[Review] Heiner Flassbeck - Fundamentals of Relevant Economics

Siehe auch:
[Rezension] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - Wirtschaftspolitik

Heiner Flassbeck is an economist from Germany. The economist born on December 12, 1950 was among other things State Secretary in the Federal Ministry of Finance under Oskar Lafontaine (SPD) from 1998 to 1999. And from January 2003 to the end of 2012 he was Chief Economist (Chief of Macroeconomics and Development) at the United Nations Conference on Trade and Development (UNCTAD). Flassbeck publishes among other things on Makroskop and Relevante Ökonomik in German and on Flassbeck Economic in English.

The book "Fundamentals of Relevant Economics (Grundlagen einer relevanten Ökonomik)" was written together with co-authors Friederike Spiecker, Patrick Kaczmarczyk and Alexander Mosca Spatz. The book is clearly specialist literature in nature but not a pure textbook. Although connections are discussed in detail at the level of specialist articles no absolute fundamentals are conveyed. The quality of the derivations is very high as the arguments are based on empiricism and logic rather than made in a vacuum. This sets the author apart from any ideology despite the topic. The book gains additional importance due to the current recession.

National Macroeconomic Policy

The golden wage rule must strictly apply. A workforce that can consume what it produces can keep the same economy running. A workforce that cannot consume what it produces cannot keep the same economy running either. Consistent wage increases across all incomes, and beyond the golden wage rule only lead to a higher inflation rate. But an inflation rate that is too high leads to higher interest rates from the central bank and excessively high interest rates lead to rising unemployment. [1, p.415-417]

Someone always has to go into debt to cover the amount of savings and future nominal economic growth. In the past governments would only have had to borrow during a weak economy. But that era is over as companies no longer fulfill their traditional role of borrowing but have become savers. Persistent budget deficits are therefore inevitable unless a country renounces economic growth or runs permanent trade surpluses. [1, p.417-419]

International Macroeconomic Policy

A unilateral permanent fixing of exchange rates can be expedient for various reasons. However one faces a trilemma between autonomos monetary policy, open capital markets and fixed exchange rates. And with only open capital markets and national monetary policy one still faces a dilemma. A return to an exchange rate regime like that of the Bretton Woods system remains the gold standard.

If these conditions are met then development aid is unnecessary. Countries are always capable of mobilizing their own resources in the form of natural resources and labor. However sound economic and financial policies are crucial. Flassbeck cites the People's Republic of China as a prime example of this. Bad advice from outside and loans in foreign currency under conditions leading to harmful reforms only do more harm than good. [1, p.426-429]

Structural Policy

The state can promote corresponding technologies through bans and create investment security for other technologies. The state can also create the infrastructure and thus the prerequisites for certain technologies through investments. [1, p.429-430]

A welfare state is useful not only for moral reasons but also for overall demand. People can be unable to work for various reasons, but these people should not be excluded. This alone justifies a welfare state. Flassbeck places particular emphasis on balance. A welfare state can create a balance between the purchasing power of lower income earners and the savings rate of higher income earners. Since a population that doesn't consume what it produces won't keep the economy running. [1, p.431-432]

While there is a lot of talk these days about a supposed shortage of workers or skilled workers Flassbeck refutes this claim. In 1973 Germany had approximately 100,000 unemployed people and about 1 million job vacancies. In 2025 however Germany has approximately 2.5 million unemployed people and about 800,000 job vacancies. Flassbeck particularly criticizes the fact that the mechanisms of supply and demand are not supposed to apply to labor. It is particularly dishonest that wages should not rise even in the face of a supposed shortage of workers or skilled workers. Instead despite all liberal economic policies the state should ensure a steady influx of workers from abroad. Even if this means that these workers and skilled workers are lacking in their home countries. Flassbeck argues that companies should instead train more themselves and make training and jobs with higher wages more attractive. [1, p.433-435]

Flassbeck rejects a capital based pension system. On the one hand saving deprives the economy of demand and in the event of a turning point such as the Great Depression or World War II investments would inevitably lose value. In any case there is only a pay-as-you-go system regardless of whether pensions are financed through contributions or dividends. In any case the pension system would face the challenge of demographic change regardless of whether it is capital based. [1, p.435-438]

Fossil fuels must become more expensive for countries that are expected to save and convert their energy production. For this to be feasible however redistribution is necessary within the respective countries. An international institution is needed that can decide who has to save and how much. [1, p.438-445]

Src:
[1] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - ISBN 978-3-86489-414-5
[2] Makroskop
https://makroskop.eu/
[3] Relevante Ökonomik
https://www.relevante-oekonomik.com/
[4] Flassbeck Economics
https://www.flassbeck-economics.com/

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