Heiner Flassbeck – The supply shock that is a demand shock

At the end of September, Federal Finance Minister Christian Lindner gave a remarkable diagnosis of the state of the German economy in a name article in Der Spiegel. He wrote: “In the Corona crisis we experienced a demand shock. Here the state replaced a lack of demand with tax money. Today we have a shock on the supply side. In times of scarce supply, we need to increase it with ambitious measures.”

This statement is first remarkable because the minister obviously believes that the state can compensate for a lack of demand with “tax money”. But he cannot. If he first has to raise taxes to generate the funds he needs to stimulate demand, then by raising taxes he lowers the demand he wants to increase. No, no, dear Mr Lindner, look at your books and you will see that it was new debt that was used to support demand.

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