Heiner Flassbeck

Flassbeck assigns a major role to the insight that a national economy cannot save: the common understanding that a national economy could gain net savings, thus saving money during a certain period of time to finance investment in a future period using saved money, was false. This thinking by Flassbeck follows the results of Balances Mechanics developed by German economist Wolfgang Stützel. Saving of one economic unit currently inevitably led to revenue loss of another unit. At present somebody in the economy was stuck with his supply. Expenses which are not done would fall away in same height. Because the sum of revenues, with that the incomes, of all economic units equals the sum of all expenses and with that the overall demand of all economic units, incomes would decline in future. The income generated in one period was to be used "always". By analogy with "time saving", which cannot be saved, saving in terms of not-using could not exist in an economy. Today's investments were the condition to build up assets, not invers. Both quantities were equal solely in an ex-post examination.

From the people's and economic politicians' ignorance about the difference between the overall economic and the individual economic unit view, according to Flassbeck, many fallacies of today's economics can be analysed. For example, national debt was falsely seen as debts towards future generations, but in fact the welfare of a country was determined solely by its future capital stock, thus mainly by the existing machines and facilities plus the standing of qualification of its population and the social capital (which enclosures the stability of the society's constitution). On macroeconomic level debt was only problematic if it existed net towards the foreign sector.[3]

Flassbeck sees the need for a coordination of monetary policy, wage policy and fiscal policy. He assigns monetary policy an outstanding impact on growth and employment and refuses its shortening on retaining price stability. He declares monetarism failed to control inflation through money supply. It had been practised in the 1980s by some federal banks in response to the oil crisis and the stagflation going along with it in the 1970s but led to drop of investments and high unemployment. It was abandoned by the 1990s.

Flassbeck emphasises the speciality of the German and European monetary policy, which, contrary to the majority of central banks, retained monetarism. Flassbeck cites that the monetary policy of the German Bundesbank and the European Central Bank (ECB) to control the money supply ever geared to the potential output of the past. If economic growth would exceed money supply respectively Gross National Product, the estimated potential output, the ECB would swivel in the Bundesbank already in advance to a restriction course without a noteworthy endangering of price stability by exceeding the target inflation rate. One could never set a potential output beforehand.

Flassbeck also considers the target inflation rate of the ECB to be too low and refers to the height at other major central banks. According to Flassbeck, wage policy should work towards a macroeconomic "distribution neutral" wage adjustment. The optimal rate of wage increases would result from the addition of inflation rate and rise of labour productivity. Flassbeck views the labour agreement on national area as solution best compatible with market economy. The mechanism would accomplish the law of one price, the law of the same price for same goods against the labour market's imperfections and information asymmetries.[3]

Flassbeck views a currency union primarily as an "inflation community".[4] This means that all member countries of a monetary union had to show the same price change rate. That could only be achieved by equalisation of growth of unit labour costs, with the aim to maintain the price competitiveness of all countries and to avoid high current account surpluses as well as deficits. As consequence for the eurozone he requests that all euro states had to comply with the Central Bank's target inflation rate. Because Germany had seriously undershot this target inflation rate through its concept of "wage restraint" since introduction of the monetary union, while other countries have met or slightly exceeded it, the German industry had gained market share on a large scale to the expense of the other countries in the eurozone. As solution for this problem, which he considers as the fundamental cause of the euro crisis, he proposes coordination of wage policies in the European monetary union. In view of the facts that the option of revaluations and devaluations is not given anymore because of the abolition of national currencies, the only alternative was a real devaluation of states with high current account deficits such as Spain, Portugal, Greece and Italy, as well as a real revaluation of Germany — brought by steadily higher wage increases in Germany than in the other eurozone countries.[5]

Flassbeck does not attribute the Wirtschaftswunder (German for economic miracle) in the 1950s and 1960s to the economic policy of Ludwig Erhard and his only partially applied concept of an ordoliberal social market economy, but to the American monetary policy which, during the time of the Bretton Woods system (until about 1973), had significantly influenced the German interest level. Also, the steady exchange rates which often reflected an underrated D-Mark (former German currency), had essentially benefited the catching up of the other countries. Furthermore, Flassbeck compares the German economy growth in the years of the "Wirtschaftswunder" with other countries and concludes that West German growth rates were only slightly higher than those of France and Italy in the 1950s, but that already in the 1960s, it was slower than the average of those countries. In comparison with the growth of the Japanese economy, which much less had been geared to market economy and competition, the economic miracle appeared "like a stroll". Only the United Kingdom had not been able to keep up with that continental European and Japanese development.[6]

• Environment and Economy (German: Umwelt und Wirtschaft). By Heiner Flassbeck and Gerhard Maier-Rigaud, Tübingen 1982, ISBN 3-16-344528-4
• Free Trade, GATT and the International Currency System (German: Freihandel, GATT und das internationale Währungssystem). Tübingen 1985, ISBN 3-16-344959-X
• Prices, Interest and Exchange Rate (German: Preise, Zins und Wechselkurs). Tübingen 1988, ISBN 3-16-345343-0
• Rigit Prices, flexible Quantities (German: Rigide Preise, flexible Mengen). By Heiner Flassbeck, Gustav Adolf Horn und Rudolf Zwiener, Berlin 1992, ISBN 3-428-07521-8
• Red-Green – yet another project? (German: Rot-Grün – noch ein Projekt?) Hannover 2001, ISBN 3-930345-25-0
• Glasperlenspiel oder Ökonomie – Der Niedergang der Wirtschaftswissenschaften. Archived 2007-10-17 at the Wayback Machine In: Blätter für deutsche und internationale Politik, Ausgabe 9/2004, p. 1071–1079.
• 50 simple things you should know about economy (German: 50 einfache Dinge, die Sie über unsere Wirtschaft wissen sollten). Frankfurt 2006, ISBN 3-938060-08-5
• The End of Mass Unemployment. Winning the future through proper economic policy (German: Das Ende der Massenarbeitslosigkeit. Mit richtiger Wirtschaftspolitik die Zukunft gewinnen). By Heiner Flassbeck and Friederike Spiecker, Frankfurt 2007, ISBN 978-3938060209
• Failed. Why politics surrender to economy (German: Gescheitert. Warum die Politik vor der Wirtschaft kapituliert). Frankfurt 2009, ISBN 978-3-938060-22-3
• The Market Economy of the 21st Century (German: Die Marktwirtschaft des 21. Jahrhunderts). Frankfurt 2010, ISBN 3-938060-54-9
• Ten Myths of Crisis (German: Zehn Mythen der Krise). Berlin 2012, ISBN 978-3518062203
• Aberration Basic Income. The large distribution from bottom to top must be quit (German: Irrweg Grundeinkommen. Die große Umverteilung von unten nach oben muss beendet werden). By Heiner Flassbeck, Friederike Spiecker, Volker Meinhardt and Dieter Vesper, Frankfurt 2012, ISBN 978-3-86489-006-2
• Act Now! The Global Manifesto to rescue Economy (German: Handelt Jetzt! Das globale Manifest zur Rettung der Wirtschaft). By Heiner Flassbeck, Paul Davidson, James K. Galbraith, Richard Koo und Jayati Ghosh, Frankfurt 2013, ISBN 978-3-86489-034-5
• 66 strong Theses on Euro, on Economic Policy, and on the German Character (German: 66 starke Thesen zum Euro, zur Wirtschaftspolitik und zum deutschen Wesen). Frankfurt 2014, ISBN 978-3-86489-055-0
• together with co-author Costas Lapavitsas: Only Germany can rescue the euro: the last act is starting (German: Nur Deutschland kann den Euro retten: Der letze Akt beginnt). Westend Verlag, Frankfurt am Main 2015. ISBN 978-3-86489-096-3 (Print); ISBN 978-3-86489-586-9 (eBook).[13]

• With Paul Davidson, James K. Galbraith, Richard Koo und Jayati Ghosh, Economic Reform Now: A Global Manifesto to Rescue our Sinking Economies (Palgrave Macmillan, 2013). ISBN 9781137361653
• With Costas Lapavitsas, Against the Troika: Crisis and Austerity in the Eurozone, (Verso, 2015). ISBN 9781784783136