BC ECONOMY
Saved by @Alex1Powell

One of Germany’s most prominent economists, Hans-Werner Sinn, warns of hyperinflation; he links it directly to Hitler's rise to power. A distortion of history: the rise of the Nazis was preceded by deflation, exacerbated by fiscal austerity. Thread /1

https://t.co/hmAz0tsyuv

 Sinn says hyperinflation after WW1 impoverished the German middle class in the Weimar Republic: "Ten years later they elected Adolf Hitler as Reich Chancellor." Policy recommendation today against hyperinflation: "tighter budget constraints" /2

https://t.co/ydfxgiCpkD
Sinn thus feeds a widespread misinterpretation. Mass poverty when the Nazis came to power in 1933 was not the result of hyperinflation, which at that time was ten years in the past; it was primarily a consequence of mass unemployment due to the recession in the early 1930s. /3
The Nazis had come to power after years of deflation - i.e. falling prices. From 1930 onwards, Reich Chancellor Brüning used emergency decrees to bring about tax increases and drastic state spending cuts that pierced the social safety net. /4
Austerity policies increased unemployment, led to social suffering and unrest. Hitler realised by the end of 1931 at the latest that Brüning's austerity policy would "help his party to victory and thus end the illusions of the present system." /5

https://t.co/yRN6hseciX
Analysis of data from four elections between 1930 and 1933 shows that voters in areas more affected by spending cuts and tax increases gave significantly more votes to the National Socialists, supporting Hitler’s rise./6

https://t.co/egyepHidIP
HW Sinn calls for "tighter budget constraints" against hyperinflation after Corona. Dangerous distortion: he does not say a word about the link between the negative effects of austerity policies in the early 1930s and Hitler's rise to power. /7
Representative survey: Only 1 in 25 Germans today still knows that the crisis at that time was characterised by deflation. Almost half of the respondents - like HW Sinn - mix mass unemployment and deflation with the hyperinflation ten years earlier./8

https://t.co/XyOaZ8FQVv
Incidentally, this misconception is much more common among well-educated and politically interested Germans. Those who are following the ECB’s monetary policy closely are more likely to draw the wrong lessons from history and to be misled by HW Sinn. /9
Even if one were to agree with Sinn that hyperinflation "prepared the breeding ground for the Nazis", his comparisons would remain problematic: why should the ECB’s monetary policy today lead to hyperinflation similar to the early 1920s? /10

https://t.co/bEhmTXKitX
The ECB is not directly financing governments, as the Reichsbank did back then. Even in Germany, inflation rates have been negative recently. Sinn remains unconcerned about deflation, stressing risks of hyperinflation, although previous inflation warning have not materialised /11
Misinterpretations of history can be momentous if they lead economic policy down the wrong track. To prevent this, prominent economists must not go unchallenged when they fuel such dangerous misconceptions. /end

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The problem is here now, and not in the future.

Here is why:

1)


Charted below is the increase in total debt and the increase in nominal GDP in the 8 quarters before each of the last six recessions.

In other words, how much did debt increase, and how much did GDP increase in the final two years of each economic expansion?

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As the chart shows, it is taking a larger amount of debt to increase GDP.

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Graphed another way, leading up to the 1980 recession it took about 1.94 dollars of debt to boost GDP by 1 dollar.

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I can't tell if I'm agreeing or disagreeing with @jc_econ.


Increasing government spending or reducing taxes increases demand (or reduces saving). This raises the price of loanable funds or the interest rate.

In a dynamic context, more demand means a stronger economy, the central bank raises interest rates sooner, and long rates rise.

(As an aside, we are not close to the United States needing to worry about credit risk and the risks are more overstated than understated in most other advanced economies too. But credit risk is not always & everywhere irrelevant, just look at the UK in 1976 or Canada in 1994.)

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