#ZEWBookTalk with Moritz Schularick
The world is in a crisis continuum and Germany is watching. This is the impression Moritz Schularick, professor of economics at the University of Bonn, gets when he looks at the state’s actions in recent years. He has written down his observations. In his latest book, “Der entzauberte Staat – Was Deutschland aus der Pandemie lernen muss” (“The Disenchanted State – What Germany Must Learn from the Pandemic”), he argues that Germany should move away from the typical ‘can’t-do’ mentality and adopt a stronger ‘can-do’ attitude. This can also be applied to Germany’s current action in the Ukraine war. At the #ZEWBookTalk on 22 March 2022, ZEW President Professor Achim Wambach and Moritz Schularick discussed not only the achievements and failures of the state in crisis mode. They also revisited their debate on the pros and cons of an energy embargo against Russia, published the same day in the German business newspaper ‘Handelsblatt’.
They discussed the currently highly controversial question of whether Germany and Europe can and should enforce a complete supply freeze for gas, oil and coal from Russia in order to end the war in Ukraine. Both economists agree that the economic slump that would inevitably follow the embargo would not immediately lead to deindustrialisation. Achim Wambach, however, doubts that macroeconomic instruments would help adequately at the micro level. “We have learned from the COVID-19 crisis that this does not always work well. Despite extensive aid programmes, many artists, for example, complained about a lack of support,” said Wambach. However, Schularick considers the consequences to be manageable: “The effects of an embargo are easier to deal with than those of a pandemic. Cutting off Russian gas mainly affects the industrial sector, where the negative effects can be cushioned by measures such as short-time working allowances.” Far more effective in putting pressure on Russian energy revenues, however, is an oil embargo. The Putin system relies mainly on oil revenues, and this is where it is most vulnerable. “There is no reason why we should not impose an oil embargo,” said Schularick. He advocates a two-step approach, in which the macroeconomic costs resulting from an embargo are first accepted and then distributed in a second, politically decided step. On the other hand, Wambach pointed out that Putin’s reaction must also be taken into account. In the case of a partial embargo, for example, he could raise prices for the remaining quantity.
Schularick’s book title, “The Disenchanted State”, is based on Max Weber’s idea of disenchantment in modern society. Knowing how something works places tangible knowledge above invisible magic. In an increasingly complex world, competent governance of the state requires sound scientific advice and a greater willingness to take risks. In this way, not only can social transformation succeed, Germany could even gain competitive advantages for the future through intelligent governance.