Economic Experts Paying it Back to the Rebellious Council

The so-called economic sages have gambled away their good standing with the government by openly criticizing economic policies. The Council of Economic Experts' chairman might now have to pay the price, as his contract has still not been renewed.
That's not your place, Mr. council chairman.

By law, the Council of Economic Experts - an advisory body to German policy-makers - consists of five “independent” members who have special economic expertise.

Sigmar Gabriel, Germany's economics minister, is now making it clear how disturbed he is at what the economic sages do with that independence.

At the end of the month, the five-year term of Christoph Schmidt, the council’s chairman, is up and he still doesn't have official confirmation his contract will be renewed. The way the head of the Rhenish-Westphalian Institute for Economic Research RWI is being treated is highly unusual. Normally a reappointment is a routine formality taken care of and announced long before the end of the term.

But under Mr. Schmidt's chairmanship, the council's last two reports deeply angered the coalition government and the economics ministry under Mr. Gabriel. He is the head of the center-left Social Democratic Party SPD, the coalition’s minority partner. A government expert said the council thinks too exclusively in terms of regulative policies, views issues too one-sidedly through German eyes and is ignoring the weak economic demand in large parts of Europe.

The economic sages accused the government of marching in the wrong direction

In economic circles, however, almost no one expects that the SPD minister will deny Mr. Schmidt another term in office — although many in his party consider the economic experts, appointed primarily by ministers of a previous coalition partner, the liberal-leaning Free Democratic Party, to be a thorn in their side.

The widespread view is the minister will not expose himself to the possible criticism of him wanting to make the advisory board toe the line.

In a newspaper column in November, Reiner Hoffmann, head of the confederation of German trade unions (DGB), urged indirectly that the government not renew Mr. Schmidt's contract. This turns out to have been more of a help than a hindrance to the chairman. All those involved are keeping quiet. “No new situation to report” has been the shorthand message for weeks from the ministry.

The council sowed the seeds of the current controversy in 2013 when it intervened in the coalition negotiations between the SPD and the center-right Christian Democratic Union with a list of measures to be enacted. The advisory board had ceased to adhere to the legal stipulation that it refrain from “issuing recommendations concerning specific measures regarding economic and social policies” some time ago already, but it rarely disregarded the prohibition so openly.

Then in November, the economic sages outdid themselves: They accused the government of marching in the wrong direction and putting its faith in regulation rather than free play of market forces. Advocates of this perspective considered the angry reactions from the government to be an attempt to silence the academic experts.

But the economics professors have given Yasmin Fahimi, the SPD’s general secretary, sufficient grounds for accusing them of being unscientific. As determined in an analysis by Handelsblatt, scientific standards were not maintained in many respects.

Doubts are increasing as to whether the model of the economic advisory board, which dates from 1963, is in line with the times. Two main reform options are being discussed. One is the transformation into a council for advising the government that is patterned on the U.S. model.

A much less far-reaching idea is to cancel the customary right of employers' associations and labor unions to name one member respectively to the board.

Without our right to propose a member, the ideological one-sidedness would be even greater. Norbert Reuter, chairman, Verdi trade union

Employers offer the following counterargument: “The consideration given to proposals from employers' associations and labor unions contributes to balanced membership and critical discussion within the council of economic experts.”

And Norbert Reuter, the head of the umbrella labor union association Verdi, said: “The mainstream of economists is clearly on the side of the employers.” He said only the union-sympathetic member on the council maintains a focus on issues of demand.

Indeed, the labor unions have a difficult time finding renowned economists who share their views. Thus Peter Bofinger was recently appointed to a rather unusual third term in office.

“Without our right to propose a member, the ideological one-sidedness would be even greater,” Mr. Reuter said. This is also true with regard to the contrast between the actions of the board and its legal mandate to identify “the causes of tensions between overall economic demand and overall economic supply.” For decades, policies concerning demand have been mentioned by the council almost exclusively in minority opinions.

It is high time to adapt the council's mandate to what its five members actually do, or to what it would make sense for them to do. Or the government should insist that the economic sages stick to what the law actually tasks them to do.

It is more likely, however, that nothing will change and the professors will continue year after year to hand over their bulging advisory report to the government — which will react as usual with more or less polite disregard.