In his book, the author strongly criticizes the ECB for not having enough resources to combat inflation.
(Photo: imago images/Hans Lucas)
Dusseldorf Bundesbank President Joachim Nagel has not done a good job in the inflation crisis since the start of the Ukraine war. At least that’s the impression you get when you read “Expensive” by Maurice Höfgen. Because at the end of the young economist’s new book, things get really exciting.
Höfgen, who has an interesting dual role as an economics influencer and employee of the left-wing member of the Bundestag Christian Görke, analyzes there brusquely and at the same time convincingly why the national central banks and the European Central Bank simply lack the means to reduce the current price increases to a manageable level .
>> Read here: 25 years ECB – an everlasting provisional solution
Bundesbank boss Nagel is quoted extensively on fighting inflation, but Höfgen attests him “superficial bogus arguments” – and immediately sets about dissecting the strategy of the central banks. His biggest criticism is that the ECB does not have any further steps to influence the price development apart from raising interest rates and managing its own bond purchase programs.
But this limited arsenal of the central bank is politically desired, says Höfgen himself. After all, its independence is considered a historic achievement, a kind of technocratic safeguard against current political desires.
However, interest rate increases in the current situation do not reduce energy and food prices, but primarily make credit more expensive, which in turn leads to less investment, a slowdown in the economy and lower wage increases for employees. The central bank is thus curbing those expenditures that could depress energy prices in the long term, such as investments in LNG infrastructure or new wind turbines.
In fact, the head of the Bundesbank never tires of emphasizing that further rate hikes will be necessary. “Of course not everyone likes that,” said Nagel recently at an event of the CDU economic council. But other unpopular decisions would also have to be made, because stable growth is not possible with high inflation.
Maurice Höfgen would probably agree, but he is reluctant to look stubbornly at the ECB’s two percent target – the collateral damage caused by higher interest rates and the resulting uncontrolled collapse in demand is too great.
Who really knows how high inflation will be in the future?
The author also clearly criticizes the central bankers’ persistent view of so-called inflation expectations. They play an important role in the economic theory of monetary policy because – at least in the model – they influence consumer behavior.
In short: If I expect inflation to rise, I may prefer to make purchases – and with my additional demand I contribute to further price pressure. I also demand higher wage increases to maintain my standard of living. However, companies that also have inflation expectations may raise their prices – a wage-price spiral could result.
>> Read here: Crises, inflation and record profits – how does that fit together?
The central banks attach great importance to this mechanism working. They also expect that persistently high inflation will mean that consumers and companies will continue to calculate with high inflation in the future.
But which person who is not professionally involved in monetary policy already has a reasonable answer to the question “What inflation rate do you expect in two years?”. Höfgen has a point when he argues that any “signals” from the ECB’s decisions can hardly be identified and understood by the population.
So what remains to fight inflation when the ECB can only take limited action? The state should use its own spending to reduce energy prices, says Höfgen – and has already done so many times, as the author lists in the first chapters of his book.
Maurice Höfgen: Expensive!
dtv publishing company
Berlin 2023
240 pages
20 Euros
As expected, Höfgen’s demands go further. As a follower of Modern Monetary Theory (MMT), he postulates: “Money is not scarce, but resources are scarce.”
Germany and Europe would need a decade of investment to make their own energy supply independent of fluctuating world market prices, thus curbing inflation and at the same time accelerating the ecological restructuring of the economy.
All of this is only likely to succeed with strong help from the state, which could at the same time take on a more active role in efforts to stop price increases. A demand that comes as little surprise to someone working on the left. Finance Minister Christian Lindner (FDP), the advocate of the debt brake, would have to convince Maurice Höfgen.
More: Wanted: The best business book of the year