Skip to content

What Economics Can Teach Us About The Irresponsible Fiscal Policies Pursued by Germany and Singapore

LHL TrumpIt is always remarkable how much praise Singapore gets from liberal or left-leaning economists who should know better. A few years ago the Nobel laureate, Joseph Stiglitz, held Singapore up as a model of how to achieve economic growth while prioritizing social equity and income equality. I thoroughly debunked his arguments in my blog piece, “Stiglitz Gets It Wrong on Singapore: The Real Lessons for An Unequal America“, published in March 2013, pointing out that his argument was a non-starter purely on the basis of comparisons of the raw Gini coefficient (which measures inequality) between the two countries . This was before correcting for the fact that Singapore is a city whose population is entirely urban, in comparison to the US where only 80% of the population is urbanised. Of course I never got an acknowledgement by Stiglitz that he had made a fatal error which I presume was driven more by his desire to bash capitalism and the Republicans than by a particular love for Singapore.

So the same factors can be seen at work in an  article published in Forbes yesterday by Howard Gleckman, who lists himself as a resident fellow at the Urban Institute (though I could find no mention of him as a Fellow on their website) which is affiliated with the Brookings Institution.  The New York Times some time back exposed Brookings’ and other US think tanks’ willingness to accept money from foreign donors (Norway and Qatar were mentioned) and how this seemed to shape many of their policy recommendations. Singapore was not explicitly mentioned but a quick internet search turned up an event on housing policy and integration held in 2015 with NUS. Tharman was one of the speakers and (surprise, surprise!) the conclusion was that the US had a lot to learn from Singapore which according to Tharman had “not one disadvantaged neighbourhood” Of course Americans and other Westerners who enthuse about Singapore would never tolerate for a minute the racist Ethnic Integration Act which prevents minorities living where they want. Nor would they tolerate a situation where 90% of the population (but not the Familee or family, cronies and the PAP elite) lease their cramped and very cheaply built housing from the Government for only 99 years and where their housing can be repossessed or forfeited at any time because they have broken the rules or because the Government sees and opportunity to profit through redevelopment.

The article was entitled “What Singapore and Germany Can Teach The US About Fiscal Policy” and contrasted what the author saw as the admirable thriftiness of Singapore and Germany, which both run big fiscal surpluses as a percentage of GDP with what he termed the short-sighted profligacy of US fiscal policy. Gleckman particularly cited Singapore and my second class honours Cambridge classmate Heng’s Budget speech where he said

“There is a need to strengthen our fiscal footing. In the next decade, between 2021 to 2030, if we do not take measures early, we will not have enough revenues to meet our growing needs.”

when he said GST would be increased by 2% between 2021 and 2025,

I have thoroughly refuted the notion that Singapore needs to raise taxes (read my blog “Budget 2018: Same Old Cliches As Heng Makes Your Money Vanish in the Uniquely Singaporean Version of the Shell Game”)In fact Government coffers are groaning under the weight of surpluses. The real Government surplus is running at between 7% to 10% of GDP depending on whether the measurement includes statutory boards. Even on the widest definition it probably only includes cash dividends and receipts and certainly not capital gains which could be far greater.

Germany also runs a large surplus (about the same as Singapore’s in cash terms) but as a percentage of Germany’s much larger GDP of EUR 3.2 trillion it is only just over 1%.

However the reason why both countries are able to run large budget surpluses and still have respectable rates of growth with lowish rates of unemployment is because they both run very large current account surpluses.  Both Germany and Singapore have very large current account surpluses in relation to GDP. Singapore’s current account surplus is about 19% of GDP and Germany’s is about half that.  The US on the other hand has a big current account deficit. If this was not offset by Government dissaving in the form of a large budget deficit there would be adverse consequences for US employment and GDP growth would fall. So actually the problem is not US profligacy in running a Government deficit but excessive saving on the part of Singapore and Germany. If all countries tried to increase savings and exports simultaneously there would be a severe recession.

So instead of praising Singapore and Germany as models for the US to follow Gleckman should be exhorting both countries to reduce their savings rates by running balanced budgets or even deficits. Singapore is much worse than Germany as the government surplus as a percentage of GDP is much larger. In fact successive US administrations have tried to get surplus countries (particularly China, Korea, Japan and Germany) to save less which would increase global demand and reduce the pressure on the US to act as the world’s growth locomotive. One of the few things the Trump administration has done right is to put more pressure on surplus countries to buy American goods and increase domestic demand. Singapore is clever enough to run a trade deficit with the US, presumably because it buys so many American weapons, so it escapes criticism and instead American Presidents turn a blind eye to Singapore’s lack of democracy and human rights abuses.

Nor are current PAP policies of excessive saving in the interests of Singaporeans, as I am sure you will be aware of if you have read my blog.  We are largely kept in the dark as to what assets the Government owns and what returns it is really getting. To paraphrase Churchill, the size of Government reserves is a riddle, wrapped in a mystery, inside an enigma. Managing these enormous but unknown reserves is reserved to members of the Familee and a perfect excuse for paying them outsize levels of remuneration, which conveniently remains a state secret. Given that we will likely be far better off in the future than we are today, it is ridiculous not to consume more now and save less.

Instead of uncritically holding up Singapore (and Germany) as models to follow, Gleckman should point out that these policies of excessive government saving are one of the biggest threats to global prosperity.


  1. Kenneth, what do you think of this (FT access required): (“Shouldn’t we encourage the propensity to save?”)

    “Saving is the only way to conquer the deflation threat caused by excessive debt if one wants to preserve the economic system that has served us so well in delivering historically high growth”.

    Letters – FT Weekend, 7 April 2018 in response to FT article on excessive German saving

    (You have, of course, addressed this in “Retired Superman Goh doesn’t tell the full story when it comes trade”)


  2. Kenneth.
    And don’t forget that the adoption of the Euro immensely benefitted Germany. So much so that they invested their surplus in the Mediterrean countries notably Spain and Greece. But when the crisis hit in 2008, the Germans got all huffy and impose austerity measure on Greece thst hadn’t been implemented since the Versailles treaty. Kinda ironic.
    Worse is that by weakening the Mediterrean arc, Germany set the stage for the migrant invasion that’ll destroy the EU.
    I wonder what’ll happen to Singapore once the regional countries accelerate their tax amensties and reform their fiscal policies


  3. The PAP govt is no longer trustworthy in public policy management, in fact has been so for a number of years.

    If Singaporeans are rational, they would realize they have no choice but to VETO OUT the PAP in the next GE.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: