On corona socialism and globalization – an interview with economist Clemens Fuest by Martin Hesse und Michael Sauga in Der Spiegel:

‘Fuest: By and large, the government has acted correctly, both in the fight against the coronavirus and in terms of economic policy. In a crisis like this, the markets don’t function properly, so the state should intervene. However, it is equally important that politicians find a way out of the emergency measures once the acute crisis passes. We have to be careful and make sure that we do not fall into a state-controlled economy.
DER SPIEGEL: Do you see that danger? Fuest: Yes. I think there is too much talk about public spending and too little about the necessary freedom for the private sector. Our prosperity isn’t generated by the state, but by entrepreneurs and workers. Things won’t be as smooth this time as they were after the financial crisis, when the economy quickly regained momentum.’

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‘DER SPIEGEL: Nevertheless, many companies have accumulated gigantic losses and now have to be rescued by the state, through loans or direct equity investments. Are we facing a kind of corona socialism? Fuest: I hope not. It may be right for the state to take a stake in certain companies to save them from bankruptcy. But the government should then also impose conditions - that companies temporarily can’t pay out dividends, for example. It would be wrong for the state to interfere in operational business.
DER SPIEGEL: But the state is now the new co-owner. Doesn’t it have the duty to press for environmentally friendly production methods, for example? Fuest: No. If the state wants to protect the environment, it must impose conditions that apply to all companies, not just those in which the state holds shares. It is right to limit executive bonuses (Eds: As the German government has done in firms it has bailed out in the form of share purchases.) However, setting political guidelines for day-to-day operations isn’t the right course of action.
DER SPIEGEL: Lufthansa is receiving around 9 billion euros from the state and wants to cut 22,000 jobs at the same time. Doesn’t the government need to prevent something like that? Fuest: The state should not guarantee jobs if the business model no longer works. There are indications that people will not fly as much after the crisis. Lufthansa must prepare itself for this, also by cutting jobs. If you believe the government, it wants to sell its Lufthansa shares as quickly as possible. But it will only be able to do that if the company is economically sound.’

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‘DER SPIEGEL: Global trade has further weakened as a result of the crisis. Supply chains have been fractures and protectionism is on the rise. Does it not make sense to make the economy more nationally focused? Fuest: On the contrary. The solution currently lies in more globalization, not less. Those obtaining their primary products from a single source in China would be wise to acquire additional suppliers in Vietnam, India or Mexico. Just as it is advantageous to deliver your products all over the world, rather than limiting yourself to one buyer. After the financial crisis, German industry benefited from the ability to sell cars and machinery not only in the weakening Eurozone, but also in the booming markets of China and North America.
DER SPIEGEL: The German government has launched a 130-billion-euro economic stimulus package to boost the domestic economy. Is that enough? Fuest: It is the right move for the government to give the economy a boost again after the virtual standstill in the spring. But we shouldn’t expect too much from it. It is estimated that the measures will increase economic output this year by only about one percentage point. The coronavirus crisis has led to a sharp decline in production. No economic stimulus package can make up for that loss.’

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‘DER SPIEGEL: Will the recovery fund be enough, or do you expect a new euro crisis? Fuest: The fund is a help, but it cannot change the fact that some countries in Europe – Italy in particular – are experiencing difficulties because they have had little growth at all for years and their already high sovereign debt loads have risen again as a result of the crisis.
DER SPIEGEL: How can these countries get out of the debt trap? Fuest: The ideal way would be to grow out of debt. If that doesn't work, it will be difficult. A debt cut would be conceivable, but in Italy's case it would primarily mean losses for domestic savers. It would also be possible to reduce part of the debt by introducing a temporary wealth tax, possibly limited to real estate, to prevent capital flight. That would cause a further slump in economic growth.
DER SPIEGEL: At the moment, the European Central Bank, with its low interest rates, is ensuring that the country's sovereign debt load is sustainable. Can this work in the long term? Fuest: The ECB's low interest rate policy can continue for a long time, unless inflation returns.
DER SPIEGEL: So, you still have faith in the idea that the ECB would actually raise interest rates then? Fuest: There is cause for concern that the ECB might hesitate to take action against rising inflation, especially given the tremendous political pressure there would be to keep interest rates low. However, that cannot be sustained for long. A policy of low interest rates despite rising inflation would cause investors to sell government bonds en masse. That’s why it is dangerous to expect central banks to help highly indebted countries. So far, though, there are no concrete signs of impending inflation.’

Read the interview here.

This popular but fairly absurd idea exists that you can fight poverty and globalization at the same time. And a sustainable economy – whatever we mean by that – is by definition not an economy without globalization. Autarky might sound utopian to some – the urban higher middle class, dreaming of producing their own cheese somewhere on a hill top – but in reality it’s going to be a nightmare.

Also, debt forgiveness can be achieved in many different ways. The EU may play in important role in this matter, without hurting ‘domestic savers’.

Also, Mr. Fuerte suggests that there is no future for low-skilled workers, at least not a future that is economically sound in Western Europe and probably also in the US. To invest in education, as he advises, is a good idea, but what about those citizens who are not capable of becoming high-skilled workers? Is there future for the less intelligent, the less capable, the less fortunate? When we think of diversity we think of gender, ethnicity, religion et cetera. The meritocracy appears to be non-functioning, but what if the meritocracy functions to a certain degree. Brilliant people will be discovered, regardless ethnicity, religion, gender et cetera. What about the less brilliant people, the completely not brilliant?

The “superfluous ones” need to be respected also, need to feel respected, and till now respect means a job.

Perhaps, we should think of rebranding of the clergy. We are in urgent need of a world religion for agnostics and atheists with monasteries where the ‘superfluous people’ perform their work (praying, healing the world et cetera) and are highly respected by the believers. Needless to say the proof of the respect is the money they get from the believers. Whether you believe in God or in egalitarianism, that is just a detail.
The so-called brilliant ones pay the less brilliant ones to pray for them. And of course the new monks and nuns will live in simple but rather pleasant castles.
It's necessary to remain chaste for the new monks and nuns.