“The moral superiority of the Germans”

by on December 1, 2011 at 1:49 am in Economics, Education, History, Philosophy, Political Science | Permalink

Ryan Avent tweeted:

Dear @tylercowen, Germany and the periphery ARE morally equivalent.

How might a response go?  Not an argument that German citizens are morally superior to other Europeans; that would be false and indeed repugnant.  I mean the kind of “system-wide” moral judgments that progressives offer up when they judge the institutions of Denmark to be superior to the institutions of Mexico, of course without ever judging the residing individuals per se.  Let’s play at intellectual Turing test — with no commitment to endorsing these views — and draw up a short list of, dare I so label them, (ostensible) German moral superiorities:

1. When it comes to default, there is no moral equivalence of debtor and creditor.  The debtor is the one breaking the agreement and breaking his word.

2. When it comes to debt, the periphery countries simply don’t want to pay up.  Their national wealth is many times their gdp and thus much much greater than their debts, even for Greece.  It’s amazing how many people won’t come out and utter or recognize this simple truth.  Italy for instance doesn’t have to make a huge fiscal adjustment.

3. It is a privilege for a poorer country to be in an economic union with Germany, France, the Netherlands, and other wealthy EU countries, just as you might feel privileged to co-author a piece with a great scholar.  If the poorer countries have to engage in some economic sacrifice to stay on good terms in such a union, so be it.  There is also such a thing as catch-up growth, and it is robust in the broader world today, at least if a country is willing, like the East Asian countries have been, or for that matter Turkey and Brazil these days.  The sacrifices being asked from the periphery countries are quite small in comparison.

4. We did a deal with East Germany, and the terms of that deal violated a lot of precepts of economic theory.  It even included an overvalued currency for the poorer region and a long period of adjustment.  Yet we insisted up front that all dealings be done on the terms of the more successful region and culture, with very little compromise.  This transition, for all of its short-term flaws, will go down in the history books as a great long-run success.  In part it succeeded because it was all done on the terms of the values of the successful nations of northwestern Europe.  (I am surprised that this angle is not discussed more in the press, given Merkel’s own story.)

5. Economic unions do not succeed by lowering all members to the standards of the economically less successful and less responsible members.

6. If it wasn’t for us, would Greece, Spain, and Italy (plus Ireland and Belgium) all currently have technocratic, reform-oriented governments as they do?

7. If you are trying to estimate the future economic fate of a country, shouldn’t you put aside a bit gdp drops and the like, and instead look at what do people in that country esteem and which values are transmitted by their system of education?  Do read the Estonia story at the previous link.

8. The German emphasis on rules, and the attachment to the idea of an abstract order, worthy of loyalty in its own right, above and beyond any immediate personal connection or loyalty, is exactly what makes them able to run such a successful economy and successful social welfare state.  When it says “Don’t Walk,” they don’t cross the street, even if no cars are coming.  An economic union should be set up to support those principles, not tear them down, and social democrats should value this most of all.

Even if you disagree with these perspectives, they shape real world behavior.  And might you still bet on a country which stuck to them?  Be honest now.  Let’s go back into intellectual Turing test mode:

9. One clear warning sign of trouble is when you see “trade imbalances” put at the center of the argument, as if “being very productive” and “not being productive enough” were somehow the same kind of disease.

10. There is a view something like “Germany has benefited from the eurozone, and therefore it is obliged to…”, as if those arguments were stronger than the nine principles outlined above.  By the way, might left-wing American intellectuals occasionally engage in a bit of transference and view Germany as a stand-in for the American top earners, the American financial system, and so on?  It isn’t.

11. Another doozy is to think the problem is due to some weird German obsession with Weimar-era inflation, as if there is a need to apologize for an elderly uncle who went bonkers.  I would instead start with the simpler point that Germany does not want to transfer resources to countries which do not wish to pay back their creditors, and which will not commit to good economic policy in the future.

Let’s move out of Turing mode and back to Tyler.  I believe that the Germans have approached this crisis with some bad economic theories, a lack of understanding of how government spending cuts can be self-defeating in the short run, and a good deal of more or less deliberate self-deception about its partners in the union, not to mention Germany’s own ability and willingness to act “fully European.”  I’m also not sure that Germany has a path out of this which leaves their own financial system intact.  You can rack up the moral and practical minus points there in considerable number.  That said, I see a lot of intellectuals dismissing the perspective outlined above, rather than figuring out why it makes so much sense to so many people, not just in Germany.  I think the financial elites in the periphery countries themselves actually see it quite clearly.

The result is significant misunderstandings about what can happen and will happen in the eurozone.  Germany cannot and will not drop its moral perspective, even if there is some theory — and yes theory is the right word here, because no one knows these broad guarantees will work — of how a broader and far more costly commitment can set things right.

In reading American discussions of the eurozone, I am frequently reminded of earlier discussions of the Soviet Union.  Most outsiders simply didn’t realize how little social capital was left in the system, though some of the Soviet insiders did.  Might the same be true of the eurozone?  I’m not calling these countries corrupt, rather there may be remarkably little cross-national cultural capital, and remarkably little deep public support for a costly EU bargain, so little that many German (and other) insiders know that no grand bargain can be sustained or even seriously attempted.

I believe we need to be exposed to this moral perspective, and this intellectual Turing test, as a bracing slap in the face, as a wake-up call, and I see our unwillingness to do anything with this perspective, other than summarily dismiss it as a kind of tragic juvenile moralizing, as a sign of our own decline, right here in the USofA.

Addendum: This piece is actually pretty good.

Popeye December 2, 2011 at 12:19 pm

When it comes to default, there is no moral equivalence of debtor and creditor. The debtor is the one breaking the agreement and breaking his word.

The creditor charges the debtor higher interest to make sure he is compensated for the risk that the debtor breaks the agreement. Is this moral, Mr. Markets-in-Everything?

I guess some things are just business, and other things are serious moral issues in which the involved parties can be ranked in some sort of moral hierarchy. How can we decide, let’s ask someone objective like Tyler.

David Welker December 3, 2011 at 8:31 pm

Yes, I think it is very interesting.

I would bet that Tyler Cowen is against usury laws that limit the amount that creditors can charge. Yet does he think that debtors have a moral responsibility to pay debts with 40% interest rates, even if this is completely against both their short-term and long-term self-interest?

If we are going to moralize about debt, shouldn’t it go both way? Or in other words, don’t we need usury laws?

seth December 2, 2011 at 3:19 pm

I don’t understand the turing test. Are you a liberal showing you can impersonate a conservatives moralizing or a conservative impersonating a liberals moralizing. Maybe the liberal conservative distiction does not apply here.

What I see is you quote a liberal and then take up a conservative voice in response. I don’t think this is how turing tests work.
S

Gerard December 2, 2011 at 5:01 pm

I guess I am in the narrow minority that thinks the post was self-indulgent and naive. Didn’t you guys notice that Tyler started by immunizing himself — with the subjunctive mood — before proceeding to make a bunch of baseless normative assertions? If his normative claims appeal to you, then that says something about yourselves, but not much about the world.

There is something about how national sovereigns interact within the EMU that is dysfunctional, in the sense of generating outcomes we all agree are suboptimal (I assume). Shouldn’t the priority be to figure out what that is and fix it? Moralizing is unlikely to get us there. And even it were worth the effort, Steve’s critique seems pretty devastating.

Paul Andrews December 3, 2011 at 1:15 am

Immoral:

A debtor breaks his promise, having always intended to break it.

A debtor makes a promise, then tries to make others responsible for keeping that promise. (e.g. Greece, Italy lobbying for ECB purchase of their bonds; Banks extracting taxpayer bailouts).

A creditor lies to a potential debtor in order to extract a promise from him.

Moral:

A debtor breaks his promise, having tried his absolute best to keep it.

A debtor breaks his promise after discovering he was lied to by the creditor.

David Welker December 3, 2011 at 8:28 pm

Or we might ask, what sort of relationship do you want anyway?

I think a debtor or a creditor who finds that continuing the relationship is to their disadvantage should terminate that relationship. We might call this a breach or we may not, depending on the precise terms of the contract. But the reason that people enter into relationships is because it is hoped that they will be mutually beneficial.

Another point should be made about debtors trying their absolute best to keep an obligation to a creditor. A debtor has other obligations than just to his or her creditors. For example, a debtor might have obligations to children. A debtor also has an obligation to take care of themselves. I think the standard you are proposing that a debtor try their “absolute best” is actually extremely unclear in practice. To what extend should a debtor stop taking care of themselves or family members in order to satisfy a creditor?

I am more of a utilitarian when it comes to contracts. If the contract is not sustainable, the sooner that this is admitted, the better. It is up to the creditor to do proper due diligence to ensure that the contractual relationship is in fact sustainable and mutually beneficial before entering into it in the first place.

David Welker December 3, 2011 at 8:20 pm

“When it comes to default, there is no moral equivalence of debtor and creditor. The debtor is the one breaking the agreement and breaking his word.”

I think this view, that creditors are morally superior to debtors, is an interesting one. I would not have known that Tyler Cowen held it.

As a lawyer, I think it is interesting how contracts often frame relationships into a seemingly precise set of rights and duties. Some people think if you do not breach and the other party does, that makes you morally superior. But the utilitarian view (which I would have expected Mr. Cowen, as an economist, to be more likely to hold) does not view “efficient breach” as a bad thing. Also, from a relationship perspective, isn’t it the duty of both parties to make the relationship work? When creditors enter into relationships with debtors on terms that are not likely to be sustainable and then are inflexible when it becomes clear that the relationship is not tolerable, it seems to me that they are at the very least every equally morally at fault for the failure of the creditor / debtor relationship.

I think more insight can be brought to this issue by contrasting contracts with marriage. Purely contractual relationships are for people who don’t really care about each other. If the other side doesn’t fulfill their side of the bargain exactly as specified, you don’t want anything more to do with them. A marriage relationship, in contrast, while it also involves give and take, does not revolve around specific rights and duties, but instead a mutual desire to make the relationship work through give and take of an unspecified nature. Should the European Union be considered more like a contractual relationship (where the parties don’t really care about each other) or more like a marriage relationship (where everyone has to give in order for things to work out). I think if the European Union is going to succeed, it has to be viewed more as a marriage relationship than a contract relationship.

Overall, I think it is extremely foolish to frame the issue in terms of moral superiority versus moral inferiority, as Tyler Cowen does. The question really, is the relationship worth preserving? I think from the perspective of the long-term interests of Germany, it should be.

Perhaps when a beneficial relationship is lost forever, Germany will be able to comfort itself with the belief that it was morally superior. This actually happens in many failed marriage relationships as well. I am not sure that the consolation prize of feelings of moral superiority is nearly as good as actually getting things to work, however.

David Welker December 3, 2011 at 8:42 pm

Update:

A close read suggests that this isn’t actually Tyler Cowen’s view. I didn’t get the turing test thing at first.

Nick Nolan December 5, 2011 at 7:29 am

Wow. It’s interesting how people can write articles that completely disregard raw data.

1. Economic condition in Germany is not that good either. It has bigger sovereign debt to GDP ratio than Spain. These people just assume that Germany has it better without looking at numbers.
2. Spain and Italy had their debt under control before crisis 2008. Italy had high debt but it’s debt to GDP ratio was coming down.
3. Private banking regulation in Spain is exemplary. It was not enough to prevent effects of cheap money from the Germany.

The crisis was caused by economies in eurozone being out of sync. When money from Germany moved freely to Spain and Italy, these countries did not have own monetary policy to do anything about bubble that excess money created after they had joined eurozone.

Eurozone is not optimum currency area, see: http://en.wikipedia.org/wiki/Optimum_currency_area and that’s the reason t are in trouble. ECB’s monetary policy mostly reacts to what happens in the German economy because it’s the biggest. It seems that the assumption is that other countries so something wrong if their economy is not in sync with Germany and must pay the price for it.

Alex December 8, 2011 at 9:57 am

First off I out myself as a German who somehow stumbled across this site.

While I acknowledge a healthy intellectual on this bloc, I wonder how little a lot of you know about us nowadays germans. So I give my best to try to clear up some of your points.

A. The germans and respectively their government is in a deep dilemma. We get criticized if we act to little in this crisis and we get criticized if we act to strong. A hencedown lose-lose situation in terms of morality.

B. To be fully aware and understand the germans and their todays behaviour you have to start at the beginning, the creation of the euro and the monetary union. In order to reunite Germany in 1989/90 it was a major precondition by the french (and to little extend the british) that the germans have to basicly give up the DeutscheMark and to transcend into a monetary union. Otherwise Germany would not have been reunited. To be clear, this doesn´t set us free of any responsibility of todays mess, but the germans took a giant leap towards Europe and gave up a lot of their national identity.

C. During the creation process of the Euro the Germans were extremely blunt and clearly stated that the EZB must have the same standard like the old Bundesbank (e.g. inflation-tackling policy, indepedence etc.). So every country participating should have clearly known, what our point of view was/ is. This was our part of the contract for giving up the DeutscheMark and the Bundesbank.
And to clear up the myth german fear about inflation is because of the Weimar-era, this kind of policy is based on our constitution and on an economic theory (read ordo-liberalism) which was further developed into the social market principles by Ludwig Erhard in the 1950/60 and more and more deepend during the last 60 years as an “third”way as opposed to the neo-liberalism and keysianism. The knowledge of our Weimar past is just a minor reinforcing factor.

So now to Tylers points :

@ 1. Wrong premise. When making a contract the creditor has the responsibility to make a due dilligence on the debitor and has to have a transparent contract. Once the contract is made the main responsibility shifts toward the debitor. If the debitor now defaults, he has to bear the consequences : a) getting probably no further credit (if he completely defaults) or b) renegotiate the contract terms in which the debitor gets tougher terms, but the creditor has to make sure the debitor can meet the new terms.
This is not only conventional wisedom in Germany, but law as well plus upholded by germans highest federal court many times.
The 50% haircut for the greeks was initiated by the german government and fiercely fought by the banks and other government like France, because not only the german government, nearly all lawmakers and the vast majority of german public/people acknowledged that the greek people need the chance to recover (and have the right to).
Creditor and debitor have shared responsibility in this whole process, to only presenting one part in this complex is an intential mislead and a false premise.

@ 2. Absolute wrong perception of the german point of view. Germans don´t think that the periphery countries don´t want to pay back their debt.
The germans think that the greek people were held hostage by former incompetent mafia-like governments and a totally messed up tax office, therefore the germans have sent money, technology, man-power and knowledge to help re-building their infrastructure, no laws, no “we take over”, just well-intentioned help.
The germans are totally amazed and surprised why italy is in danger and think the italians are under attack by greedy hedge-funds, but are sure the italians sort this out.
Of all southern nations the germans have built the closed ties with Spain over the last 10-15 years, hell will freeze first before we let them down (On top of that, germans investing like mad in Spain and still do).
If you believe that germans don´t understand the existing wealth in these countries, the assets they have and the abillity to pay back their debt, we would be the worst buisness people in the entire history of mankind.

@ 3. Germans don´t think it is a privilege for poorer countries to be in a economic union with us, this is nonsense. But we think that all members of this union have the responsibility to keep their house in order, or leave.
We had an open discussion within the german public and lawmakers whether or not the greek people should leave the Euro or not (on their own terms). The vast majority of lawmakers and public were in favor of the greek people having a vote/say in their own future.

@ 4. Every German knows, we made a lot of mistakes during the reunification process. But you have to get your historically facts correct on this issue.
The Germans had barely more then 1 and a half month for the whole negotiation process to re-unify Germany. The reason why is: a) Gorbatschow got substantially pressured by the soviet hardliners not to give up East Germany and was overthrown shortly after the reunification vote, b) record numbers of east germans moving west and even more in threating to come ( a common east german phrase was “if the DeutscheMark doesn´t come to us, we are coming to her”). If you read some historic documents, you would realise the unification of Germany was nothing short of a miracle.
So, we had a speed up country merger, sure there had to be mistakes – this is common known fact. But there was historically no real alternative – fact as well.
Now what, playing “cry baby cry” ? We sorted this out and rebuilded the East (and still are). I don´t see any harm in it to be proud of what was achieved.
We have paid a solidarity tax at 3%, basically 2 trillion euros over the last 20 years our eastern brothers and sisters.

@ 5. True. This is in fact a german point of view (but I would say shared as well throughout all successful north european countries).
But part of this truth is that the strong economies transfer wealth via the EU regional fund to weaker economies to help leveraging them.

@ 6. No german view. This is just a populistic rant.

@ 7. Can´t see a german point of view in it.

@ 8. The germans don´t see rules as a self-fulfilling purpose or blindly follow every rule. This is WW2 stuff and has very few in common with modern day germany.
Germans believe in a level playing field and in setting economic/social boundaries in which everybody can develope in his own way. Setting commonly agreed rules is just a small perk in any civilized society. I highly recommend you to read the theories of ordo-liberalism and the social market principles if you want to understand the economic boundaries set. In terms of the social “rules” the germans are no different then any other nation inside the EU. The “Don´t walk” example is just laughable and plain ignorant – have you ever been to Germany ?

@ 9. I would say this is a 50:50 among germans, mostly depending on your political colour.
Among more economically right leaning it´s more a sign of productivity, among more left leaning it´s more a sign of subpar internal stimuli. But either way, you can´t blame the germans for producing others want to buy. Alot of this stuff is bought from outside the EuroZone as well and we had an even stronger export surplus during the time of the DeutscheMark, which most people often like to forget.

@ 10. This view actually exists. We like our neigbours, we want them to have success and are willing to contribute to a commonly shared project. Guilt as charged.
But the will to contribute as boundaries as well, we are willing to pay into it but don´t want to be held hostage as you could see in the eurobond discussion.

@11. Already mentioned above under C.

@Conclusion: I challenge you on that.
a) First a monetary union doesn´t work without a fiscal union with correction mechanism, so the French-German approach is a good one and consistant with economic theories if you want to preserve the Euro. b) Second Eurobonds take away any reform incentive, this is hot money again. c) Making the EZB lender of last resort and doing unlimited bond purchases does contradict the primary goal of the EZB (inflation tackling) and d) you make the Euro to the b*tch for the financial market indefinetely, because the speculators know they will get bailed out.
e) You would be right that spending cuts alone won´t do the job, but I am pretty sure that there will be some sort of marshall-like plan in which the stronger economies jumpstart the weaker ones, because it´s already discussed for month that cuts can only work in conjunction with targeted stimuli.

But you can´t have the (e) stimuli if you don´t do the (a) fiscal union first.

P.S.: I don´t reread my comment, so please forgive me if I made any type of misspelling or grammar error. It´s not my first language. Best wished and good luck to us all ;)

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