Comment – The Chief Economist: The future government should learn from the US in dealing with economic practices
Contrary to what many believe, the Expert Council for the Assessment of Macroeconomic Development (SVR) is not an exclusive advisory body to the federal government; because the addressee of his annual reports is primarily the public. “A council of (five) independent experts will be formed to periodically assess macroeconomic developments (…) and to make it easier for all those responsible for economic policy and the public to make judgments,” says the relevant law of 1963.
And that brings you to the core of a current problem that has plunged the council, which is a great honor for every economist to belong, into what is probably the deepest crisis of its existence. Since the ruling grand coalition was unable to agree on a successor for the liberal economist Lars Feld, who was a member of this body for ten years, the council has only consisted of four members since the beginning of March.
This did not succeed in agreeing on a new chairperson. Because according to an unwritten and so far broken law, this position will not be filled by council members who were appointed on the recommendation of employers or the trade unions. Currently these are Volker Wieland and Achim Truger. And there was no majority for Monika Schnitzer or Veronika Grimm.
This created a fatal stalemate that apparently continued with the work on the report. Ultimately, on November 10th, the council presented not one annual report, but two, which were held together by a joint cover. No compromise lines could be identified on key issues such as the “application and reform of the European financial rules” and the “mobilization of investments and their financing”.
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This raises the question of what the German public, the actual addressee, should do with an opinion in which the most respected German economists’ committee paradigmatically presents concepts but cannot agree on the important economic policy issues.
The year 2021 is likely to leave lasting damage to the Council
One could argue that this should remain a slip-up, a singular event and should not be overrated. Because the next federal government will soon find an economist capable of reaching a consensus and be appointed to the committee, so that future stalemates are ruled out.
That is true, but the year 2021 is likely to leave lasting damage to the Council. Because the new member is unlikely to become the chairman immediately. Truger and Wieland are also ruled out for this position, as they are on the tickets of the collective bargaining parties in the council. Schnitzer and Grimm have clearly put themselves on one side, so that both would be damaged as a moderator.
But every crisis is also an opportunity for a fresh start. It would be ideal if the traffic light negotiators wrote a corresponding paragraph on the future of this council in their coalition agreement. After all, there is hardly any other law that has remained unchanged for almost 60 years.
Back then, at the beginning of the 1960s, Economics Minister Ludwig Erhard, the Spiritus Rector of the Council of Economic Experts, was convinced that individual and group interests could be brought into harmony with the common good through broad communication of economic expertise. He propagated the idea of a classless, harmonious “formed society” developed by the right-wing conservative publicist Rüdiger Altmann, which was essentially anti-democratic. Their goals should not be material, but spiritual and cultural.
However, these ideas do not fit into a pluralistic democracy, in which the common good is a norm that depends on the respective political majority relationships and changes over time. In addition, economists are usually specialists in questions of efficiency. They can measure and analyze distributional effects, but even excellent economists cannot give an objectively correct answer to the question of the correct income tax rate, for example.
In addition, there is really no shortage of review bodies in Germany. There is, however, a lack of institutionalized economic policy advice. Only the head of the economic and financial policy department in the Federal Chancellery, the “Sherpa”, who usually acts clandestinely, advises the Federal Chancellor and the government in this regard. Advice must always have a specific addressee.
Consulting therefore requires a neutrality, not a scientific task
The consultant must give concrete recommendations for action, taking into account the objectives and the decision-making restrictions of the client. Just as a business consultant should want the success of the company he advised, a political consultant must also strive for the success of the politician he advised. In return, a government must have confidence in the competence and loyalty of its advisors, which presupposes that it has the right to determine them itself.
Consulting therefore requires the task of neutrality, but not of scientific nature. Because this does not arise from a formal position of non-partisanship, but exclusively from the logical stringency and the empirical foundation of recommendations. The scientific reliability of an analysis and the recommendations derived from it do not depend on whether they come from the chief economist of a trade union, a bank economist, a civil servant university professor or a body entrusted by the government.
Presumably better, because the transfer of economic knowledge into the political process is organized in the USA more transparent and professional than here in Germany. There a clear distinction is made between scientific information for the public and scientific advice to the government. The most important economic policy advisory body is the Council of Economic Advisers, in which three top economists with an impressive staff work full-time for the respective US president. The members are nominated by the President, but must be confirmed by the Senate.
Such institutionalized economic policy advice is missing in Germany. In the last two legislative periods, concept-based economic policy in the most important political fields did not actually take place in this country. The well-filled coffers due to the long upswing meant that almost all the wishes of a coalition partner were fulfilled, provided that the other partner’s wishes were also realized as compensation – mostly without paying attention to possible consequences.
No boom lasts forever
At the latest after the outbreak of the pandemic, it should have become clear to all politicians striving for responsibility that no upswing lasts forever and that a “rain of money” over the public coffers can end very quickly. In the first corona year alone, the state used up the surpluses of the three previous years. Overall, the pandemic and its economic consequences are likely to be more than twice as expensive as the 2008/09 financial crisis.
The SVR report “Twenty Points for Employment and Growth” was published 19 years ago, which in part became the template for “Agenda 2010”, without which the past “economically golden decade” would hardly have existed. Today the federal government is facing just as great a challenge as it was at the beginning of this century, when unemployment was approaching the five million mark. The traffic light coalition does not only have to take care of the global climate and the energy supply in Germany, the digitalization of the state and the aging of society. It is also faced with the historic task of improving investment conditions and growth prospects in Germany while at the same time weighing distribution issues.
Drafting such an overall concept would be a good occasion to install a new “Economic Policy Council of the Federal Government” integrated into the Federal Chancellery – good advice for the government.
More: The Expert Council needs a radical new start.