German economy: Economic engine continues to sputter

After a weak first half of 2022, the German economy is likely to stagnate at best in the third quarter of this year. The energy crisis, with continuing high concerns about a gas shortage and even higher energy prices, is the dominant slowing factor for the German economy. Energy prices are not expected to fall rapidly, which will also slow the decline in inflation. The global economy is also being weighed down by high inflation and a rapidly tightening monetary policy, which is dampening Germany’s exports. In May, the German trade balance turned negative for the first time in a long time in the wake of weaker exports and skyrocketing import prices for energy. The German growth model of the past is currently reaching its limits. Strong export and economic growth cannot be expected in the near future.

German industry in particular is suffering from the war in Ukraine. It is receiving significantly fewer new orders, especially from abroad. The currently still high order backlog can only be processed slowly because the disruptions to global supply chains are only easing slowly and the shortage of intermediate products is still a major problem.

The recovery in services, which began after the easing of the Corona protection measures, is now gradually coming to a halt, partly because households’ propensity to spend is being noticeably reduced by high inflation. After a weak first half, the German economy is already starting the third quarter with a lot of headwind. In the current year, the German economy is likely to grow only slightly by 0.5 percent. In 2023, too, growth is only expected to be low at 1.1 percent. Inflation will remain high this year and, despite falling significantly in 2023, will still be well above the central bank’s target of 2 percent.

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U.S. Economy: On the Brink of Recession with Inflation Remaining High

The U.S. economy contracted by 0.4 percent in the first quarter of 2022 compared with the previous quarter (annualized 1.6 percent). However, this was mainly due to the fact that exports declined significantly as a result of the low momentum of the global economy. Public sector consumption was also down. In addition, companies were more reluctant to build up inventories than in the final quarter of 2021, when they had replenished their stocks exceptionally strongly. Encouragingly, however, both private consumption and investment increased at solid rates.

Only moderately positive or even negative economic growth rates can be expected again in the further course of the year. In the second quarter of 2022, we might even see another slightly negative growth rate. The US economy will certainly not grow strongly. The headwinds are too strong: Inflation, war in Ukraine and lockdowns in China are weighing on further development. In addition, monetary policy is becoming more restrictive. The U.S. Federal Reserve will continue to raise interest rates and also start to shrink its balance sheet. However, despite continuing interest rate increases, inflation will remain elevated and will probably only gradually decrease. In June, inflation increased by 1.0 percent compared to May. Within one year, inflation increased by 8.6 percent, which is worryingly high.

For 2022 as a whole, I expect economic growth of only 1.6 percent followed by 1.7 percent in 2023. Inflation will remain high this year with an annual average of more than 7.0 percent. In 2023 however, I expect inflation of somewhat less than three percent.

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Impending recession hits euro zone in worse shape than the USA

The global economy will be severely impacted by various factors in the summer of 2022. Many countries are on the brink of recession. The Corona lockdowns in China and, from a European perspective, the war in Ukraine in particular, are reducing growth in many places, fueling inflation and bringing the euro zone in particular, but also the United States, to the brink of recession. The Chinese economy is also likely to show low growth rates this year and will not be able to act as an economic locomotive. After the financial crisis, Chinese stimulus programs were stimulating the global economy.

By the first quarter of 2022, economic output in many countries was already only moderate or even declining. The US economy, for example, contracted by 0.4 percent in the opening quarter of 2022 compared with the previous quarter (annualized 1.6 percent). This was mainly due to the fact that exports fell significantly, probably as a result of the low momentum of the global economy. Secondly, companies were much more reluctant to build up inventories than in the final quarter of 2021, when they had still replenished their stocks extraordinarily strongly. Encouragingly, however, both private consumption and investment increased at solid rates. The purchasing managers’ indices and consumer sentiment also point to subdued growth in the summer half-year. In addition, monetary policy is rapidly becoming more restrictive in view of high inflation on both sides of the Atlantic.

In the euro zone, the economy grew by 0.6 percent in the first quarter. However, this was primarily due to still strong export growth and a high inventory build-up. However, private consumption and investment have already declined somewhat. In the euro zone, too, in view of the depressed assessment of the economic situation and outlook among both companies and consumers, only stagnation is to be expected in the summer half-year. The global economy continues to be severely impacted by the war in Ukraine and the Chinese corona crisis. Recently, in particular, concerns about an impending gas shortage and even higher energy prices have increased noticeably again. These developments are also contributing to inflation remaining high. In addition, the export industry is suffering from the weak global economy. At present, the order backlog is still high. However, it can only be processed slowly because global supply chains are still disrupted and the shortage of starting products remains serious in many places. Although there are signs of a gradual easing in supply chains, the war in Ukraine and the lockdowns in China will probably continue to contribute to increased problems in the coming months. Supporting the economy, at least for the time being, are still the services, which are benefiting from the easing of the Corona protection measures. Tourism and the food service industry in particular are enjoying a good start to the summer. However, this recovery process is now gradually coming to an end. In addition, high inflation is significantly reducing household purchasing power, which is contributing to a marked deterioration in consumer sentiment.

Somewhat later than the U.S. Federal Reserve, the European Central Bank (ECB) raised its key interest rates in July to counter high inflation and dampen inflation expectations. In addition, the securities purchase program was ended in June. The increasingly restrictive monetary policy will further dampen the already weak economic growth and, together with the consequences of the war in Ukraine and the corona crisis in China, will probably lead to a slight decline in economic output in some euro area countries.

Looming recession hits euro area at an inopportune time

The growth freeze is hitting the euro area economies in worse shape than that of the United States. The U.S. economy digested the pandemic-induced slump in spring 2020 more quickly than the euro area. For example, the U.S. economy regained its pre-crisis GDP level of late 2019 as early as early summer 2021, whereas this was not the case for the euro area until about a year later.

An important reason for the rapid recovery in the United States is probably the extremely expansionary fiscal policy during the pandemic. In total, three fiscal packages amounting to nearly 15 percent of U.S. gross domestic product were passed in 2020 and 2021 under Presidents Trump and Biden. These fiscal packages have stimulated private consumption. In the euro area, by contrast, private consumption has not yet reached pre-crisis levels even at the beginning of 2022.

Even from the last major economic crisis – the financial crisis which originated in 2007/2008 – the US economy recovered more quickly than the euro zone. This is also due to the debt crisis that started in several euro area countries at the beginning of the last decade. As a result, economic output in the United States increased by around 25 percent between 2008 and 2021, while gross domestic product in the euro area increased by only 12 percent. In particular, the debt crisis in some euro area countries has widened the growth gap between the two economic areas.

Not only has economic output and private consumption developed significantly better in the USA than in the euro area, but so has investment in equipment – in other words, those key investments that are of great importance for long-term economic development. Looking at the entire period since 2008, equipment investment in the euro area has increased only marginally, while in the USA it has risen by more than 50 percent. Equipment investment in the euro area has also not yet fully recovered from the pandemic, while in the USA it was already well above pre-crisis levels by the beginning of 2021. The subdued investment trend is reducing growth prospects in the euro zone. At the same time, there is a high need for investment in Europe, particularly to successfully shape the energy transition and digitization. At least there is reason to hope that the “Next Generation EU” instrument will provide some impetus for investment in the euro area in the coming years.

Also important for long-term economic development are investments in research and development as well as software, which are part of intellectual property products in the national accounts. However, the data should be interpreted with some caution, as these are difficult to determine due to their intangible nature, among other things. After all, the development in the euro area was for a long time similarly dynamic as in the USA. In both economic areas, these investments have increased by around 70 percent since the financial crisis. Since the pandemic, however, a clear gap seems to have opened up between the United States and the euro area, according to the official figures. While the United States appears to be experiencing a boom in these intangible investments, they have plummeted noticeably in the euro area.

So even before the outbreak of the war in Ukraine, the euro area had already fallen further behind in growth during the pandemic. In this respect, it is also helpful to compare the forecasts for 2020 and 2021 made by the International Monetary Fund at the end of the year with actual developments. This comparison suggests that economic output in the United States in 2021 was only slightly more than one percent below the level assumed at the end of 2019. In the case of the euro area, on the other hand, there was still a gap of more than four percent.

Various scenarios conceivable for the coming economic development

Before the outbreak of the war in Ukraine, it could be assumed that the U.S. economy would achieve the growth path assumed by the International Monetary Fund at the end of 2019 in the current year. For the euro area, on the other hand, the International Monetary Fund assumed in January 2022 that the growth trend expected before the pandemic would still not be achieved in 2024 and that a prosperity gap of just over one percent of gross domestic product would probably remain. 

The war in Ukraine, which is a tragedy for the people affected, is now leading the global economy into a second crisis shortly after the pandemic. Similar to the debt crisis after the financial crisis, the war is now likely to put the brakes on economic recovery. In the further course, only low positive or even negative growth rates are to be expected in the developed economies. The headwinds are blowing too hard: Inflation, war in Ukraine and lockdowns in China all continue to weigh on economic development. Added to this is a monetary policy that is rapidly becoming more restrictive in the face of inflation. The US Federal Reserve and the ECB will continue to raise interest rates rapidly and make their monetary policies more restrictive.

As with the debt crisis ten years ago, the euro area is economically more affected by the war in Ukraine than the United States for obvious reasons. The growth gap with the United States is thus likely to widen further. An important difference to the debt crisis in the euro area today, however, is that the German economy is no longer the driving force in economic growth, but is one of the laggards, mainly due to its high energy dependence on Russia to date.

Two scenarios illustrate an approximate order of magnitude for the widening growth gap between the USA and Europe up to 2024, assuming further developments in GDP up to 2024 for the USA and the euro zone by means of a positive and a negative scenario for each (Fig. 4). These scenarios are not to be understood as complete forecasts, but are intended to illustrate how economic output could develop under the respective scenario. In the positive scenario, it is assumed that the central banks of the USA and the euro area succeed in controlling inflation with a more restrictive monetary policy in such a way that no recession occurs. In addition, it is assumed that the conflict in Ukraine will continue but that there will be no sudden halt in gas supplies to Europe. The negative scenario, on the other hand, assumes that the central banks will have to tighten the monetary reins to such an extent that a recession with a weak recovery will result. In addition, there will be a halt to gas supplies to Europe in the fall of 2022.

Even in a positive scenario, the GDP growth assumed at the end of 2019 will still not be achieved in the USA in 2024, leaving a gap of around one percent of GDP (Fig. 4). In the case of the euro zone, on the other hand, gaps of almost three percent will remain even in the positive scenario. A gap of a similar size would only arise for the United States in the negative scenario. By contrast, in this negative scenario, gaps of almost five percent will remain in the euro area in 2024. The pandemic and the ensuing war would then result in long-lasting losses in prosperity – also due to the triggered high inflation and monetary tightening.

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Germany: Inflation and War Interrupt Recovery of German Economy

The German economy continues to be hit hard by the war in Ukraine and the Chinese corona crisis. At the same time, both crises are driving inflation. Globally, too, there are signs of subdued economic development, from which Germany, as an export-oriented economy, is likely to be noticeably affected. The difficult environment is weighing on the German economy, which is nevertheless proving robust. However gross domestic product will probably stagnate at best in the second quarter.

The Ukraine war and the lockdown in China are weighing particularly heavily on the German industry, which continues to suffer from a severe shortage of intermediate products and raw materials. The production backlog continues, so that the high order backlog can only be processed sluggishly. The bottlenecks in international supply chains, which have existed since the pandemic, are only easing slowly and are also keeping inflation high.

Services are currently still benefiting from the easing of the Corona protection measures, which are stimulating tourism and gastronomy in particular. However, this recovery process is gradually petering out. However, high inflation is significantly reducing household purchasing power. The relief packages are only likely to dampen inflation somewhat temporarily. Decisive for the economy and inflation at the moment are the further course of the war in Ukraine and the Chinese pandemic policy.

In 2022, I only expect a growth rate for GDP of 1.2 percent followed by 1.4 percent in 2023.  I think that inflation will remain high at 7.5 percent on average this year. Next year, inflation will probably decrease to 2.7 percent.

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U.S. Economy: Inflation remains worryingly high

The US economy contracted by 0.4 percent in the first quarter of 2022 compared with the previous quarter (annualized 1.4 percent). However, this was mainly due to the fact that exports declined significantly as a result of the low momentum of the global economy. Public sector consumption was also down. In addition, companies were somewhat more reluctant to build up inventories than in the final quarter of 2021, when they had replenished their stocks exceptionally strongly. Encouragingly, however, both private consumption and investment increased at solid rates.

Positive growth rates can be expected again in the further course of the year. However, the US economy will not grow strongly. The headwinds are too strong: Inflation, war in Ukraine and lockdowns in China are weighing on further development. In addition, monetary policy is becoming more restrictive. The U.S. Federal Reserve will continue to raise interest rates and also start to shrink its balance sheet. However, despite continuing interest rate increases, inflation will remain elevated and will probably only gradually decrease. In May, inflation increased by 1.0 percent compared to April. Within one year, inflation increased by 8.6 percent, which is worryingly high.

For 2022 as a whole, I expect economic growth of only 1.7 percent followed by 1.9 percent in 2023. Inflation will remain high this year with an annual average of more than 7.0 percent. In 2023 however, I expect inflation of somewhat less than three percent.

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Ukraine war and pandemic situation in China continue to slow down German economy

The war in Ukraine and the Chinese corona crisis have a noticeable impact on the German economy and fuel inflation. There are also signs of a subdued global economic trend, which is likely to have a noticeable impact on Germany as an export-oriented economy. In view of the difficult environment, the German economy is still holding up well. Nevertheless, gross domestic product is likely to contract somewhat temporarily in the second quarter. Between January and March, gross domestic product has already increased by only 0.2 percent.

The economic risks for the German economy are enormous. In addition to the war, the widespread lockdowns in China are also putting the brakes on the economy. Above all, the already existing supply bottlenecks are thus being further exacerbated. German industry’s order books are still full, but the shortage of materials is severe. In addition, in view of the uncertain global political situation, some companies are trying to replenish their inventories, which further increases the shortages of inputs. Services, which suffered greatly during the pandemic, are less affected by international tensions and supply shortages. In addition, the increasing easing of Corona protection measures is having a stimulating effect. However, high inflation is reducing purchasing power and thus slowing growth in consumption.

Inflation is increasingly becoming an additional drag on the German economy. Energy prices are likely to remain elevated for the foreseeable future. Inflation, which has so far been driven to a significant extent by energy prices, is thus likely to recede only slowly. Consumer prices are expected to rise by more than six percent in the current year, which would be the highest rate in 40 years. There is also cause for concern because prices are rising not only for energy, but also for other goods such as food. In addition, problems with international supply chains have driven up the cost of inputs, and many companies are able to pass these on to consumers in the face of still solid demand for the time being.

   

Time and again, the European Central Bank has been accused of holding on to an expansionary monetary policy for too long and thus being partly to blame for high inflation. Many of these accusations are exaggerated. It is true that the ECB has to accept the accusation that it underestimated the risks of inflation. But the sharp rise in prices is primarily due to factors that have nothing to do with monetary policy – such as the gratifyingly rapid economic recovery from the Corona pandemic, expansionary fiscal policy in the U.S., lockdowns in China and now the war in Ukraine instigated by the Russian president. What cannot be dismissed, however, is that such extraordinary events are more likely to lead to stubbornly high inflation in an environment of low interest rates and securities purchases. With economic recovery stalled in many countries and high inflation rates, the ECB now faces the balancing act of curbing inflationary pressures without further worsening the economic situation. In addition, the euro member states are not affected by war and inflationary pressure to the same extent. Germany, for example, could be more affected economically than France or the Netherlands. All the more reason, therefore, for Germany and the euro zone as a whole to increase the productivity of the economy by investing in the future. In the medium term, this would be one of the best ways to counter low interest rates and inflation risks.

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It’s Never Too Early to Teach Financial Responsibility

One of the many jobs we have as parents is to raise financially responsible and literate children. But it isn’t always easy. Thankfully, there are several small steps you can take to help your children better understand personal economics, even when math isn’t your strong suit.

Below, today’s Eagle and Bear Economist guest post by Patrick Young presents tips for parents on how to raise fiscally responsible children.

Open a bank account

If your son or daughter is at least 13 years old, they may qualify for a joint checking account, complete with a debit card. While this is a great way to teach them how to spend responsibly, consider opening a savings account as well to show them how to segment their money into two categories: spending and saving. Make sure to put at least one other trusted legal guardian on their account with them so they can access their money in a pinch if you’re not available.

Teach them about big expenses early

Your teen or tween may be a decade or more away from homeownership, but it’s never too early to explain the concept of using credit responsibly and saving for the big expenses in life, such as purchasing a house. Talk to them about what a loan is and how interest rates work. If you’re not quite sure yourself, spend some time researching mortgage interest rates today and brushing up on the difference between VA, FHA, and conventional loans. Talk to your children about affordability and discuss reasons that they should not live outside of their means (for example, if their home is too expensive and their income declines, they may lose their investment). Teach them about the real estate market and how major assets can help them build their personal wealth.

Show them how to make their own money

Kids like money, and they especially like your money. But, mom and dad can’t always have a revolving wallet. As your children get older, talk about how to earn their own money. They might, for example, start their own small business mowing yards in the neighborhood or making jewelry to sell to family and friends. If they are dead broke and need capital, teach them about the different types of investments, from angel investors to crowdfunding. You might also create a loan or microloan application for them to fill out. This is also a great opportunity to let them see how interest works on a small scale. PTMoney mentions several other great income opportunities for teens.

Use fun charts and graphs

Many children are visual learners and may not fully grasp the concept of saving in an abstract environment, such as a bank account they can’t see and feel. For these kids, consider using their favorite candies and mason jars to help them see how close they are to their savings goals. (You can buy giant bags of Skittles online!)

Let them set goals

Let children set financial goals for themselves. This could be something as simple as earning enough money to buy a pack of Pokémon cards each week or buying their own PlayStation or a new bicycle. Another idea here is to have them save for the difference between “standard” items and luxury items or name-brand clothing.

Your children will mimic everything you do, and you are their best teacher. Although money isn’t everything, it’s necessary throughout their lifetime, especially as they enter adulthood and go to start a business or buy a home. Teach concepts that will help them ease into these processes early, and your children may not struggle or stress their finances nearly as much as they will be prepared and armed with knowledge.

By Patrick Young from AbleUSA.info

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U.S. Economy: Growth dips amid high inflation

The US economy contracted by 0.4 percent in the first quarter of 2022 compared with the previous quarter (annualized 1.4 percent). However, this was mainly due to the fact that exports declined significantly as a result of the low momentum of the global economy. Public sector consumption was also down. In addition, companies were somewhat more reluctant to build up inventories than in the final quarter of 2021, when they had replenished their stocks exceptionally strongly. Encouragingly, however, both private consumption and investment increased at solid rates.

Positive growth rates can be expected again in the further course of the year. However, the US economy will not grow strongly. The headwinds are too strong: Inflation, war in Ukraine and lockdowns in China are weighing on further development. In addition, monetary policy is becoming more restrictive. In terms of inflation, I expect a somewhat more pronounced slowdown than in other forecasts. However, inflation will remain elevated. The U.S. Federal Reserve will continue to raise interest rates and also start to shrink its balance sheet.

For 2022 as a whole, I expect economic growth of only 2.0 percent followed by 1.8 percent in 2023. Inflation will remain high this year with an annual average of 6.8 percent. I also expect inflation of 2.6 percent in 2023.

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German economy slowed by war, inflation and Chinese lockdowns

Following Russia’s invasion of Ukraine, the outlook for the German economy has deteriorated. High energy prices are fueling inflation and uncertainties regarding the further course of the war and energy supplies are weighing on economic development. A decline in economic output in the second quarter of 2022 would therefore come as no surprise. Economic indicators such as the ifo business climate index and the GfK consumer climate index have been pointing to weaker development since the start of the war. Between January and March, gross domestic product has already increased by only 0.2 percent.

The economic risks for the German economy are enormous. In addition to the war, the widespread lockdowns in China are also putting the brakes on the economy. Above all, the already existing supply bottlenecks are thus being further exacerbated. German industry’s order books are still full, but the shortage of materials is severe. In addition, in view of the uncertain global political situation, some companies are trying to replenish their inventories, which further increases the shortages of inputs. Services, which suffered greatly during the pandemic, are less affected by international tensions and supply shortages. In addition, the increasing easing of Corona protection measures is having a stimulating effect. However, high inflation is reducing purchasing power and thus slowing growth in consumption.

Inflation is increasingly becoming an additional drag on the German economy. Energy prices are likely to remain elevated for the foreseeable future. Inflation, which has so far been driven to a significant extent by energy prices, is thus likely to recede only slowly. Consumer prices are expected to rise by more than six percent in the current year, which would be the highest rate in 40 years. There is also cause for concern because prices are rising not only for energy, but also for other goods such as food. In addition, problems with international supply chains have driven up the cost of inputs, and many companies are able to pass these on to consumers in the face of still solid demand for the time being.

   

Time and again, the European Central Bank has been accused of holding on to an expansionary monetary policy for too long and thus being partly to blame for high inflation. Many of these accusations are exaggerated. It is true that the ECB has to accept the accusation that it underestimated the risks of inflation. But the sharp rise in prices is primarily due to factors that have nothing to do with monetary policy – such as the gratifyingly rapid economic recovery from the Corona pandemic, expansionary fiscal policy in the U.S., lockdowns in China and now the war in Ukraine instigated by the Russian president. What cannot be dismissed, however, is that such extraordinary events are more likely to lead to stubbornly high inflation in an environment of low interest rates and securities purchases. With economic recovery stalled in many countries and high inflation rates, the ECB now faces the balancing act of curbing inflationary pressures without further worsening the economic situation. In addition, the euro member states are not affected by war and inflationary pressure to the same extent. Germany, for example, could be more affected economically than France or the Netherlands. All the more reason, therefore, for Germany and the euro zone as a whole to increase the productivity of the economy by investing in the future. In the medium term, this would be one of the best ways to counter low interest rates and inflation risks.

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Basic income – an interesting idea, but its macroeconomic impact is still largely unknown

The idea of an unconditional basic income has gained renewed momentum since the outbreak of the corona pandemic. It is quite possible that various forms of unconditional transfers will become a reality more often than was thought before the pandemic. However, truly unconditional and living wage basic incomes, as they are often discussed, are unlikely and probably also not goal-oriented. Above all, too little is known about the macroeconomic effects of an unconditional basic income and the risks involved.

During the corona pandemic, transfer payments with few and simple conditions were adopted in various countries in order to be able to distribute funds to people quickly and without bureaucracy. Such low-condition transfer payments are similar to an unconditional basic income, but are tied to certain conditions – such as the amount of income or the way it is used – and are usually insufficient in amount to cover living expenses.  The best-known example is the total of $3200 that low- and middle-income individuals in the United States have received in three installments since March 2020. 

It has been argued in various quarters that such low-condition transfer payments or even an unconditional basic income could also play a more important role in the future – for example, to cushion the consequences of technological change. Job profiles are changing, partly because the pandemic is currently acting as a kind of catalyst, accelerating technological and social change. Forms of home-based work, digital education, or telemedicine will remain in part even after the pandemic hopefully subsides permanently. In addition, there are repeated warnings that robots or artificial intelligence could take more and more work away from people and cause higher unemployment among some population groups, at least temporarily. 

Structural change as a challenge for people

Such structural change is a challenge for people and the welfare state. Existing knowledge and skills acquired in the past may be rapidly devalued. To be sure, as with past technological changes, many new jobs will probably be created, which should more than compensate for the loss of other jobs.  However, at least temporarily, unemployment may rise in some sectors and social tensions may arise in society. In addition, flexible forms of employment such as on-call work and project-based work are on the rise. For these forms of employment, however, social security is usually worse than for permanent employees.

It is therefore important that social systems are restructured not so much with a view to possible job losses due to automation, but above all with a view to structural change that alters job profiles. In a broader sense, a social system is part of a country’s infrastructure and should be continuously renewed. Low-condition transfers could be an instrument for this and mean not only economic security but also more freedom for people. For example, by enabling them to pursue further education more flexibly. The individualization of life circumstances could be another reason for more low-condition transfers. People are increasingly taking time off from work or part-time work in very different ways in order to do unpaid work in the form of childcare or caring for relatives.

Unconditional basic income unlikely in the near future

These different work and life models make it difficult to adapt conventional social benefits to individual needs. Forms of unconditional transfers have several advantages because they quickly and easily reach many of the people who need them. However, it is unlikely that countries will introduce comprehensive and living wage forms of basic income. A rapid and radical transformation of social security systems would be too complex and risky. Ambitious ideas for an unconditional basic income – such as the 2016 popular initiative in Switzerland – have repeatedly failed because they would have led to drastic changes in the welfare state and society that were difficult for people to assess. In particular, questions of financing and incentives to work were not clarified convincingly enough. Most importantly, it is also largely unknown what the macroeconomic effects of an unconditional basic income would be. It is conceivable that unintended side effects could occur. For example, aid payments in the U.S. have – quite intentionally – stimulated aggregate demand. At the same time, however, inflation has probably also risen significantly as a result of these aid payments, which is now prompting the U.S. Federal Reserve to become much more restrictive in its monetary policy than was recently expected.

It is quite possible, however, that more and more forms of low-condition transfers will emerge. For example, low-condition support for training could become more popular, since in a world with uncertain future and employment prospects, investment in training is associated with high uncertainty and existing skills could quickly lose their value. For example, it could be determined that each person can draw a certain amount that covers continuing education costs. It is also conceivable that people with low incomes could receive a certain amount without conditions, for which they would not have to account. Higher levels of support would still be conditional.

Be open to experimentation

At present, there is still too often a belief that changes in the welfare state do not even need to be discussed in detail. This is dangerous. It is possible that our working world will not change as much as we think, but we should be better prepared for possible developments in the future. We should discuss it more. However, because of the unclear macroeconomic effects, it is better to experiment with limited low-condition transfers at the local level.

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