Interview with the winner Markus Brunnermeier

In order to cope with the tasks that society is faced with today, be it the Covid 19 pandemic or climate change, everyone’s resilience is important – which he does not want to be understood as being synonymous with robustness. It is also important, according to Brunnermeier, “that the state takes the citizens with it and communicates – so that the dangers referred to do not arise in the first place.”

Brunnermeier, born in Landshut, teaches economics at Princeton University in the USA. Markus Brunnermeier won the German Business Book Prize 2021 with his theses.

Read the entire interview here:

Mr. Brunnermeier, the word resilience is on everyone’s lips. What motivated you to deal with this topic?
I’ve been into this for a long time. Quite simply because some things that look more volatile are not that threatening – and some things that appear stable actually involve a lot of risks. Resilience means to be flexible in a crisis and to bounce back quickly.

And the corona crisis did you move to publish this book?
The pandemic is a completely new type of challenge for society, which raises fundamental questions. Checking resilience was now the common thread. Basically, I had previously wanted to record the findings of the “Princeton Webinar Series” I initiated in March 2020 with leading scientists and economists.

The pandemic suddenly posed the question of how to become more resilient, for example through vaccinations.
Individuals can be very resilient, which is also very important. But in response to crises like Covid-19, the resilience of society as a whole counts, which puts the interaction between people at the center.

How does your approach help us to better understand current crises?
Before the 2008 financial crisis, the economy appeared to be in good shape. It was the calm before the storm. Typically, the economy is not very resilient in a financial crisis. After the break-in, it takes a long time to get back to the old state. It is different when the central bank fights against overheating with a restrictive interest rate policy – then conditions improve again after a short-term recession.

And how do you classify the Covid 19 crisis, which has affected the global economy for a year and a half?
In contrast to the financial crisis, there was no major bubble here that needed to be corrected. After a shock like a virus outbreak, you recover relatively quickly. And politicians were able to dust off the old instruments from the period after 2008 and use them again. The American Federal Reserve prevented a deep crash in 2020 by purchasing massive amounts of securities. And above all, this time fiscal policy has acted much faster and more sustainably with billions in programs. Corona wasn’t anyone’s fault either. The willingness to help out and to be aggressive was greater.

One cannot speak of a quick recovery in the western economy after the financial crash. With zero interest rates, even negative interest rates, we have, so to speak, permanently set up a temporary arrangement – which is called the “new normal”.
Yes, that is why there is no need to ask monetary policy to be more resilient. The leeway is no longer there. Fiscal policy now has that; with such low interest rates, debt servicing is also very cheap. However, low interest rates cannot be permanent. If debts continue to build up, there is a greater risk that interest rates will rise at some point – and that there will be distortions. I see a danger in the emerging markets.

And in Europe and Germany?
Fortunately, we had built up reserves after the euro crisis. Now politicians should try to reduce the debt and create new reserves for the next shock. Only then are you more resilient.

How should a society striving for resilience build up such capital buffers when it is confronted with several gigantic challenges at the same time: climate catastrophe, digital disruption, economic wars, risk of inflation? The state will not have to save, but will have to invest.
You have to take certain risks if you think that this will lead to higher growth in the long run. For environmental policy, this means researching new technologies. That will cost, of course. On the other hand, private savings are currently high, but investments are very low. So there are enough financial reserves that can be used for important investments and a new ecosystem. We were always caught up in the chicken and egg problem when it came to future fields. Nothing happened. Now we can’t do anything else!

Are you confident about social resilience in terms of climate?
Yes, I am optimistic. Curbing consumption and stifling growth would not help the environment, by the way. In the lockdown, CO2 emissions only fell by 5.8 percent. You see: some risks are easy to get out of, others are like a trap. Some, in turn, can lead to tipping points, from which the conditions fundamentally change – for example, if the Gulf Stream were to weaken.

More about the Business Book Prize 2021:

The pandemic has demonstrated the dependence on suppliers in countries like China for many. Even now there is a lack of raw materials and preliminary products everywhere in the West. Does more resilience mean less globalization in the future?
The new situation can be countered with “re-shoring”, ie with the plan to bring operational business back again. The more suitable approach is “multi-sourcing”: Here you organize the materials and products from several companies in different continents. In practice, companies do both; multi-sourcing would be better for global resilience. We also want emerging countries to emit less CO2 – then investments must be made there.

The prerequisite, however, is that important raw materials are available internationally at all – and not, as is currently the case, strategically scarce by a budding world power like China. Then the resilience is quickly over.
In the short term, that’s a problem. In the long term, engineers will invent new technologies so that these raw materials are no longer needed. You can see that in battery technology. Many are working to replace raw materials that China has monopolized. Of course, this can take up to 20 years. The states would have to make geostrategic corrections in the surrounding area. It is not possible for one to say “America first”, the other “China first” and the next “Europe first”. It is to be feared, however, that the same will happen. Europe must position itself and act as a moderator.

In your book you quote the fable of Jean de La Fontaine, according to which the reed is more flexible in a storm than the old oak, which bursts …
… that is the very important difference between resilience and robustness.

But what does that mean for forms of government? Is an autocracy like China with long-term planning of world domination suddenly superior to democracies in which the concepts with the heads of government and economic leaders change every few years?
I do not believe that. Authoritarian states are outwardly in good shape, but when the successor of the almighty leader comes, they will topple over for a while. Authoritarian states are prone to mistakes made by overpowering leaders. Just think of Mao’s Cultural Revolution, which brought great hunger and poverty. Democracies are much more resilient.

What was the most surprising finding for you while working on the book?
The most far-reaching are the recommendations for a social contract that ensures resilience – in contrast to robustness and willingness to take risks. It is important that the state takes the citizens with it and communicates – so that the dangers referred to do not arise in the first place.

How should the political system change in this regard?
Every crisis cannot be estimated. The state needs a good monitoring system and flexible instruments. The good thing about it: a resilient strategy is easier to communicate than a crisis avoidance strategy. A good resilience manager is always there as a hero, a crisis man, on the other hand, struggles with acceptance because he demands a lot from people. It is also important who appears as a role model in the media: an innovative guy like Elon Musk or a principled CEO who sticks to his strategies? Flexibility, agility is the most important thing. It starts with school education. Entrepreneurial thinking helps.

Who has the higher level of resilience: the USA, where you work, or Germany, where you were born?
Americans are often weak at the start of a crisis. It was the same in the pandemic. But then they come back like a stand-up man. The mentality here is that you can go bankrupt and then make your comeback all the more. Those who fail in Germany, on the other hand, are stigmatized.