Germany: trading political stability with economic stupidity
Angela Merkel has won the German elections by a landslide, but as she did not reach an absolute majority, she is still struggling to form a government. It is a bit paradoxical, but Merkel’s electoral triumph, which resulted also in the liberals of the FDP and in the eurocritics of AFD remaining out of the Parliament, is forcing her to bargain with far less amicable political groups. Exploratory talks between Merkel and the Greens broke down last week – which means Merkel shall now knock at the door of the Social Democrats of the SPD.
Christian Democrats and Social Democrats have already governed together in a grand coalition government under Mrs Merkel in 2005. The Social Democrats may not have a happy memory of that experience, which ultimately resulted in Merkel winning elections in 2009.
This time, the SPD is presenting ten non-negotiable demands to the CDU. Though Mrs Merkel basically vanquished them electorally, a coalition government allows for the junior but indispensable partner to exert its bargaining power. The crucial request of the SPD is thus the introduction of “a federal minimum wage of 8.50 euros ($ 11.50) per hour”. 7 million Germans, the Christian Science Monitor reports, earn less than 8.50 euros per hour.
Until recently, Mrs Merkel opposed the introduction of a minimum wage by the central government. I suppose the circle between her and the SPD may be squared with the introduction of a minimum wage set low enough as not to matter much.
Would that be a wise move? After all, once the federal minimum wage is there, it would be far less problematic for a future left government to raise it – compared with introducing it anew.
In a classic page in “Interventionism: An Economic Analysis“, Ludwig von Mises rather elegantly explained why a minimum wage is likely to produce results far less agreeable than the intended ones:
Economists were always fully aware that wages, too, were a market phenomenon and that there were forces operative in the market which, should wages depart from market wages, tend to bring wages back to the point conforming to market conditions. If wages fall below the point prescribed by the market, then the competition of entrepreneurs who seek workers will raise them again. If wages rise above the market level, part of the demand for labor will be eliminated and the pressure of those who become unemployed will make wages fall again.
The fact that, in the year 2013, the debate in Germany (arguably one of the most successful economies in the West) revolves around the introduction of a minimum wage may be seen by many as a proof of the deafness of the political class to this argument by Mises, and more generally to the idea that to work properly the market needs the government to abstain from arbitrary interventions in matter of prices and remunerations of the factors of production. But it could also be taken as a signal of an even more troublesome phenomenon: that is, the idea that political groups invest in and cultivate “symbols” (for example, a federal minimum wage) irrespective of their unintended consequences, even when these latter are relatively uncontroversial. It may well be that the political class is still convinced that the economy should be “managed”, to produce proper rewards to the deserving. But it may also be that they continue to talk a minimum wage because, irrespective of whether it produces the desired outcomes, they simply lack the imagination or the courage to propose something different to their voters. Political symbols are extremely resilient, and after all, their purpose lies exclusively in the need to maintain a grip on key political constituencies.