[Skybird]

Die Welt writes:

Time and again, economists push their way forward and convey an illusory sense of security with their analyses. But they should stick to their models. After all, science advises, but politics decides. The division of tasks is as simple as that - and not only in a crisis.

Germany will suffer a loss of prosperity. Almost everyone agrees on this when it comes to the consequences of the war in Ukraine. Even the federal government and the opposition agree on this in beautiful harmony. Federal Finance Minister and FDP leader Christian Lindner reads it like this in "Bild am Sonntag": "The Ukraine war will make us all poorer, for example, because we will have to pay more for imported energy.

And it sounds almost congruent on ARD's "Report from Berlin" with Friedrich Merz, the CDU federal and CDU/CSU parliamentary group leader: "We have probably, at least for a certain time, put the peak of our prosperity behind us. It's getting more difficult."

The only dispute - some of it fierce personal denigration and ideological mudslinging - is over whether the consequences of a Russia embargo will be catastrophic or remain manageable.

In the event of a renunciation of Russian oil and gas, some fear mass unemployment and a wealth-damaging de-industrialization of Germany. Others, however, predict only a reduction in GDP of 0.3 to three percentage points and, at most, in the very worst case, a drop in GDP of six percentage points. They downplay this as a large but not catastrophic effect that would probably cause a severe recession, but would be less severe than Corona's assessment.

As seldom before, the question of wealth effects and the economic assessment of the Ukrainian war and its consequences reveal the limitations of economic analyses. That is why it is so important to remain cautious about what exactly is meant by "wealth losses," how high they are, and who they affect. Economics is and remains a social science and a humanities discipline. Many things cannot be measured, evaluated, compared and concluded unambiguously, objectively and conclusively. This is already evident in the starting positions that are taken and the assumptions that are made.

For example, looking at the past - for example, the oil price shocks in the 1970s or the move to phase out nuclear energy in the 2010s - it seems plausible that the adjustment costs to a boycott of Russian energy would be higher and more severe in the short term than in the longer term. And in the end, a society is likely to emerge from crises even stronger rather than weaker because the cost whip gives legs to technological progress and breakthrough innovations.

However, when the short term ends and the long term begins remains hidden in the darkness of theoretical model calculations, but is of course of fundamental importance for the practice of the people and companies affected, for the industrial sector and their energy-intensive production facilities. The fact that everything adapts to new circumstances in the long term is as correct as it is trivial, but it doesn't really help companies that don't manage the change, or employees who lose their jobs, or families who can no longer get together the money to buy groceries for the week.

Anyone who is directly affected, has a job in an energy-intensive industry and earns a living, will assess the consequences of a loss of Russian energy quite differently than someone in a non-profit environmental organization who would like nothing more than to switch from fossil to renewable energy sources as quickly as possible in order to put the brakes on climate change in the long term. For that reason alone, it's no surprise that research from trade associations, the financial sector, and corporate practitioners attribute dramatic declines in growth and employment to sanctions against Russia.

In contrast, theory-driven model analyses of university origin arrive at a far more merciful verdict. In a statement, for example, the Leopoldina Academy of Sciences considers the consequences of a Russia embargo to be manageable. In most cases, the proponents of an import ban on Russian energy assess the long-term adjustment effects - i.e., in particular, the accelerated transformation from fossil to renewable energy - as more positive and the short-term costs for the population and companies as less significant than the opponents.

However, the question of what exactly one means by costs and what one means by benefits turns out to be a socially and thus politically decisive problem that cannot be solved by economics. Theoretically, this is still relatively easy to answer. One tries to monetize as far as possible, i.e. to measure prices or at least costs for everything and anything or to assume them with more or less convincing arguments and auxiliary quantities.

But even in the case of simple processes, it becomes difficult, because what is determined here and now may look quite different tomorrow under different circumstances. This is of course especially true in times of war and crisis, before and after a pandemic, or more generally in the case of rapid upheavals, which ensure that what was valid in the past no longer provides any insight into how the future will be.
The limits of economics

It becomes even more difficult to predict costs and benefits or even losses of prosperity when it is hardly possible, if at all, to monetarize politically induced consequential effects, for example when it comes to personal fates, fears of loss, changes in behavior, and the need to change jobs and locations.

What does it mean for a population when jobs are lost, everyday consumer goods are missing from the shelves, everything becomes more expensive - many things even cost much more, supply chains break down and even vital products threaten to fail?

At this point at the latest, macroeconomics - as the science of macroeconomic observation, in contrast to microeconomics, which is concerned with the economic actions of individuals, households and companies - reaches the limits of its possibilities.

This is where the sphere of politics begins. They have to weigh up and decide, in the knowledge that today's decisions will have economic consequences, both monetary and non-monetary, for many years to come and for generations to come. In theory, almost anything is possible, but in practice this is far from being the case and many things can only be realized with considerable side effects.

Therefore, the most that good macroeconomics can do in times of upheaval is to speculate about probabilities, to discuss plausibilities, to uncover what are more important and what are negligible influencing factors and to compare alternatives.

But whether an embargo, sanction, or other measure is politically feasible and socially acceptable cannot be proven with a macro model, nor with an input-output table, and certainly not with any simulation calculations. This was, is and will remain a matter for politics and not for science or experts. This applies not only in times of war and crisis, but also in the event of a pandemic.

Translated with www.DeepL.com/Translator (free version)