Should the Corona vaccination be mandatory?

The Corona Incidences are rapidly rising in Germany and also the hospital capacities are almost depleted completely. While a few months ago leading politicians clearly stated that there will not be a vaccine mandate, by now some politicians already withdrew their previous statements and highly advocate a compulsory vaccination in order to finally go back to normality. This shift of opinion can also be observed among entrepreneurs and managers of huge German companies. During this summer many entrepreneurs still viewed the vaccine mandate as a tremendous restriction of everyone´s personal freedom but during the last weeks more and more opposite statements occurred. Especially many entrepreneurs and managers of the commerce and gastronomy sector endorse the rising demand for a compulsory vaccination as their companies vastly had to suffer due to the Corona restrictions and many companies would go bankrupt if tougher restrictions or a complete lockdown were reintroduced. As Austria already announced a rigorous vaccine mandate it is not that unlikely that Germany will follow their lead and establish this measure as well.

Written by: Thomas Hoffjan



Mannheim Alumni vs Nobel Laureate Joseph Stiglitz: Inflation, Debt, Fiscal and Financial Policy

Many of you will know him: Hans Werner Sinn, ex-IFO president and one of Germany’s best- known and most renowned economists. After his basic training in economics in Münster, he came to Mannheim, where he earned his doctorate and eventually his habilitation.

The debates about inflation and the correct interest rate, and fiscal and financial policies are experiencing a boom. While many – ECB President Lagarde, for example – assume that the current increase in prices is only a transitory event, others like Sinn believe in massive and lasting inflation. Joseph Stiglitz, a professor at Columbia University in New York and Nobel Prize winner, recently intervened in the battle for the German finance ministry. He spoke out in favour of Robert Habeck and against Christian Lindner because he is convinced that debt must be taken on to make investments in the future and thus innovate society. Clinging to the black zero, on the other hand, he considers making little sense. In doing so, he complied with the asset managers BlackRock and State Street, who are also critical of the Lindner personnel for the Ministry of Finance. Hans Werner Sinn took up the cudgels for Christian Lindner’s ordoliberal principles. The following summarises some key points from an interview with Hans Werner Sinn in the Handelsblatt. Rating: enlightening. And for all supporters of the market economy: reassuring.

Point 1: The ECB should ensure wider interest rate spreads so that those states that are getting further and further into debt (Italy, Greece, for example) have to pay higher interest rates to their creditors and thus receive clear incentives to reduce their debts.

Point 2: The Maastricht treaties may not even be worth the paper they are printed on. These treaties contain, for example, the 60 per cent clause, which states that the states in the Eurozone should have a debt ratio of no more than 60 per cent of total economic output (GDP). These are (actually) criteria for admission as well as for remaining in the EU. Germany has adhered to it for a whole four years in the last 21 years, some countries never have, and in 2020 only 13 of the 27 states had remained faithful to this principle.

Point 3: The current inflation dynamics are comparable to the first oil price shock 50 years ago. Sinn believes that inflation will come in waves, similar to a pandemic. This art is mainly due to the many disruptions, which act as inflation catalysts one after the other and somehow simultaneously. First, there is the energy transition with the phase-out of nuclear power and all fossil fuels. According to Sinn, this will exert considerable cost pressure on all production processes. The second disruption is demographic change, i.e. the ageing of society. Here the effects are barely noticeable, as the entire baby boomer generation will only retire in the next few years up to 2030. Supply bottlenecks, material shortages and special effects due to pandemics, natural disasters and the like are on top of that.

Point 4: According to Sinn, anyone who rejects Christian Lindner’s commitment to the black zero and to orderly and frugal politics in today’s times as an arch-capitalist society, as BlackRock and State Street as asset managers and financial investors are, can no longer be an advocate of the market economy. According to Sinn, the FDP is the most liberal and free-market party in Germany. Suppose American asset managers now speak out against Lindner as finance minister. In that case, this allows only one conclusion, according to the economist: all these companies no longer have any interest in the market economy at all, but only an interest in more and more money flooding the markets and in being able to speculate with ever-higher sums. Profits would be privatised here, and losses (mainly well seen in the measures taken after the

financial crisis of 2007/2008 (*own comment)) socialised. What makes Sinn particularly angry is that these investors can cover themselves with more promissory notes for which they are not even liable at the same time. The community of states does this – and so ultimately, the taxpayers.

Even if the interests of US economist Joseph Stiglitz are undoubtedly different from those of BlackRock and Co., the result is still the same: Lindner should not become finance minister, and the black zero should be buried.

Point 5: Interest rate hikes will and must come. According to Sinn, the inflation situation in the EU has long since overheated. One should not pour more oil on the fire but instead, take the fire extinguisher in hand before it becomes uncontrollable.

The Fed is already reducing its bond purchases, and at the same time, it is also holding out the prospect of potential interest rate hikes next year. This policy is still different at the ECB. Lagarde recently met with the outgoing head of the Bundesbank, Jens Weidmann, at the European Banking Congress. The latter stands for a policy entirely in the sense of our Mannheim alumni and, in his position, always drew attention to the debt excesses and the resulting economic consequences. Maybe Lagarde took one or another enlightenment from this meeting. The problem in raising interest rates: Countries like Italy would hardly refinance themselves if interest rates were raised. A debt cut would be necessary, which is known not to be the most pleasant thing in the world. Whatever the ECB decides, it will have a massive impact on the EU as a business location and the euro. One way or another.

Written by: Maurice Frings



Black Friday Sale: -2.3% on Wall Street

Wall Street’s S&P 500 index dropped by 2.3 percent on Friday. As if we hadn’t seen enough of the color red on billboards and social media in the past few days in connection with Black Friday promotions, the new coronavirus variant has also caused red on the stock market.  Omicron is the name of the new variant from southern Africa, which once again creates uncertainty for investors and has led to a considerable sell-off on Friday in companies most exposed to the pandemic after the WHO has designated the strain a “variant of concern” on Thursday. Not exactly the kind of Black Friday sale we’re used to.

Among the biggest losers Friday were travel stocks – shares of cruise companies such as Carnival Corp. or Royal Caribbean Group, airlines and hotel companies slumped around 10% against the backdrop of multiple countries around the globe such as the US, UK and EU imposing or planning to impose travel restrictions and lockdowns again. Treasury yields and oil – (just three days earlier Joe Biden announced to release emergency oil reserves in order to bring oil prices down!) – have seen declines as a result of the new variant as well.

Some examples for winners are communications technology company Zoom, internet-connected fitness equipment company Peloton, meal kit subscription company HelloFresh, online retailer Zalando and of course vaccine makers – Moderna rose 21 per cent, BioNTech gained 17 per cent and Pfizer was up 7 per cent.

While investors have for the most part remained rather positive concerning economic growth despite the record numbers of infections in European countries, Omicron seems to mark a turning point as investors wait for new data to reassess their decisions.

The new Covid variant, which has already found its way to Belgium, Hongkong and Isreal, has more than 30 mutations to the spike protein which could critically impact the effectiveness of vaccines.

Written by: Sisi Liu



German monthly inflation rate increases up to 4.1 %

Since the beginning of this year, the monthly inflation rate is permanently going upwards and reached a historical high in September with 4.1% as first assumptions indicate. The last time that such a tremendous price increase occurred in Germany, was in December of 1993, shortly after the German reunification, where the monthly inflation rate reached even 4.3%.

This tendency was also noted in many other European countries, such as Spain or France where the average lift in prices was about 4% and 2.7% this month in comparison to September of last year.

One aspect that majorly contributed to this development is the significantly increasing energy price which is approximately 14.3% higher than last year, but also nourishments prices had an impact on the high inflation rate by a price increase of 4.9%. In comparison to that there were just slight price rises in provided services (2.5%) or rent expenses (1.4%).

This general development was already expected by many economists and is mainly caused by the effects of the Corona Crisis. For example the retraction of the betterment tax decrease or Supply Bottlenecks majorly influenced this inflation tendency as well as the increased Carbon dioxide price in Germany and the oil price which drastically decreased 2020 due to the global pandemic and is now getting back to normal.

While many economists rather expect the inflation rate to decrease to a normal level within 2022, others assume it to stay that high due to costs regarding climate protection and second-round effects as a reaction to earlier price increases. However, this would only be possible if average wages significantly rose as well as otherwise the demand would decrease and hence inflation as well.. Nevertheless, this scenario seems rather unlikely, and the risk of an upcoming wage-price spiral appears to be limited.

Written by: Thomas Hoffjan

Source: Handelsblatt

What are the flaws of the US political system? A critical look at an old democracy.

The United States of America is one of the most powerful and influential countries in the world. The entire world looks upon political decisions the USA makes. Especially Donald Trump’s presidency left people stunned. The United States moved into a new perspective. My survey, conducted in spring 2021 with 235 responses, concluded that 60% of participants believe the US political system is flawed. 32% of participants voted partially, while only a small minority of 8% thought the political is not flawed.

These findings raise the following question: “What are the flaws of the US political system? A critical look at an old democracy.”

Four important flaws of the US political system are the electoral college, voter suppression, the senate, and Gerrymandering.

During the vote for the president, a citizen’s vote goes to a statewide tally. In 48 states and D.C., the winner then gets all the electoral votes for that state. This means that if Candidate A receives 100 votes, while Candidate collects 99, all the electoral seats will go to Candidate A. Candidate B will receive zero seats. This concept results in a democratic flaw. Democracy is supposed to be built on the majority rule and the concept that every person’s vote counts. Nevertheless, in US history five presidents have won the elections without winning the popular vote. Examples are former presidents Bush in 2000 and Trump in 2016.

Another flaw of the US democratic system is voter suppression. Voter suppression can take many forms and shapes. Some examples are roll purges, poll closures, long waits- and drives. While voter suppression can be found in multiple states, we will take a closer look at Texas. The 50 Texas counties that gained the most black and Hispanic residents (2.5 million more) closed 542 polls. With more residents, the number of polls should be expected to grow. Nevertheless, this is not the case! Looking at the 50 Texas counties that gained the fewest Black and Hispanic residents (13.000 more) only 34 polls were closed. With this statistic from the Guardian, the intention is clear: Making it harder for black and Hispanics to cast their vote.

The Senate also marks a flaw in the US political system. The Senate consists of two senators per state, no matter the population of the state. Subsequently, less populated states have the same representation as heavily populated states. This leads to unequal representation, which is an advantage for the republican party. Less populated states (e.g., Wyoming, Nebraska), which are in the middle of the US tend to vote republican. Heavily populated states (e.g., California), which are located on the east and west coast tend to vote democratic.

Gerrymandering also represents a flaw of the US political system. The number of representatives by the state is determined by its size. One representative represents one district. The goal of a party: Maximize the number of representatives from their party to have more power in the state but also in congress by drawing new district lines. Gerrymandering is undemocratic because it causes unfair representation. An illustration from the Washington Post showcases this convincingly. While “perfect representation” is the democratic way, Gerrymandering can also cause the two cases of “Compact, but unfair” and “neither compact nor fair”. State lines are drawn in such a way, that there is no fair representation of voters in the states. In a democracy, politicians shouldn’t “search” for voters by drawing unfair border lines but should rather convince a real majority of their ideas and political views. With gerrymandering, this concept is disturbed. It is important to point out that gerrymandering is not possible in all states. Some use different systems to draw new borderlines.