Whether it's the sharp rise in the cost of living, shortages of essential goods or the challenges of climate change: in times of crisis, the call for the state to step in quickly grows loud. Philipp Dobbert, chief economist at Quirin Privatbank and quirion, explains when he considers political intervention worthwhile and why market mechanisms deserve more trust.
Inflation is a real problem for many households. In a survey by the management consultancy Oliver Wyman, 91 percent of respondents recently came out in favour of government intervention in view of rising food prices. Do you consider interventions in market mechanisms justifiable?
I'm not a politician. As an economist, I have an easier time answering questions like this. Economically, the guiding principle is: always leave prices to the market! That doesn't mean I'm opposed to government intervention on principle. If price increases lead to social hardship, I'm absolutely in favour of the state stepping in. But please, in the form of subsidies. Even if you can argue over details such as who exactly should benefit: I consider Germany's energy price allowance, for example, to be far more sensible economically than the Spanish solution of capping electricity prices.
Why not intervene in the pricing mechanism?
In a market economy, prices perform an irreplaceable signalling function. They point to scarcity. Prices climb when supply shrinks or demand rises. Last year, for some goods, both happened at once. When prices change, it's an incentive for market participants to change their behaviour. Consumers, for instance, temporarily cut back or switch to alternatives. I don't want to make light of it, but to illustrate the mechanism: if filling up at the petrol station suddenly becomes very expensive, you start thinking about whether it might be better to take the bike or the train for certain trips after all. What matters is that, despite high prices, there has always been fuel coming out of the pump so far. If artificial prices send the wrong signals, things can turn out differently. In any case, that won't solve the underlying problem.
Temporary interventions in a crisis are one thing. But what about societal challenges like climate change: doesn't the state need to get more involved there?
At one of our recent events, we talked about sustainability, among other things. The question came up of how politics is supposed to tackle the mountain of problems surrounding climate change. I think the question contains a false assumption. Politics simply can't do that. When it comes to sustainability and climate change, politics can and should create good framework conditions for the economy and markets, but the concrete solutions have to come from there. In the current debate, it often seems as though the economy and markets leave scorched earth behind them on principle, and that politics alone has the competence to meet these challenges. But the idea that viable solutions for greater sustainability can be administered down to the last detail in political bodies is a huge fallacy. The planned economy was not a success story. That the way we do business has led to considerable environmental problems is entirely accurate. But a market economy is not synonymous with environmental destruction, that is not its purpose.
What is its purpose?
To overcome scarcity and thereby improve people's living conditions. I think that if you look at how things have developed historically, for example in Europe after the Second World War, the market economy has quite a lot to show for itself. Not everything about our economic model is good. But you also shouldn't ignore the ground-breaking achievements. For me, life expectancy is the most important indicator here: it has risen considerably in many countries. Whether it's better nutrition or better medical care, all of it is closely tied to our economic system. It's in competition that the innovations arise which allow us to master society's challenges. The purpose of our economy isn't to let individuals park three cars in the garage. That's a side effect, not the essence. It's easy to lose sight of that. For most people in industrialised countries, for example, the constant availability of food, clothing, furniture and much more is taken completely for granted. Yet it is anything but a given.
On the subject of constant availability: over the past months, there have been shortages of many products. Cracks kept appearing in the supply chains. Can you really rely on the economy and the international trade that goes with it?
I do think you can rely on global trade in principle. To what extent you rely on supply chains functioning entirely seamlessly “just in time” is another question. Global trade doesn't necessarily mean you abolish warehousing and prepare no contingency plans for supplier failures. Being in favour of global trade is also not the same as demanding a maximisation of foreign trade. Excessive dependencies can harm the economy. In economic policy's so-called “magic square”, alongside the goals of full employment, stable prices and economic growth, there is also talk of a balance in foreign trade. Properly understood, international trade under market-economy conditions promotes the long-term prosperity of everyone involved.
The opportunity to participate in global capital markets is also meant to contribute to prosperity. How important is trusting in market mechanisms when it comes to investing?
The market economy and international trade are the basis for expecting long-term economic growth. And by that I don't just mean quantity, but also quality. Growth doesn't always have to mean “more”, it can also mean “better”. The growth of the global economy, in turn, is the reason the stock markets have always risen over the long term and on average. This connection is fundamental to the systematic approach to investing that we pursue in our investment strategy. You can't have one without the other.
