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Comment by kryptiskt | Hacker News Reader

The economic engine of the Eurozone, Germany, keeps stepping on the brakes because they are so obsessed with their competitiveness and running huge trade surpluses. If the German consumers would finally be allowed to a bigger share of all the gains from their productivity it would be good for the whole of Europe as the biggest problem is weak demand. But no, we can't have that because then their trade surplus would shrink. Never mind that all the other EU countries are supposed to absorb a big part of that trade surplus while being scolded for not being as frugal as Germany.

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Germany has slowed down because the productivity gains from 20 years ago ("Agenda 2010") have run out of steam (Merkel didn't do anything for productivity for 16 years), more recently consumer demand has decreased because Germany was hit by high gas costs (everyone heats with gas) and the current government increased costs for consumers (e.G. everyone needs to replace their gas heating - driven by the minister for the economy, madness! - who is a vice chancellor and therefor minister for economy but needs to play to his green base and does environment policty instead of economics) - so consumers have a very negative view of the future and are very cautious with their money.

Dropping German consumer demand has nothing to do with competitiveness and trade surpluses.

Just to be clear here, the law you are referencing has been stopped and isn't passed yet. Mentioning it as if it were a fact is misleading, in my opinion.

Consumer consumption is not based on reality but on perceptions by the consumers. If they fear the future, they don't buy. It is not important if the law has passed or not (if passed it would have gone into effect in some months), the damage - beside many other things - is done.

US wages have not followed US productivity for the last 50 years as well.

I don't understand this argument. If everyone has become more productive, why would wages rise? Wouldn't we see that as inflation then? I think the rise of productivity is more seen in the growth of the GDP

Either wages keep stagnant and prices drop following productivity growth (gold standard) or wage growth = price growth (inflation) + productivity growth (fiat system).

Can you explain why the monetary system changes the effects of productivity growth like this?

So if employees are more productive, you would naturally expect all of the benefits of that increased productivity to go to their employers?

I'm curious as to your reasoning about why people do anything other than the absolute minimum to receive their paycheck.

I think this is a bit uncharitable

I think it's more than fair to ask, if workers produce more why aren't they compensated more?

I'm sorry, I didn't intend it to be. I was genuinely confused and was concerned I was missing something (which turned out to be the case).

well props to you.

If my employees are more productive, I need fewer employees to produce the same number of widgets. If this happens across all industries, the price of labor goes down because there's more labor and fewer jobs. Historically, between lower prices driving more demand, other workers driving the productivity gains (maybe they make robots for factories), and new opportunities for workers, we still have full employment, but the long-standing economic question is what if they don't, and there genuinely isn't enough work for a lot of people.

Folks that get laid off from one industry because of productivity gains go to another one. The most dramatic example is farming, where in 1800 it used be that 90% of people were farmers and in 2000, 1.8% were employed in ag. Closer to home for many of us, there are more software engineers and we're dramatically more productive this generation due improvements in languages, raw processor power, storage technologies, open-source libraries, databases, and tools. The price of our labor has gone up because we're able to produce more.

I think I understand the nature of your thinking.

You're presuming a fixed demand for labour, regardless of how much value it provides. Imagine if, for a moment, productivity increased to the point where one person could do all current work for all current employers, but of course there were many, many other people who could provide the same productivity. Do you expect that employers would not figure out a way to use some of that additional productivity to make more money?

The demand for a product increases as value it provides increases. The net effect is that employers' profits increase, but so do labours'. The divide on the split is determined by relative strength of their positions, but if it ever goes to zero for either side, it really kills the incentive for increased productivity in the first place (if employers see no benefit from increased worker productivity, there certainly won't be any more demand, and there will be no effort to exploit this new productivity... if employees see no benefit from the increased productivity, they'll have no incentive to be more productive).

If the price level is stable and productivity rises, then you would expect incomes to grow to reflect the increase in productivity.

If incomes stay the same, you would expect the price level to fall (aka deflation).

Why limit your analysis to wages alone? That’s cherry picking a number.

Look at real total compensation growth over that time.

The idea that the average worker is not better off now versus 1970 is not a reasonable take.

if the euro didn't exist and the currencies were freely floating this would adjust itself automatically

it's almost as if forcing completely disparate economies onto a one-size-fits-none currency with a single interest rate and no fiscal transfers was a monumentally stupid idea

The monetary union is flawed. It won't last another decade unless they somehow federalize the member state debt.

The economic engine of Germany was always sort of interesting to me. Where we in Scandinavia went full aboard the outsourcing of the production, Germany kept theirs. They did so in a way that was very “inflated” from a Scandinavian point of view, because it relied to heavily on very low paid labour, which obviously couldn’t be maintained forever. You can say the same about our outsourcing adventures now that the world has changed, but at one point it seemed reasonable to pool production together so multiple buyers of things like vaccines could contract the same factories. Well, maybe that was also kind of stupid, but anyway, Germany kept a lot of their industrial might going and unless you looked too closely at how they did it, it looked good.

It’ll be interesting to see how that strategy works now that we live in a new geopolitical reality. Unlike us in Scandinavia who will have to start from scratch, sort of, Germany already has the means of producing and an infrastructure in place to expand it rapidly. It’ll take some readjusting, but once the non-EU competition gets hindered political means, there is no reason the wages shouldn’t increase. Especially because the steam was already running out of the cheap labour schemes.

Maybe it’ll turn out Merkels bet on keeping industry was even further reach than we thought.

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