In a 2017 blog post, I wondered why Germans remember the hyperinflation of the Weimar Republic era.
Nils Redeker, Lukas Haffert and Tobias Rommel have recently published a paper about this very question. In Misrembering Weimar: unpacking the historic roots of Germany’s monetary policy discourse, they show that
most Germans do not know that Germany’s interwar period was shaped by two separate crises, but rather see them as being one and the same.
Looking back into a skewed version of their own history, many Germans conclude that mass unemployment and high inflation are just two sides of the same coin. What makes this worse is that this misconception is especially prevalent among well-educated and politically interested Germans. Hence, the group of people following the ECB’s monetary policy most closely is also the group most likely to draw the wrong lessons from German history. But public thinking about Weimar economic history is not just substantially flawed. We can also show that the skewed memory of the Weimar Republic still affects the way in which at least some Germans think about monetary policy today.
The ten year anniversary of Lehman Brothers’ bankruptcy is fast approaching. Some quick thoughts on what has changed and what we’ve learned over the past decade, with a focus on Europe.
- Banks are much safer now than they were in the summer of 2008.
- There’s a remarkable lack of entrepreneurship in banking. A few fintechs offer payment services, but payments are only a small part of banking. Where are the new banks?
- Related to point 2, and something I’ve changed my mind about over the years: bailing out the banks was the right thing to do. I highly doubt that we would have experienced much creative destruction by letting the financial system collapse. That being said, the way the bailouts were done was horrible.
- The way the European establishment handled the euro crisis was an abomination. Fiscal and monetary coordination across Europe would have resulted in lower unemployment, lower debt, lower taxes.
- Notwithstanding the importance of money in people’s daily lives, financial literacy is still limited.
The South China Morning Post ran a series of articles about the Spanish trade between Asia and Mexico that started in the 16th century.
Nice illustrations describe the journey, the construction of the galleons, life aboard, silk, the Spanish dollar…
Start here: The China Ship – chapter one.
H/T to FT Alphaville for linking to the series.
In a recent episode of the Macro Musings podcast, David Beckworth talked to professor and author Laurence M. Ball about his new book The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster.
Starting around minute 45 of the podcast, they discuss the role of Henry Paulson, the Secretary of the Treasury. Professor Ball notes that “It was Paulson who was making the decisions. That’s a little bit odd, because legally, under the Federal Reserve Act, it was the Federal Reserve’s job to decide whether or not they made loans. The Treasury Secretary legally didn’t have any more role than the Secretary of Agriculture or the Governor of Maryland. But Henry Paulson just arrived at the New York Fed and started saying what was gonna happen and people did what he said”.
This doesn’t surprise me one bit. In times of crisis, you cannot avoid politics.
In ‘The next crisis’, the final chapter of Bankers are people, too, I wrote
“It remains to be seen how long regulations will keep risks in check. When a major (shadow) bank fails in spite of all the monitoring and supervision, the value of the institutional framework will become clear. Because of the importance of banking to the economy, I am sure that the highest officials
in government will be involved if a too big to fail bank is about to collapse, whether or not that is against the law.”
So much for legal constraints during a major crisis.
This is a review of a book written over 50 years ago by a central banker.
Based on that introduction, even most finance geeks will probably think “boring!” or “irrelevant!”. Until you learn it has Nazis, hyperinflation and the Nuremberg trials in it. And those are not even the interesting parts. Continue reading “The Magic of Money”
David Beckworth recently interviewed (podcast) professor Jesús Fernández-Villaverde. Among other things, they discussed the hyperinflation in the Weimar Republic, i.e. Germany after World War I. The economists ponder why a hyperinflation that occurred in 1923 has had such a large impact on German economists and central bankers, even to this day. After all, the NSDAP rose to power in the 1933, at a time of mass unemployment and austerity. This was almost a decade after the hyperinflation ended.
The professors get to the hyperinflation at 8:20 into the conversation. Fernández-Villaverde tells the story of how inflation got out of hand when French and Belgian troops occupied the Ruhr. The Weimar government encouraged workers to resist the military occupation. Strikers were paid with money freshly printed by the Reichsbank, the German central bank. The combination of no real economic production with an increasing amount of Papiermarks tanked the purchasing power of the currency. The hyperinflation began. Continue reading “Why do Germans remember the Weimar hyperinflation?”
As the end of 2016 is quickly approaching, it is time to reflect on the past year. For people working in large bureaucratic organizations like banks and government, this means filling out performance evaluations. Organizations collect these records of their employees’ professional histories. Managers can use old reviews to motivate (non) promotions of their subordinates.
One intriguing aspect is the fact that employees are expected to write negative things about themselves. In management speak this is called “opportunities for growth” or some other bullshit term. But basically the writers have to incriminate themselves. The self-evaluation provides the proverbial rope for somebody to hang them with.
This reminded me about something I read in a book by historian Orlando Figes on the Soviet Union. Members of the Communist Party had to write an autobiography which was regularly updated. The higher-ups in the hierarchy could use these documents to control their underlings and their rivals.
The more you think about it, the more parallels there are between modern business life and Soviet society.
It is well known that corporations are not democracies nor markets. But this post focusses on the cultural similarities that caught my attention. Continue reading “Annual reviews and other Soviet business practices”
Elites cannot act against their own interests, right?
Donald Trump has been running a populist campaign against the establishment. To many of his critics, this is absurd.
Why should a billionaire care for the working class? How can a man whose shirts and ties are made in China be against trade deals? Is Trump credible when he calls for a wall at the US-Mexican border, knowing he hired Mexican workers himself?
Trump is so much part of the elite that his Democratic rival Hillary Clinton even attended his wedding to Melania.
It appears that Trump belongs to the establishment which benefits from the status quo. Why would anybody who is a ‘winner’ in the system want to change it?
These critics, however, miss two important points.
First of all, the critics assume that members of the elite are only motivated by their personal financial interests. This, however, denies human nature. People have strong feelings on what is just and right. Elites have the means to become champions for others they sympathize with. Continue reading “From Moses to Trump: elites against the establishment”
A conflict with Turkey and Russia on opposing sides. The violence causes a stream of refugees towards Europe. Are we talking about Syria in 2016?
Although history never repeats exactly, there are a remarkable number of similarities between events of today and what happened in 1864. Over 150 years ago, there also was a caliphate and terror motivated by religion.
The Ottoman Empire has fought a series of wars against czarist Russia. These great powers had conflicting interests in the territories bordering the Black Sea.
When Russia conquered the Caucasus in 1864, it ethnically cleansed the indigenous peoples. Hundreds of thousands of Islamic Circassians fled to the Ottoman Empire. Many of them went to the Ottoman provinces in the southern Balkans, what is now Romania and Bulgaria. Continue reading “The sultan, the czar and the refugees”