Even after his time as an “economic sage,” Peter Bofinger remains an influential voice in economics. What he says about the role of the state in the current economic situation and how he thinks about tax cuts.
No one has been an “economic sage” for longer than him: until 2019, Peter Bofinger represented minority positions on the federal government's advisory committee and spoke out in favor of a demand-oriented economic policy, which he repeatedly offended by his market-liberal colleagues.
Even today, Bofinger is still a highly sought-after contact and regularly appears as an expert away from his university in Würzburg. Last week, the economist took part in Entrepreneur Day at Tegernsee, a meeting of business leaders, investors and politicians who discussed the big questions of today.
t-online was there and met Bofinger on site for a discussion. In the interview, the economist explains why tax cuts are worse for all companies than targeted government subsidies to stimulate the economy and brings up an interesting idea for pensioners.
t-online: Mr. Bofinger, as an economist, how much do you fear that Donald Trump will become US President again becomes?
Peter Bofinger: As an economist, not so much. When it comes to economic policy, the difference between Donald Trump and Joe Biden is less big than some people think. Like Trump, Biden is pursuing an America-first policy – he calls it “Made in America”. His “Inflation Reduction Act” specifically promotes the domestic economy. Donald Trump would continue this in the same way, and little would change for the German economy.
But Trump's policies are likely to become even more protectionist, for example through higher import tariffs.
That may be so, but at least it would be the same course, the known direction. What's much worse than that: Trump's political style is generally more erratic and unreliable. Political uncertainty in particular can have negative effects, including on the German economy. This is also why I advocate that we rethink our German business model.
Germany is traditionally an export nation. Selling cars and machines abroad has brought us great wealth; that was our business model for a long time. However, this business model is now coming under increasing pressure. The peak of globalization is behind us; we can no longer rely solely on our export strength, but must grow more from within.
If we don't take countermeasures now, part of the construction industry is in danger of disappearing completely.
Peter Bofinger
By strengthening demand in Germany. A comprehensive state housing program would have the quickest effect. The construction situation is dramatic. If we don't take countermeasures now, part of the construction industry is in danger of disappearing completely. A construction program can kill two birds with one stone: it would both stimulate the economy and reduce the housing shortage in many cities. And it would even have a third advantage.
This would make people in Germany see: The state is doing something for us, it is taking care of one of the most pressing issues that concerns many people. Living space is very scarce in many places and rents have risen sharply. This leads to social tensions.
How big would such a housing program have to be?
The “Social Housing” alliance is calling for 13 billion euros for the years 2024 and 2025.
That's a lot of money – which the state will hardly be able to raise given the current budget situation.
I am aware that there is a shortage of money in the state budget after the Federal Constitutional Court's decision. This makes a reform of the debt brake all the more urgent. The finance minister celebrates the fact that Germany has one of the lowest national debt ratios in an international comparison. But this is a wrong setting of priorities because we lack the financial flexibility that we need for the upcoming transformation of our business model. In no other major economy in the world are future investments being put on hold because of fears of national debt.
In addition to more housing construction, what else can lead to a revival of the economy, as both Finance Minister Lindner and Economics Minister Habeck want?
Everything that serves to transform our country. Large companies are already shifting their investments to the USA and Canada because they receive extensive government support there. Similar to what the “Inflation Reduction Act” provides in the USA, for example targeted funding for companies that want to invest in renewable energies and electromobility.
