Right-Wing Populism

No, I don't want to write about POTUS here, but rather about the co-chair of "The Alternative for Germany" (AfD).

Wulf Schmiese holds his head so it won't shake (©Fabian Weiss/ZDF/dpa)

During the summer slump, Germany's Second Television (ZDF) interviews leading politicians from all parties about their views on the state of the nation. Alice Weidel of the AfD was among them.

I watched the summer interview and was simply appalled by how it unfolded. Wulf Schmiese, renowned ZDF Berlin correspondent - fully aware that one cannot get away with challenging Alice with provocative questions - had deliberately phrased his queries factually.

"Ms. Weidel, what is your stance on climate change?"

Alice didn't give an answer, but simply emphasized the AfD position: "Climate change has always existed. All this fuss about climate protection makes everything expensive and takes money out of people's pockets. It has to go."


"How does the AfD intend to halt the decline of the automotive industry and strengthen Germany as an industrial hub?"

Instead of an answer, Alice launched a vitriolic tirade against the euro: "The euro is a weak currency. What has it accomplished? It has impoverished the population and led to job losses."


Then Schmiese confronted Weidel with one of her earlier statements: "All Syrian refugees in Germany must have their protected status revoked. They must remigrate. If they do not return to their homeland voluntarily, then they must be deported."

When Schmiese mentioned the lack of readmission agreements with Syria and Afghanistan and thus the de facto impossibility of repatriation, Alice unleashed another tirade against him and the viewers:

"The federal government has enabled unchecked illegal immigration. This has thrown Germany's internal security into disarray. Knife attacks and mass rapes are commonplace. Women and girls no longer leave their homes."

Schmiese returned to his question: "But what about an orderly repatriation?"

There was no answer; instead: "Listen, Mr. Schmiedel, it all starts with prevention. We're closing the borders; we're pulling out of the Schengen Agreement. 1.3 million Syrians will be deported."

And Alice continued, "The people are being systematically lied to by the governing CDU and SPD, and I, too, don't want to be lied to anymore by some Flachzangen (dimwits) up there."


This interview is a lesson in populism. Populists sell complexity as a scam and celebrate simplicity as the solution.

For populists, there's always someone to blame - incompetent scientists, a broken currency, a missing border protection - and all it takes is the stroke of a pen for everything to be fixed.

A classic example is Brexit, which was celebrated as the British people's liberation from the European yoke. Ten years later, it is proving to be a historic mistake. The United Kingdom's gross domestic product is low, investment is lacking, and productivity is suffering. The British were promised sovereignty and a return to their former glory; what they got was bureaucracy and frustration.

Presently, America - and with it, the world* - are suffering from a senseless war that shows no signs of ending (Iran) and from a global economy that is falling into disrepair (tariffs).
*We Europeans, in addition, are suffering from Putin's inhumane war in Ukraine

Note: Aggression is no substitute for competence; anger is not a strategy; and noise does not equate to leadership.

Experience shows (Hungary): Those who give power to populists do not end up with the promised golden age, but rather with chaos and problems.

Haven't we Germans learned anything? Should we not recognize the arsonists in our own house before they set it on fire?

**

40,047,425,768,420.22

In April 2025, POTUS announced that he will fight the U.S. trade deficit with tariffs: "We're going to be giving back refunds out of the tariffs because we've taken in literally trillions of dollars, and we're going to be giving a nice dividend to the people, in addition to reducing debt. As you know, I inherited a lot of debt, but it's peanuts compared to the kind of numbers we're talking about."

Yesterday a bomb exploded. In an AP article, "The US national debt now stands at $40 trillion," I read:

"The national debt surpassed a record $40 trillion on Wednesday, a staggering milestone as defense costs, social programs like Social Security and Medicare and interest on the burgeoning deficit make up an enormous share of federal spending."

Mr. President, the national debt is neither peanuts nor was it reduced. It actually rose more sharply than the government and experts had previously forecast. Originally, the debt was expected to reach $39.4 trillion by the end of fiscal year 2026.

 

©AP

One explanation of this debt explosion is the war with Iran, which has now been ongoing for nearly six months; 18 U.S. soldiers have been killed, and according to U.S. Secretary of Defense Pete Hegseth, the cost had reached $37.5 billion in July. There is no end in sight.

This record-high debt is even drawing criticism from within the ranks of Trump's Republicans, where Senator Rick Scott joined the protest of many lawmakers writing, "Americans deserve better." He called on Congress to "get spending under control and balance the budget."

Thomas Jefferson, one of the Founding Fathers of the United States, wrote in a letter: "I count frugality among the first and most important republican virtues, and public debt among the greatest dangers."

However, the Trump administration shows no signs of cutting back on spending. The tax bill known as the "Big Beautiful Bill," which Congress passed last year, will further destabilize public finances in the coming years.

Meanwhile, on Wednesday, an undisturbed POTUS unveiled a new construction project to a crowd of journalists: Replacing the White House driveway.

"This was always asphalt, which is very basic, not appropriate for a great house - for a great place like the White House," and Trump continued, "The driveway has been redone with a very special stone: California-mined white granite. "

"Without even having to go into the White House, they [his guests] get out of the car on the beautiful new roadway. They get out of the car, and they walk down this path onto that [new] helipad, and they can have cocktails and everything outside of the White House, and then they go into the ballroom. "

Trump's tour of the ongoing White House projects underscored how central construction is to his presidential legacy.

"One thing I know how to do is build … I love construction, I love seeing things properly taken care of. The projects will be here long after we're gone."

Financially, POTUS's construction frenzy is peanuts compared to the unprecedented $40 trillion figure of national debt, but it is politically hazardous.

The $40 trillion includes not only defense spending in the almost-6-month-old war in Iran but also government efforts to lower the cost of gas and groceries for U.S. citizens.

As explained by a White House spokesman, "The Trump administration has been focused on slashing waste, fraud, and abuse in federal spending while accelerating economic growth to get America's debt-to-GDP ratio trending in the right direction."

U.S. National Debt as a Percentage of GDP (©NZZ)

The trend goes the opposite way.

In 2025, the U.S. federal budget deficit stood at $1.8 trillion, which equaled 5.9 percent of GDP. In the EU, a budget deficit of more than 3 percent of GDP is already considered unacceptable.

The development of national debts as a percentage of GDP
for the USA, China, Germany and Switzerland.
For Germany, the effect of the Schuldenbremse and the Corona pandemic
on the curve's shape is clearly visible (©NZZ)

Michael A. Peterson, CEO of the Peter G. Peterson Foundation, stated, "If we want to improve our living standards, today and for the next generation, now is the time for lawmakers to put our nation on a more affordable and sustainable path."

 
Do I read correctly? I think we would be lucky if we could keep our present standard of living.

Indeed, Margaret Spellings, president and CEO of the Bipartisan Policy Center, countered, "The federal debt is already raising the cost of living and choking out other spending and investment, threatening our economy and Americans' long-term prosperity."

And Mr. Peterson, please don't just write, but show the direction to the U.S. lawmakers to put your nation on a more affordable and sustainable path.

Here are two letters to the editor on the AP article:

One pragmatic: "Cut the Defense budget to $250B (same as China who has 4x's the population) and then tax the rich at 1950's levels (90%)."

One radical left (?): "… we seem to have mountains of money to be spent on war and killing; military contracts funneling tax dollars to corporate cronies and members of the Trump family. Our historic landmarks in the Capitol city that were once examples of a dignified Puritan heritage have now been flounced out in gold with Trump's name pissed all over them, and the middle-class that is supporting this excess is rapidly disappearing under a tax burden that the wealthy are exempted from. Fiscal conservatism is no longer embraced by the GOP … Hoarded wealth seems to be the goal, and if the economy crashes, we've already seen that the rich will be first in line for their bailout, while the rest of us deal with the consequences. The wealthy are rarely touched by the 'Hard Choices' that will be made."
**

Berthold from the Offstage

Today marks the 70th anniversary of the death of a writer, a master of the German language, and a political voice of conscience: Berthold Brecht.

The graves of Berthold Brecht and Helene Weigel at the Dorotheenstädtischer Friedhof in Berlin.

Berthold Brecht, the already successful author, was an ideological communist who fled Germany on February 28, 1933 - one day after the Reichstag fire and two days before the Nazis seized power - first to Prague, Vienna, and Zurich, and then to Paris. Further stops on his journey into exile - the Nazis had stripped Brecht of his citizenship - included Svendborg (Denmark), Lidingö (Sweden), and Helsinki.

In May 1941, Brecht received an entry visa to the United States and traveled with his family via Moscow and Vladivostok by ship to Santa Monica, California, where he lived in a rented house.

After the war ended, the House Un-American Activities Committee questioned him on October 30, 1947, asking whether he had ever been a member of a Communist Party. Brecht truthfully answered "no."

However, he could no longer stay in America. The following day, he traveled to Paris and soon after to Zurich. Switzerland was the only country that granted the stateless Brecht a residence permit.

Finally - since Brecht remained barred from entering the Western occupation zones of Germany - he traveled from Zurich via Prague to East Berlin in October 1948 at the invitation of the East German Cultural Association for the Democratic Renewal of Germany. 

The result of this statelessness was Brecht's "Flüchtlingsgespräche," Refugee Conversations at a wooden table in the spartan train station restaurant in Helsinki between the physicist Ziffel and the worker Kalle: "The passport is the noblest part of a human being. It doesn't come into being as easily as a human being does. A human being can come into being anywhere, in the most reckless way and without any good reason, but a passport never does. On the other hand, it is recognized when it is good, whereas a person can be as good as he wants and still not be recognized."

This loose collection of dialogues premiered on February 15, 1962, in the Werkraum of the Munich Kammerspiele, and Red Baron - I was a doctoral student at the university at the time - was there.

Famous Erwin Piscator directed the production, and the cast included cabaret artist Werner Finck as the tall, somewhat clumsy bourgeois intellectual and physicist Ziffel, and the Swabian folk actor Willy Reichert as the stocky, down-to-earth communist worker Kalle.

Ziffel had fled Germany primarily because the Nazis had exploited science for their war effort. He argues philosophically and ironically.

Kalle had already been imprisoned in a German concentration camp. He views the world with a sharp, materialistic class consciousness.

In their dialogues, the protagonists deconstruct the "virtues" of diligence, patriotism, and courage. Bad governments demand these virtues from their citizens to cover up mismanagement, wars, and their own mistakes. An ideal state doesn't need any heroes, capitalism, or fascism. 

For Ziffel and Kalle, National Socialism is not an "accident"* of history, but a logical consequence of the capitalist economic system, which relies on dictatorships in times of crisis. 

*Nor is it bird droppings

In the waiting room "Exile," the two refugees explore the agonizing feeling of waiting, their dependence on visas, and their longing for a homeland that no longer exists.

Against this backdrop, Brecht's warnings from beyond the grave regarding the current political situation in Germany read like an omen. The author is Florian Harms, editor-in-chief of the German news service T-Online.

Once again, Red Baron is promoting someone else's work and providing the translation of the German text here:

Greetings to you who are reading this:

You must listen to me. Today marks 70 years since my death, and as is the custom with all those who were a thorn in the side, I have been set in marble so that I may remain silent. 

But even in life, I considered silence to be the worst of all arts. That is why I speak once more today. It will be a short speech, for the dead have little time.

I see my country well-fed, yet seething with discontent. It has been taught to distrust, and now it distrusts the wrong people - not those who deceive it, but those who warn it. The seats of government and the parliaments, the offices and city halls no longer serve the people, and I ask: Who benefits when you smash them to pieces? Where trust falls, freedom does not rise. Instead, men rise who are loud.

I know the agitators. I saw them when they first came, in brown uniforms, with simple slogans for people who were a nuisance. People laughed at them, then voted for them, then idolized them. In the end, everything was destroyed. "The womb from which this crawled is still fertile," I once wrote. It was a warning, and warnings do not lose their validity.

Eighty-one years after the end of Hitler's regime, many are once again following those who promise simplicity but mean cruelty. They do so carefree, like stepping into the water on a summer day without knowing how deep it is. They say a fish never swims into the same net twice. People, however, are happy to swim right into it if the net is decorated with blue instead of brown flags and music is playing. I see it, and I'm worried.

For while you argue over who hates the state the most, there's a man in the East waging war. I won't call him a general, for generals lead armies; he, however, leads an army of butchers who are tearing Ukraine apart. He has plunged Europe into its deepest crisis since 1945 and is now striking at you as well: drones over airports, arson at warehouses, assassination plots against corporate leaders, sabotage of what is dearest to you. Hundreds of cases have already been counted. 

And yet many of you still believe that this man can be dealt with through compromise. He cannot. Evil must be brought to its knees; otherwise, it will sweep you off your feet—take it from someone who has seen more evil than all of you put together. Remember this: War is not far off. It's already in your basement, setting the clock.

It has eager accomplices. They set invisible traps for you ... They stoke anger and rake in billions upon billions of dollars: colorfully packaged rumors, portioned out, delivered right to your bedside. The executives at Facebook, TikTok, YouTube, and that thing called X don't profit from peace - they profit from strife. Hate gets more clicks than reason, and whatever gets more clicks gets amplified. That's how they've built a business out of your worst traits and call it "community."

I'm telling you the old truth anew. "First comes food, then morality," I wrote. But these gentlemen and their henchmen have realized that you eat the most when you sell morality first. They feed you anger until you puke, and send the bill to democracy.

I have my concerns, but I also have hope. In every country, there are decent people. They aren't the loudest; often, they're the weary ones. But there are many of them - more than the agitators believe - and their time has come. Not tomorrow, when the fishermen's nets have been hauled in at Halle, Magdeburg, Schwerin, and Rostock*. Not the day after tomorrow, when the neighbor with the match is already standing in the living room. Decent people everywhere should unite.

*There are upcoming State elections in Sachsen-Anhalt und Mecklenburg-Vorpommern

A decent person does not look away. One who steadfastly calls a lie a lie, even if it is shared a thousand times over. One who would rather help a discredited government office than shout it down. One who knows that freedom is not a summer retreat, but a work that must be built upon daily, because many are trying to undermine it every day.

So show that you are decent! That would be my wish. And in the spirit of those who came before me, who also wrote and suffered for this country - Lessing, Heine, Tucholsky - all of whom knew that a people can lose its reason as easily as a glove. That is what I can tell you on the 70th anniversary of my death, through the pen of a small-time journalist. Stand up. I can no longer do so myself.

**

The UN Security Council

At the UN Headquarters in New York: The foreign ministers of Portugal, Austria, and Germany:
We are all good friends (©Der Spiegel)

Last Tuesday, Germany's bid for a non-permanent seat on the UN Security Council failed spectacularly.

   

Annalena Baerbock is presiding over the UN General Assembly (©ZDF)

Nervously, German foreign minister Johann Wadephul is awaiting the result of the vote (©ZDF)

Annalena announces the result: Portugal 134, Austria 131, Germany 104 votes (©ZDF)

A mistaken soccer fan:
Damn UN. The World Cup hasn't even started yet, and we've already lost to Austria and Portugal.

Commentators were scrambling to find reasons for the "disaster":

- A classic excuse: The UN General Assembly punishes those who campaign too late and with too little intensity

- The European war: Russia is to blame because it stirred up sentiment over Germany's support for Ukraine

- Our special solidarity with Israel: Germany's "reason of state" due to our particular guilt to the Jewish people

- Germany's - or isn't it rather Europe's - wavering course in dealing with DonaldTrump's America

All of this culminated in one journalist's claim that the outcome of the vote, in which Austria and Portugal secured the two European seats on the Security Council, was a major embarrassment: "The vote in New York is a barometer of the Federal Republic's standing in the world. It has been damaged."

It would have been so nice to sit in the Council Chamber (©ZDF)

Soon, the German political landscape joined the chorus:

- Germany has squandered its reputation and responsibility in the world

- the failure to be elected is not a mere mishap, but a warning sign

- German foreign policy has become too closely tied to the disastrous and amoral policies of Netanyahu and Trump, or perhaps

- in the future, Germany must seek consensus within the European group in a timely manner so that we can avoid potentially competing bids for a non-permanent seat on the UN Security Council

All bullshit!

Instead, congratulations to Portugal, the still-young democracy, and the drifting-to-the-right Republic of Austria. They will represent "European values" well on the UN Security Council.

But what good is it to these two EU member states when the Council is a toothless tiger and has degenerated into a Schwatzbude (talking shop)?

Just to name the three largest unresolved flashpoints:

-Putin's Russia is mercilessly attacking Ukraine with no regard for civilian casualties. The country is fighting back with drone-based counterattacks on military targets and supply facilities (fuel depots), which the Russian government brands as Ukrainian terrorism.

-Netanyahu's Israel is committing war crimes with impunity in Gaza and, more recently, in southern Lebanon, although it is crystal clear that neither Hamas nor Hezbollah will ever disappear.

- Senseless fratricidal wars in Africa, waged by petty dictators for personal power, are leading to mass displacements in which entire populations are starving, and then the world is asked to spend money to end the misery of newborn children.

What good is the UN Security Council anymore?

Don't cry, Johann! (©Der Spiegel).

Johann commented on the vote, "I personally have nothing to reproach myself for. The result is a real disappointment and a bitter defeat. But we should not withdraw out* of disappointment, although my ability to persuade in Berlin will naturally not be enhanced by this result."
*After the US, Germany is the second-largest financial contributor to the UN 

Diplomatically well said.

**

Moi non plus

The subtitle of Professor Stefan Pfänder's lecture was, "It was a cultural shock for me!" That is what a French lady felt when, as a student, she met her future German husband in a Wohngemeinschaft (shared apartment).

In his sociological research, Prof. Pfänder has been documenting German-French couples on audio and video for years. With the examples he showed, his lecture was extremely colorful and lively. 

The novel "Hirishima mon amour" unfolds as a literary drama. By this I do not mean the amour fou between the Frenchwoman Elle and the Japanese man Lui, but rather her wartime experience as a girl.

In her youth, she had fallen in love with a German occupation soldier in Nevers. The two lovers had planned to leave France and get married in Germany. But then she had to watch as her lover was shot by a Résistance fighter in the street right in front of her house and saw him bleed to death before her eyes.

Red Baron still vividly remembers the filmic scene when the German, with blood pouring from his mouth, breathed his last. The girl was branded a collaborator, had her head shaved, was locked in a cellar, and finally sent to Paris for further treatment.

First impression of the Germans

In Franco-German zwischenleiblichen (interpersonal) relationships, painful, traumatic memories cannot be suppressed, as evidenced by the statement of a French woman: "And everything that was unpleasant, uncomfortable, or dangerous - that was always the German."

In 1946, when French troops occupied Baden, German girls fell for the men in uniforms and formed interlingual couples.

Here is a slide from Prof. Pfänder's lecture.

 

How does bilingualism change how people see themselves in the eyes of their partners?

Bilingual individuals develop a heightened metalinguistic sensitivity and experience identity as dynamic and negotiable.

Living between multiple languages promotes flexibility and reduces rigid national stereotypes.

And he continued, "How do bilingual, intercultural couples communicate?" How do they share stories - separately or together? What are the challenges of such a partnership? And what are its potential benefits? His answers were:

Intercultural couples more frequently report stress caused by differences in values, religion, and communication.

Intercultural couples develop new shared routines, forms of communication, and identities beyond their respective cultures of origin.

Acceptance or rejection by their families depends on language skills, cultural expectations, and migration experiences.

In fact, differing language skills generate feelings of exclusion, frustration, isolation, and cultural alienation. On the other hand, bilingualism changes self-perceptions and strengthens the ability to adopt multiple cultural perspectives simultaneously.

Red Baron found all these facts interesting, but since he's never had a French girlfriend, he can't contribute to the experience.

However, some of Prof. Pfänder's observations can generally be applied to multilingual environments, such as that of Red Baron, who has been working at CERN and communicating in Franglais for 32 years.

Here, somewhat out of context, I add some photos of the couple Franco-Allemand:

A historic embrace between two old men in Reims Cathedral.
Where's the champagne?

De Gaulle's pathetic speech: "My heart is overflowing, and my spirit is filled with gratitude now that I have just signed the Treaty on Cooperation between Germany and France with the Chancellor of the Federal Republic of Germany. No one in the world can fail to recognize the immense significance of this act. Not only does it mark a turning point after a long and bloody history of struggle and war, but it also opens the door to a new future for Germany, France, Europe, and thus the world."

Chancellor Kohl and President Mitterrand, holding hands, stand over the graves at Verdun.

Chancellor Angela Merkel cuddles up to President François Hollande.

An embracing armistice between President Sarkozy and Merkel

French and Germans: a history full of "I love you" and "Not me anymore."

NB: As in previous years, Red Baron has again booked the French Summer University.

Entente cordiale between President Macron and Angela.
Merkel's husband, Professor Sauer, doesn't he look a little sour?

A couple enjoying a romantic moment in the Compiègne Forest.

In the Compiègne Forest, the armistice between the French Republic and the German Empire, which ended the First World War, was signed in a Wagon-Lits (?) on November 11, 1918.

On the occasion of the 100th anniversary, the President of the French Republic, Emmanuel Macron, and the Chancellor of the Federal Republic of Germany, Angela Merkel, reaffirmed the value of Franco-German reconciliation in the service of Europe and peace.

Back to the lecture. A man from Cognac gave his reasoning in nearly perfect German as to why his girlfriend moved to be with him:

That's just love - it does that kind of thing!

It wasn't only the director of the Freiburg Adult Education Center, Dr. Philine Weyrauch-Herrmann (holding the mic), who thanked Prof. Pfänder for his engaging lecture.

**

Stephen Colbert

CBS announced on July 17, 2025, that The Late Show with Stephen Colbert would end in May 2026 and would be retired rather than continued with a new host.

Stephen informed the studio audience himself about the cancellation during a taping that same day.

CBS publicly stated that the cancellation was "purely a financial decision against a challenging backdrop in late night," emphasizing that it was not related to ratings, content, or Colbert personally, even though the show had been the No. 1 late-night program for years.

The timing, however, triggered speculation about political motives, since the announcement came only days after Colbert sharply criticized CBS's parent company, Paramount, on air for settling a lawsuit brought by Donald Trump for $16 million. At the same time, Paramount was seeking regulatory approval for its merger with Skydance Media, which only POTUS could grant. Critics - including politicians, media commentators, and former host of Late Night David Letterman - questioned whether the cancellation was connected to pressure surrounding that merger and Colbert's anti-Trump commentary.

One day later, POTUS rejoiced and was right with his prediction, for on September 17, 2025, Jimmy Kimmel Live! was suspended "indefinitely" after controversy surrounding comments Jimmy had made on his show about the killing of conservative activist Charlie Kirk.

Massive protests followed. The decisive factor, however, in Disney/ABC's reinstatement of the show on September 23, 2025, was financial pressure, as many Disney Channel subscribers had canceled their subscriptions.

On Christmas 2025. the season of giving, POTUS rubbed it in. 

May 21, 2026, approached fast, and Stephen invited his friends Jimmy Kimmel, Seth Meyers, John Oliver, and Jimmy Fallon to reminisce with him.

 

Stephen showed the photo (©CBS)

In 2023, when the Hollywood writers were on strike, the five hosts joined for a podcast called Strike Force Five to raise money for their unemployed staff members.

©CBS

On May 13, 2024, to celebrate Stephen's 60th birthday, "The Five" got together again for dinner in Manhattan.

©CBS

Here, Stephen's former boss and mentor, Jon Stewart (The Daily Show), shows a photo of those good old times.

©CBS

Stephen took a selfie with the veteran and former host of The Late Show, David Letterman.

©CBS

The two carried a birthday cake up to the rooftop of the venerable Ed Sullivan Theater, where David laid hands on it...

©CBS

...dropped it and had it explode into the backyard.

 

©ZDF

The cancellation of The Late Show made it on German national television on May 22.

©ZDF

Stephen's last show on May 21 was full of surprises. A Green Hole appeared.

©CBS

Stephen's and my favorite astrophysicist, Neil de Grasse Tyson, explains the green sucking light as a wormhole that had already swallowed Stephen's Apple Watch.

©CBS

Suddenly, a smile lit up Stephen's face, and he exclaimed, "Strike Force Five, Oliver, Seth, Jimmy, handsome Jimmy!" For a moment, hope flared that The Late Show would continue ...

©CBS

... but the whole setup in the Ed Sullivan Theater, the audience, and finally Stephen Colbert were sucked in ...

©CBS

... only to reappear for the grand finale with Paul McCartney performing "Hello, Goodbye" together with Louis Cato and his "Great Big Joy Machine", the former Late Show band leader Jon Batiste in white, and guest guitarist Elvis Costello in red jackets.

A KI-generated video from the White House was immediate:

A grinning POTUS dumps Stephen in a garbage container.

Special guest Paul McCartney reflected on the final show in his way: "America has always been the land of freedom and the greatest democracy - hopefully it still is."

Red Baron keeps the memory of The Late Show in Freiburg alive by walking around in the appropriate T-shirt.

**

The Debt Turn: The Missteps of Fiscal Policy

Is economics a science? My late son, who had studied economics at the HSG in St. Gallen, would have answered in the affirmative, arguing that Adam Smith had established economics as a science with his book "The Wealth of Nations". Andreas had not only read this seminal work but had actually studied it.

The book

Prof. Lars Feld’s lecture on “The Debt Turn, Missteps in Fiscal Policy” last Monday at the Museumsgesellschaft nearly convinced me, although, as in physics, calculations of future developments in an economic system - i.e., predictions - are impossible, particularly given the current global and economic situation.

Furthermore, much of what used to be part of the Standard Model of economics no longer applies. In the past, when inflation in an economy became too high, central banks countered it with higher interest rates.

However, rising prices amid the current oil and gas shortage cannot be offset by homeopathic increases in interest rates from, say, the Fed or the ECB.

As a physicist, I sit on the sidelines and can only watch the prevailing chaos. I will limit myself to reproducing some of the impressive slides Prof. Feld presented in his lecture and commenting on the graphs.

The chart above shows the national debt of various countries as a percentage of their GDP. Japan stands out, but this is a special case that will not be examined here.

Of the remaining countries, Italy has the highest national debt at 150%. Switzerland has the lowest, with hardly any change observed in time. The debt ratios of all other countries have been rising over the years, with the United States starting from a relatively high level. Germany is doing rather well. China’s rapidly rising debt is striking. The effect of the coronavirus epidemic on national debt is clearly visible.

This chart shows the national debt of individual EU countries. Greece had the greatest difficulty meeting the EU’s financial criteria, but was expected to join as the cradle of Europe. The Greek government has made every effort, and as a result, Greece is one of the few countries that has reduced its debt in recent years.

It is striking that the new EU members have lower debt ratios than the founding members, Italy and France. Germany ranks in the middle.

The creditworthiness of individual countries is reflected in their debt levels. As a result, yields on Greek government bonds are particularly high, and U.S. Treasury bonds also stand out. Germany, as a safe-haven issuer in Europe, has the lowest yields. It is interesting to note that most European countries follow the German yield curve, albeit at a higher level. Well, it's all in euros. 

Debt must be serviced, and the higher a country’s debt, the greater the interest burden.

The United States stands out in this regard due to its high national debt, with 18% of its budget going to meet interest payments. In Germany, debt service has increased slightly in recent years due to new borrowing.

It will increase dramatically in the coming years if our government follows through with its financial planning. Given rising government spending and lower tax revenues due to Germany's economic stagnation, is there any other option?

 

The holy grail for escaping this predicament is economic growth. But the forecasts are bleak. As a layperson, Red Baron has always believed that with resources dwindling and thus becoming more expensive, there will be no more growth.

So the only easy way to balance lower revenues against higher expenditures is by increasing government debt.

But then the borrowed money should be used for investments, as these boost productivity, benefit the economy, and generate higher tax revenues. Yet public investment in Germany has been stagnating at a low level for years.

The hardest way to get government spending under control is through budget cuts. Every government struggles with this.

The chart shows, for simplicity’s sake, four main categories of spending: 

 - social programs (government subsidies for Germany's deficit-ridden insurance schemes such as pensions, healthcare, and long-term care) 

- defense (currently with no budget cap due to the war in Ukraine: “It takes what it takes”)

-  debt service (according to Prof. Feld, the amount will rise from 20 to 40 billion euros in the coming years). 

- others.

Budget consolidation for the coming years envisages cuts in "others", with the key words being "Abbau der Bürokratie" (cutting red tape).

As already mentioned, particular attention is being paid to the defense budget. While Europe felt secure under the United States' nuclear umbrella in recent decades and allowed military spending to decline, NATO countries are now rallying in the face of the Russian threat to meet the 5% defense spending target in the (distant ?) future. The Trump administration’s urgent and ultimatum-like warnings contributed significantly to this turnaround. 

Will the government-financed-on-credit spending on defense stimulate the German economy? Prof. Feld expressed his strong doubts.

**