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The new pension system could potentially yield returns in some decades.
In the short term, it requires increasing the already high savings rate, which removes money from economic circulation and lowers consumption.
How lower demand is supposed to entice companies to increase investment, is beyond me.
Ah yes, the perpetually 20 years away fusion industry, the “quantum” industry, AI aka the currently biggest bubble in the world, batteries where Varta just went insolvent and the economic minister is actively slowing down the growth of energy storage.
I’d very much like to see these “detailed plans”.
Besides the higher savings rate already depressing demand, neither longer work hours nor modernization of the public sector would increase demand. If you believe in linear productivity, longer work hours could increase supply. But that wouldn’t help the economy because it’s already producing under capacity due to insufficient demand, in particular from abroad because exports were the business model of the last decades.
And please let me know where the higher wages come from. The pension reform will increase social security contributions and lower net wages and I have heard nothing that would increase gross wages.
From the German orthodox economic policy standpoint (only used to supply side interventions), all your points are obvious. I think that explains the pervasive negative bias among Germans about their economy. This is the first time ever Germany deals with a structurally reduced demand from abroad. So the policy response is new in that way.
I'll try to respond to your points.
capital market reforms are largely about how to increase firms and households investment inside Germany vs abroad, and how they invest it. Think of how Swedish pension funds vs German pension funds invest their money. Germany has a lot of savings (no need to increase them) that are badly invested and lossmaking (here you need the policy intervention).
voilà! https://hightech-agenda-deutschland.de/
more hours worked per employee at same activation rate, more disposable income, more household expenditure. More public sector modernization (more construction works for schools, bridges, roads, cables, fleet, IT systems..), more demand.
That may be, but that is primarily a personal finance problem. The economic advantage of such pension funds is that it can provide dividends that can then be spent but that takes time. And these dividends must be created by some form of economic activity, which in international funds happens abroad, not domestically.
The money for investment that capital markets can provide only helps companies that want to grow. Companies only need to grow if they see or expect demand that they can not fulfill with their current capacities. That is for the most part not the case for the current German economy.
As I said before German companies have more capacity than demand. If demand does not pick up soon they will fire people they no longer need. The economy does not need more money in capital market right now, it needs more consumption.
Thanks for that but honestly, these are just fancy wish lists. Their detailed plan for fusion is:
I must admit, I had to look up activation rate. It's not the most common metric in the manufaturing industry where all these endangered jobs are currently. But it seems to me that if workers are supposed to work more and the success metric does not change, then that means effectively less productivity. Surely, if anything, you'd want the opposite.
Yes, both would be great. Now, where exactly are these supposed to come from? As mentioned, the pension reforms will reduce net income.
Again, yes please, but where is it?
Before the government was voted in they quickly negotiated a reform to the debt limit and set up a special fund that was supposed to be used for "additional investment" only. During the last year they moved all already approved investment from the regular household to this fund so they had more room for non-investment spending.
It's not a personal finance problem. These investment decisions are not made by individuals mostly, but by funds and their regulators.
There are many growing markets where capacity does not meet future demand (future is really key here). Those markets are likely the 6 industries in the new German industrial policy. The plans are not wishlists since they were jointly compiled by firms, research orgs and governments.
About the domestic demand: well, both investment and additional investment in public sector works increase demand.
About household incomes, these increase when you earn more money by working more.
I thought you were talking about the structure of German savings using not enough stocks or funds.
What makes you think that a) existing funds are not investing correctly and b) that the new pension system would change that?
So, we have estimates that the car industry alone could lose 140k Jobs till 2035.
How many of these will be employed in these 6 cool future industries by then? The battery industry could lose 3000 Varta employees pretty soon.
Yes it can, and I just explained how the government has misallocated additional investment funds to already planned investments.
So where are these additional investments coming from?
a) That only hods true for people with hourly wages, not monthly salaries
b) For hourly jobs, that means that the labour costs remain unchanged. If companies actually needed more labour at the same cost, they could just hire more people. We have over 6% unemployment with massive announced job cuts for the next years.
c) I've already explained twice that there is currently not enough work to be done. Companies don't pay people to stand around and do nothing. Demand need to rise
Swedish pension funds invest a large share in global equities. German occupational pension institutions traditionally hold much larger shares of bonds and insurance products with capital guarantees. Since equities have historically outperformed bonds over long horizons, Swedish returns have been substantially higher.
About the six future industries, taken together, probably more people will be employed there than in the car manufacturing industry. It also will make Germany more resilient against industry-specific shocks. (The battery part of the high-tech strategy is NOT about contemporary technology like Varta, I should have specified that. Totally different technology, just like quantum computers and current computers are not the same.)
In total, public sector expenditure on works has risen, even if half of it has been spent on projects that were already planned before the debt break was loosened. You are right that the additionality share should increase to achieve more demand growth.
About the wages, yes, that is partially correct. Many employees with monthly wages choose to work part-time and would earn more by working full-time. I'm surprised you would not immediately think of this group of employees. I hope we are trying to understand each other here.
That sounds great if it turns out to be true. Cars alone can’t be the future. Do you have any reliable estimates for how many will be employed there and by when? The time window to get the soon unemployment auto workers new jobs is likely quite short.
Probably because these people deliberately chose to work part time and could always have worked full time if they wanted and have nothing to do with current government reforms?
I have no accurate estimates about the future industries since it's too uncertain. But there are lots of guesstimates out there, that's what consultants are for after all...
Higher premiums for overtime (only for fulltime employees) and holidays and lower income taxes can help change those deliberate choices. Also, maybe the SPD will end the subsidies for non-working spouses.
I wish, you would share some because as much as these techs are interesting fields of research, I have high doubts that they will provide significant employment in the near future.
As for overtime, Germans are already working over a billion hours of often unpaid overtime per year. They don't need incentives to work longer, they need the work they already provide to be reimbursed first.
Just ask chatgpt to find some papers with guesstimates. It's really good with that.
Both paying for current unpaid overtime and more paid overtime would drive demand. It's all about raising household incomes!
Yes, let’s agree on that part at least and let’s hope that it happens at some point.