928, even if statistics did not show it, yet. What was needed, according to Schumpeter, was what he later called a 'cold douche for capitalism': wages and public expenditure had to come down in order to allow the private sector to accumulate and restart growth.
These were not only Schumpeter's views. They were fairly reflective of the economic mainstream of the time and Brüning was familiar with this type of argument. After all, he had studied economics (at LSE among other places) and had even planned a career as an academic before entering politics. (He returned to this original plan by becoming a lecturer at Harvard, after his political career had stalled in the early 30s) The actual economic development proved Schumpeter, Brüning and most of contemporary mainstream economics wrong: economic growth only picked up after states began to intervene. First in the form of civilian spending and then on a massive scale in the form of a massive expansion of military expenditure.
How well does 'Brüning the Schumpeterian' fit Münchau's argument? Rather well. Münchau says that '[Brüning] ... was part of a prevailing establishment consensus that there was no alternative to austerity.' Brüning was sure of his policies because of the contemporary consensus of professional economists and many other members of the establishment that backed his views. He had spend year studying the type of economics that he then put into practice and felt in possession of a clear understanding of what was going on economically. In a similar way, Monti is sure of his convictions. As a professional economist he, too, sees himself as being in possession of expert knowledge and as a politician he can be sure of the support of most policy makers in Europe. As in the 1930s, there is today a 'prevailing establishment consensus' about what needs to be done economically. So, in this sense, Münchau got his comparison right. Good for him, good for the FT, good for the quality of public debate. But also quite depressing.