The price mechanism is simple and effective. The higher the price through a CO2 tax, the greater the incentive to save CO2. Environmental policy goals can thus be achieved easily and relatively unbureaucratically. The scepticism towards the price mechanism from a political perspective could result from the fact that the costs are immediately visible to voters, and the promoters of the policy soon attract criticism. In contrast, the costs of regulations are not clearly visible at the time of the decisions are made, making the measures easier to implement.

That's right, proliferating regulations slow down growth. However, from the perspective of the political players, regulation can also be seen in a positive light: As bureaucracy grows in the public sector, new jobs are created that can be filled by supporters of political parties. Some lobby groups are not averse to this solution either, as it often serves their interests. Of course, a benefit for society is always put in the shop window, such as the protection of the weak, or the environment. Regulations are then difficult to challenge and revise.

Friedrich August von Hayek would have regarded any attempt by politicians to plan future economic developments as a „presumption of knowledge“. Why should a politician or a bureaucrat make the right decision for society if they bear no personal risk? Politicians fall prey to the temptation of always knowing better, especially when government funding is an easy option. State-funded support programs can ensure that protest is avoided. This was the case in Germany between 2008 and 2022, for example, because the European Central Bank provided the German state with great additional scope for spending, via a permanent low-interest policy and large-scale government bond purchases. During the coronavirus crisis, politicians were able to demonstrate their ability to act with expensive rescue packages, which was reflected in improved poll ratings.

For many years, the Deutschmark was very stable, making savings deposits a lucrative form of investment. With longer-term savings deposits, you could achieve a positive real return without taking any risk. In addition, with a rapidly growing economy, the pay-as-you-go statutory pension scheme was a reliable form of old-age security. So perhaps it was due to the hard currency and the associated economic strength that no equity culture developed among wide sections of the population.

Inflation is now high and growth is low due to the soft euro. But rethinking is difficult. The permanently low interest rates have now driven share prices up so much that a late entry could be costly. This particularly affects young people, who have not yet been able to accumulate assets and who initially only have to expect burdens from the pay-as-you-go pension system. There is still no political party that actively campaigns for the younger generation in this ageing society.

No, the pay-as-you-go system is a good form of pension provision because it is relatively resistant to crises and inflation. However, low birth rates are putting it in a precarious position, and making it a burden for the younger generation. At the same time, the combination of low interest rates and inflation is making bank deposits unattractive as a form of old-age security. This is why statutory pension insurance must be supplemented by inflation-resistant forms of investments. In addition to real estate, these include shares.

The problem remains that in times of great volatility on the financial markets, financial market education is required for equity investments, which is difficult to communicate to broad sections of the population. From this perspective, it would be better to credibly return to monetary stability. But the eurozone is probably too unstable for that.

Social benefits in Germany have risen to 1,200 billion euros annually. Despite this, many politicians are still calling for more new benefits. Apparently, they seem to go down better with voters than ambitious reformers, who are often stigmatised as socially cold. In addition, the proliferation of all-round state provision has created many additional jobs in the public sector, which are not only well paid but also come with a good work-life balance.

Yes, the number of people working in the public sector has grown by 2.6 million since 2008. In addition, there are 1.3 million more people working in government or regulation-related services such as science and consulting. Many of the 18 million people employed in these sectors are convinced that more and more redistribution, and climate rescue through regulation, is the right way to go. However, productivity is falling and unit labor costs are rising, making the German economy less competitive.

The steady expansion of social security and the public sector was made possible for a long time by the ever-increasing level of productivity in industry. Nevertheless, there was a balance between the parties that called for redistribution and the parties that advocated the merit principle. Since the turn of the millennium, however, the increasingly expansive monetary policy of the European Central Bank has given the former group the upper hand, as all sorts of social benefits and environmental programs could seemingly be financed with ease. It made sense to avoid risk and turn to the state.

With inflation and the European Central Bank's interest rate hikes, the ambitious social and climate policy goals of the coalition government have indeed been dealt a major blow. If interest rates remain high, top performers will once again be in greater demand. If interest rates fall again and the European Central Bank starts buying government bonds again, the number of public servants will continue to increase relative to the number of people working in the private sector. The costs will be reflected in inflation and a further decline in purchasing power.

In the USA and the UK, liberal and meritocratic thinking is more firmly anchored in society than in continental Europe. Germany has an „impressive“ history of monetary devaluation. Just think of the hyperinflation of the early 1920s. Perhaps it was just a stroke of luck in West Germany that an independent central bank and a hard currency were introduced under the influence of the US occupying power after the Second World War, which drove the German economy to impressive productivity gains. The hard currency went with the introduction of the euro, Germany has perhaps returned to the soft currency status that corresponds to its social preferences. Nevertheless, I still hope that German citizens will remember the advantages of a hard currency, and that Germany will return to a hard currency. This is the only way to finance the very generous welfare state.