The Biden Administration is in trouble when even Europeans are starting to look better than Washington on economic policy. Witness the supply-side thinking that is brewing in Berlin in response to Germany’s inflation and energy insecurity.
of the free-market Free Democratic Party (FDP) this month released a working paper calling for supply-side overhaul to avert stagflation—Mr. Lindner’s word for the danger looming over his country’s economy. He acknowledged that pandemic supply-chain disruptions and Ukraine-war energy-price movements account for the immediate inflation surge.
But he also noted that Germany faces deeper challenges from stagnating productivity and demographics. The solution is not more of the demand-side public spending most other governments are considering. Mr. Lindner has signed off on a €30 billion ($31 billion) package of subsidies and cuts to energy taxes to ameliorate today’s inflation. But he tries to draw a line under that in his strategy paper by warning that further demand-side stimulus will only make inflation worse.
His new strategy is heavy on unlocking private investment to boost productivity and supply to meet the demand that Berlin’s spending and European Central Bank monetary policy have created. Policy options include tax reform to encourage investment, and deregulation in labor and product markets to improve competitiveness.
The working paper is the opening statement in what Mr. Lindner envisions as a larger conversation. It’s light on policy specifics, which are supposed to emerge from a listening tour with business and labor unions in coming months. It also suffers some predictable blind spots, such as a reluctance to admit that Germany’s costly enthusiasm for renewable energy has been a supply-side policy failure.
Alas, he may be a prophet without honor in his own country. His FDP is the most junior partner in Germany’s three-party coalition government, and his supply-side views are out of step with his left-leaning Social Democratic and Green colleagues.
All the more reason to start now explaining Germany’s supply-side problems to voters and trying to build consensus behind reforms. And all the more reason to translate Mr. Lindner’s report for the benefit of Washington politicians who have forgotten America’s supply-side successes of the past.
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