Crown relief: now the social state economy rules

DThe social state economy took command. He uncompromisingly shut down the market economy and capitalism. Bureaucrats in Berlin or Brussels give orders.

Today it is them, and not local customers, who decide which companies will survive, who will be saved with what injections of liquidity, and who will be left to their own devices.

They determine who is systemically important, not the consumers’ willingness to pay prices for goods and (services) to cover their costs.

Fresh capital is available not only for free in an almost unlimited amount. No, the European Central Bank (ECB) is even turning the fundamental rights of capitalism upside down with a new PEPP bond purchase program. When commercial banks borrow money from the ECB, they do not have to pay for it these days.

The gift from the ECB sparked the joy of bank shareholders

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You will be rewarded with a bonus of up to one percent of your loans. Is it any wonder that in June 2020 commercial banks acquired new capital of a record 1.3 trillion euros?

Commercial banks could thus “earn” up to EUR 13 billion without making any efforts. A gift from the ECB that made shareholders cheer for well-positioned banks. However, for failing credit institutions without a viable business model, this helps to delay the failure a bit at best. However, the credit market, which is thus protected from all real threats, has nothing to do with capitalism.

The balance and indifference with which society accepts the fact that the foundations of the social market economy are destroyed during a pandemic are shocking.

Thomas Straubhaar is professor of economics, in particular international economic relations at the University of Hamburg

Thomas Straubhaar is professor of economics, in particular international economic relations at the University of Hamburg

Source: photo alliance / SCHROEWIG / RD

It is by no means a small matter when the economic system is turned to ashes, which not only made the Federal Republic economically strong, but shaped society like nothing else and, despite all its differences, also united them.

This is a collateral damage to the successful fight against the pandemic. It can threaten much more than just welfare. It also limits the chances of children for a better life.

Massive demonstrations for the climate and against racism are rightly so. On the other hand, there are no marches of protest for the social market economy. Nobody is fighting for it – not even the trade associations themselves.

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Everyone has different concerns. You fight more or less selfishly for your own economic survival. Perhaps the interests of the industry or region to which it belongs are also defended, but not of the entire social market economy.

What they have in common is the mutual pursuit of benefits at the expense of third parties, ie even more state guarantees of existence, even richer economic incentive packages and even more generous subsidies from the public coffers.

At this point, it is by no means a revival of the old ideologized cultural warfare between “markets” and “states.” It was and is a fundamental part of the social market economy that only a strong state can ensure the freedom of the markets.

Only he is able (and has sovereign power) to reliably guarantee individuals basic rights and freedoms. It is important to prevent arbitrariness, market power and the abuse of power, facilitate competition and enable people to realize their potential.

The government and politicians have done a lot rightly

The state should effectively organize and finance public goods, public services, infrastructure, education and health, and ensure greater justice through taxes and social benefits.

Especially in crisis situations, the state is called to act quickly, appropriately and purposefully as an emergency helper and stability anchor. There has been, and there is no doubt about the essential necessity of a well-functioning state for economic and social welfare – especially not in times of a pandemic.

In recent months, the government and politicians have done some things well and others so well that many around the world are envious of Germany’s crisis management.

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This year, Germany's economic output is plummeting.  According to the federal government's forecast, GDP is expected to be minus 6.3 percent.

However, praising the state is not a ticket to a coup against the social market economy. Fiscal and monetary policies are aimed at smoothing the business cycles. In times of crisis, a lot can be said about interest rate or tax cuts and additional government spending, such as the government’s bold advertised “Wumms” program, to stimulate demand. Increased consumption and investment by private and public individuals should result in higher sales and thus increase production and, consequently, employment.

However, when the state becomes particularly strong for individual sectors and corporations, and even acquires stakes in individual companies and has a say in day-to-day operations, it lacks the appropriate skills and credibility. He forgets that favoring one always means putting everyone at a disadvantage.

The tragedy is that in recent weeks, (economic) politics in Germany has pursued “whatever it takes” to stabilize the economy, thereby jeopardizing what it allegedly wants to save. This is due to a loss of proportionality.

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With the presumptuousness of their almost limitless financial transactions, politics undermines any acceptance among the population for the petty sacrifices they demand of individuals for the good of the whole.

In the social economy of the state of the pandemic, trillions replaced billions in public budgets. Millions become decimals and everything below is pushed to trivial amounts.

In the face of such enormous financial transactions with so many zeros, how must a normal person who struggles for a single-digit net hourly wage every day to be able to finance the daily life of a family with his own contributions?

How seriously one takes partners in collective bargaining day and night to bargain for positions far beyond the decimal point in wage bargaining, is the compromise still bearable for some and acceptable for others.

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How much understanding can you still expect that the statutory minimum wage has only increased by exactly ten percent since its introduction in 2015-2020, from € 8.50 to € 9.35 now, and that further increases are only to be made at a creeping pace to keep the economy not overwhelming?

How do the people who now have to apply for the Hartz IV react when they learn that the increase from EUR 424 to EUR 432 is the maximum the state budget could bear and that each euro had to be compensated in excess of additional income limits?

How good is the mood in companies that are struggling for every penny on the cost side in the struggle to survive overnight so they can retain and reward their workforce when competitors (in other industries) are backed by millions if not billions?

How far will generosity go in the future?

Anyone who deals with the bigger picture cannot lose sight of what is small, local and communal. It has to rely on the invisible hand of the markets, not the managerial and often hands-on politics.

Individual effort and results are devalued as the social state economy, at all times, draws money from the income they have earned, and then distributes it in the trillions to companies or struggling sectors.

Self-employed, freelancers, cultural, artisanal, micro or one-man businesses consider it unfair to charge them taxes, duties and late fees to the nearest euro and cents, but allegedly important large enterprises receive a state guarantee for their survival. When campaigning for votes, small and medium-sized businesses are rightly considered the backbone of the economy.

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ARCHIVE - October 22, 2019, Hessen, Frankfurt am Main: The lights in the offices of the European Central Bank (ECB) shine in the last light of the day.  (To dpa

State funding prohibited

First of all, how far will generosity go in the future? Does the unlimited promise of social assistance to the state economy also apply tomorrow or the day after tomorrow, when another crisis or pandemic hits society and the economy? If not, why not? Shouldn’t the disabled of the future be treated in the same way as the victims of today? Anyone who opens the box of lust will find it very difficult to suppress future claims.

The social state economy breaks down the will to act and thus weakens the ability to act. Resentment will simmer, tax morale (further) will weaken, and the overall understanding will be lost. But it not only threatens the social market economy.

In fact, this should lead to the erosion of community and solidarity – including the social state economy. The first signs of this can be seen today. It is high time to stop, turn around and return to the social market economy. Only in this way can lasting prosperity be guaranteed for all.

The ECB is issuing new loans totaling € 1.31 trillion

The European Central Bank (ECB) provided trillion loans to euro area banks during the corona crisis. The interest rate on the loans is negative. This way, banks receive a bonus when they access funds.

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