[Review] Tom Krebs - Misdiagnosis - The Counter-Measures and their Failure

Siehe auch:
[Rezension] Tom Krebs - Fehldiagnose - Die Gegenmaßnahmen und das Scheitern

The book "Misdiagnosis - How Economists are ruining the Economy and dividing Society" by Tom Krebs was published in 2024. Krebs is a professor of macroeconomics and economic policy. The book analyzes the energy price shock its consequences for the German economy and the countermeasures taken. Krebs explains which measures were taken to counter the effects of the (energy) price shock, what these measures achieved and when and why they were discontinued.

The Counter-Measures

Krebs explains the German government's measures to secure energy supplies in 2022. The import companies Uniper and SEFE (also Gazprom Germania) were nationalized to prevent their insolvency. Deliveries of natural gas from Norway were agreed upon and construction began on several LNG terminals with the Wilhelmshaven LNG terminal already being operational in January 2023. And with the help of Trading Hub Europe GmbH LNG was purchased on the world markets "at any price". Krebs praises the German government's swift action but also acknowledges the quality of its execution. While there wasn't a specific shortage of natural gas in the following years gas and electricity prices were particularly high during this period due to germanys consumer behavior. [1, p.33-36]

Imports, Exports and Consumption of Natural Gas

	2021	2022	Change
In-house Production	45,8 TWh	42,7 TWh	-6,6%
Imports	1.510 TWh	1.306,4 TWh	-13,5%
Exports	693,8 TWh	484,1 TWh	-30,2%
Net-Imports	816,2 TWh	822,3 TWh	0,7%
Total Consumption	917,4 TWh	773,0 TWh	-15,7%
Industrial consumption	331,5 TWh	274,2 TWh	-17,3%

[1, p.35]

Furthermore in the spring of 2022 the German Federal Government approved relief measures and subsidies. These included a flat-rate energy price allowance of 300 Euro, heating cost subsidies for recipients of housing benefits, a reduction in the energy tax on fuels and a KfW loan program for businesses. Krebs criticizes the fact that the measures for 2022 and 2023 amounted to approximately 100 Euro billion as a result of the coronavirus crisis while the measures for 2021 and 2022 implemented as a result of the energy crisis still amounted to 200 billion Euro. For Krebs this is the first indication that the Federal Government has adopted the flawed diagnosis of free-market economists. Instead the state should have intervened directly and for a longer period in the market with energy price controls. [1, p.36-39]

Aus wirtschaftspolitischer Sicht sind Krisen, die durch einen Angebotsschock getrieben werden, besonders problematisch. Denn die traditionellen Instrumente zur Stabilisierung sind weniger effektiv als bei nachfragegetrieben Krisen oder haben unangenehme Nebenwirkungen.

From an economic policy perspective crises driven by a supply shock are particularly problematic. This is because traditional stabilization instruments are less effective than in demand-driven crises or have undesirable side effects. [1, p.37]

The Myth-Making of the Opposing Side

Germany's ongoing recession clearly began after 2019. There is no consensus on the explanation for the ongoing recession. Instead there are numerous narratives about supposedly structural factors. [1, p.97-101]

Die zwei wichtigsten Ereignisse sind Corona- und Energiekrise. Eine überzeugende Erklärung der langjährigen Stagnationsphase muss also zwingend auf diese zwei Makroschocks eingehen und kann nicht nur strukturelle Faktoren anführen.

The two most significant events are the coronavirus pandemic and the energy crisis. A convincing explanation for the long period of stagnation must therefore necessarily address these two macro shocks and cannot simply cite structural factors. [1, p.98]

Krebs cites as an example the narrative that Germany is in recession due to too much bureaucracy or because of the aging population. [1, p.97-101]

Deutschland hat sicherlich einen hohen Verwaltungs- und Planungsaufwand für große Infrastrukturprojekte im Vergleich zu den USA, aber dieser Bürokratiefaktor hat sich hierzulande nicht ganz plötzlich deutlich verschlechtert. Ebenso ist die hiesige Gesellschaft relativ alt, aber sie ist nicht plötzlich in den letzten Jahren extrem gealtert. Etwas anderes hat sich jedoch in den letzten zwei Jahren drastisch verändert: Die Energiekosten sind gestiegen, und die Attraktivität des Wirtschaftsstandorts USA hat sich verbessert.

Germany certainly has a high administrative and planning burden for large infrastructure projects compared to the US but this bureaucratic factor hasn't suddenly worsened significantly. Similarly German society is relatively old but it hasn't aged dramatically in recent years. However something else has changed drastically in the last two years: Energy costs have risen and the attractiveness of the US as a business location has improved. [1, p.99]

These narratives have in common that they cannot be explained by the sudden change since 2019 or rather they ignore the sudden occurrence. [1, p.97-101]

The Failure of the Measures

Although the German government has adopted measures to counter the consequences of the (energy) price shock and the looming recession these measures either didn't go far enough or last long enough. Furthermore the monetary policy of the European Central Bank (ECB) has actively worked against the countercyclical fiscal policies of the member states.

In an economic crisis central banks can reduce the cost of borrowing by lowering interest rates and provide additional liquidity by purchasing bonds. The European Central Bank (ECB) did precisely this after the financial crisis (2008). However the situation was different in 2020. From June 2022 to June 2023 the key interest rate was raised from 0% to 4% thereby increasing the cost of borrowing and worsening the situation. The reason for this lies in the flawed assumption that a higher inflation rate can only be combated with a higher key interest rate. Higher energy import prices and the fact that these are passed on to all other prices, cannot be combated by a higher key interest rate. [1, p.115-123]

Krebs criticizes in particular how early the interventions were ended and how small they were. This is contrasted with Germany which did not have a large stimulus package and ended up in a recession and the USA which had a large stimulus package with the IRA (Inflation Reduction Act) and did not end up in a recession. On December 15, 2023 owever, the Federal Constitutional Court declared the 2021 federal budget unconstitutional because funds approved in the context of the pandemic were instead spent to promote the energy transition. Subsequently Federal Finance Minister Christian Lindner (FDP) used the ruling of the Federal Constitutional Court to argue for the necessity of an austerity budget and budget cuts. While this allowed Lindner (FDP) to increase his influence it hindered crisis management through cyclical fiscal policy. [1, p.103-113 , p.137-145]

Furthermore the federal government's wage and income policies have actually reduced the demand needed to overcome the (energy) price shock. Firstly the minimum wage was increased less than initially planned. This is bad for those affected as they are therefore more impacted by the (energy) price shock. And it is bad for the economy as a whole since wages represent costs for some companies and revenues for others and the expenditure ratio is inversely proportional to income. A higher minimum wage would therefore increase aggregate demand more than wage increases for higher incomes. In addition the bargaining power of unions is inversely proportional to unemployment. Higher unemployment thus inhibits wage increases. [1, p.125-136]

Zu den Fehldiagnosen >>Die Krise ist vorbei<< und >>Deutschland ist ein alter Mann<< gesellte sich nun die Fehlinterpretation >>Das Verfassungsgerichtsurteil erfordert Haushaltskürzungen<<.

To the misdiagnoses >>The crisis is over<< and >>Germany is an old man<< has now been added the misinterpretation >>The Constitutional Court ruling requires budget cuts<<. [1, p.141]

Krebs blames the overall failure of these countermeasures for the fact that Germany has been so severely affected by the (energy) price shock and has fallen into such a long recession.

Preview:

• [Review] Tom Krebs - Misdiagnosis - The (Energy-)Price-Shock
• [Review] Tom Krebs - Misdiagnosis - Market Fundamentalism 2026-08-15

Src:
[1] Tom Krebs - Fehldiagnose - Wie Ökonomen die Wirtschaft ruinieren und die Gesellschaft spalten ISBN 978-3-86489-430-5
[2] Leseprobe
https://westendverlag.de/media/e6/6e/04/1728310626/leseprobe_Krebs_Fehldiagnose.pdf