Raffelhüschen

Bernd Raffelhüschen is a German economist and, since 1995, has been a Professor of Finance at the Albert Ludwigs University of Freiburg. His primary research focuses on the determinants of life satisfaction in the context of happiness research.

On November 21, 2022, Bernd Raffelhüschen talked at the Museumsgesellschaft about Public debt, inflation, and low interest rates: An explosive charge for the economy and social affairs!

I only received the slides of his talk yesterday. So here are some of the most relevant graphics Professor Raffelhüschen showed during his presentation.

Germany's national debt is 2.381 billion euros compared to the 30.569 billion U$ of the States. The value for Germany corresponds to 72.5% of its gross national product, while in the United States, this figure amounts to 122.1% of the BNP. Subsequently, each German citizen carries a debt of 29.000 euros, whereas, in the US, the number is around 90.400 $ per capita.

To limit expenses and avoid excessive debts, governments take measures. While the US has a debt ceiling*, Germany has a Schuldenbremse (dept brake), i.e., a balanced budget amendment.

*soon to be raised? 

The Schuldenbremse is a constitutional rule requiring that the government cannot spend more money than comes in. The Bundestag (parliament) voted to suspend the debt brake for two years to cope with the extra expenses during the Covid pandemic. 

Still, Germany seems better off in debt than the US, but looking at the demographic pyramid should give us Germans the creeps. Who will pay for the Gesetzliche Rente (statutory pension scheme) in the future?

Today, the contribution to the Altersrente (old age pension) is 9.3% of your income, to which your employer adds another 9.3%. In case of a fixed contribution plan, i.e., the 18.6% are kept, the present pension level of 48% of your last salary will drop to 36% for those retiring in 2070 (green curve LHS).

If, on the other hand, the German government tries to keep the overall pension level at 48%, the contribution to the pension fund must be increased to more than 26% of the income (blue curve RHS).

Another way to finance the Rentenlücke (pension gap) is taxpayers' money. This is already done. In 2020, the federal subsidy to the pension fund already surpassed 100 billion euros annually, with a rising trend in the future.

Another problem in the future will be the Gesetzliche Krankenversicherung (statutory health insurance), which covers 90% of the German population. Currently, the general contribution rate for statutory health insurance is 14.6% of your income. Half, i.e., 7.3%, is contributed by the employee, and the other half by the employer.

In all countries, healthcare services are under cost pressure. Maintaining the status quo will increase the state health insurance contribution to 20% in 2060 while giving in to pressure will increase this number to nearly 28%.

I doubt the American social security system and Obamacare will see those dramatic developments.

What is the best way to care for old age? Raffelhüschen's four recommendations are, "Don't put all your eggs in one basket!"

 

The best long-term investment is stocks, which return 5% after inflation. They are still the best choice compared to bonds or real estate.

Inflation developed strongly after years of zero interest rates and price stability in the eurozone.

Primarily due to energy costs, producer prices for commercial products rose by nearly 46% from January 2021 to September 2022, while consumer prices in the eurozone reached a record increase of 10%. Energy will remain expensive, so high inflation will stay with us in the coming months.

The reasons for the present situation - the Corona pandemic and the war in Ukraine - are apparent, but one factor usually needs to be included: the quantity of money in circulation.

Due to the Corona epidemic, the European Central Bank (ECB) has increased the amount of currency by a factor of two. 


Yesterday, a lady visited Red Baron to ask him about his happiness in life. This poll continued a series of interviews I undergo every second year. I assume the data are also used in Professor Raffelhüschen's study on the happiness of living in a particular region in Germany.

With personal data collected all over Germany, Raffelhüschen publishes a Glücksindex presented on the map above.

The state of Schleswig-Holstein has the happiest people, with an index of happiness of 7.44, while the south of Baden, with Freiburg, stays in the middle range, with a Glücksindex of nearly 7.

May it remain so.

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