Helping Greece by Helping Germans

One dimension of Greece's problems is their trade deficit. Buying more stuff from foreigners than they buy from you isn't always a problem.

• If you buy more from foreigners because they're offering you a great deal to get hold of your currency, then the trade deficit may be a good thing. This is the U.S. of the last 2 generations.
• If you buy more from foreigners because you've already gotten rid of your own currency and have theirs and need to spend it, then the trade deficit may be a bad thing. This is contemporary Greece.

And one country's deficit is someone else's surplus. For simplicity, that could be Germany (which has the biggest trade surpluses in the world as a portion of their economy).

So Greece has the bad kind of deficit, and Germany has the surplus. Is Germany's surplus good?

Again, there are two sides.

• If you sell more to foreigners because you like to work hard without consuming a lot, then the trade surplus may be a bad thing. This is contemporary Germany (China too).
• If you sell more to foreigners because there's high demand for what you do and you can't say no, then that's a good thing, but you should learn to say no. This is Dr. Tufte teaching extra classes this semester and not being able to keep up on the grading.

Do note that most people make snap moral judgments about deficits and surpluses (Greece = Bad, Germany = Good) that don't fit into those bullet points. So, who do you think is right: a professor who's trying to help you out, or the armchair moralists? (Don't tell me ... maybe I really don't want to know your answer ;-)

DIGRESSION: Ben Bernanke has a brand new blog called ... wait for it ... Ben Bernanke's Blog. Why should you try reading it? Well, he's a really famous macroeconomist (I used his text in ECON 3020 a long time ago), a former chair of the economics department at Princeton, the foremost expert on the financial crises of the Great Depression, former chair of Board of Governor's of the Federal Reserve System during the Great Recession, got his Ph.D. from MIT which produces top flight macroeconomists year after year ... and he got 800's on both the math and verbal parts of his SAT's way back when.

Anyway, one of Bernanke's first posts made a point that I wish I'd thought of.

We tend to beat up Greece for being in trouble. That's the armchair moralist in us (and I'm as guilty of anyone at this). This inclines us to say that Greece has to solve its own problems.

But recall, Greece is paired with Germany: the Germans are working too hard to make things for the Greeks. So our inclination is to say the Greeks ought to work harder, but we could just as easily say the Germans should work less hard.

Now, one of the little bits of institutional culture that makes Germany what it is is that they still negotiate large scale wage contracts, tied across industries and regions. This is kind of like the U.S. of 50 years ago where the negotiations between GM and UAW had wide repercussions for contract negotiations in other industries and regions.

Bernanke points out that The Wall Street Journal reports that the Germans are negotiating big pay increases because they are near full employment. This is great for German workers, but it's also good for Greek producers because it helps them compete for Greek spending. Plus, in the 21st century, it gives Germans extra money to spend in Greece as tourists.

P.S. There's like a Mobius blogging loop here. Bernanke links to The Wall Street Journal (click the first link in this article), who link ... back to Bernanke's new blog (click the last link in this article) which he only started 2 weeks ago. Sheesh.