Five Wise Men

For the past 46 years, it's been the same ritual almost every time: The government's advisory council to assess overall economic development, popularly known as the Five Wise Men, releases its annual report in mid-November. This independent body is unsparing when it comes to criticism of the government, especially when opportunities for reform have been missed or political maneuvering proves to be a drag on growth.

The chancellor then politely thanks the experts when they hand over the report. There are tortured smiles for the cameras and then the several hundred pages disappear into a desk drawer. And so it has gone for more than four decades, and there is no reason to believe that Chancellor Angela Merkel will do anything differently with the latest report, although she will have plenty of time to read it on her flight to New Zealand and then to the G-20 summit in Brisbane, Australia.

That's something she really ought to do, considering how many growth-killing sins the experts have listed: a minimum wage, a generous mothers' pension, retirement on a full pension at 63. The five smugly remarked that the government had "used up" its economic-policy leeway.

And as the authors rightly noted: "The grand coalition has so far failed to produce a sense of economic optimism."

These fair-weather gifts will soon be overtaken by economic reality. In other words, their financing is uncertain if, as appears to be the case, growth rates and tax revenues prove to be considerably lower than had been assumed in the spring. Never before has a retirement package been so expensive and economically so pointless and inappropriate. It has significantly worsened the burden an aging society will be placing on its pension funds in future.

The government also has a false sense of security when it comes to revenue: It still benefits from bracket creep, the fact that the state takes a disproportionately large, and growing, share of each additional euro earned - which the five wise men rightly criticize. This covert burden should be done away with.

In addition, the public coffers are currently benefiting from low interest rates, increased employment and what the five call a "demographic breathing space," because the baby boomers will only begin to retire in a few years. But the experts warn emphatically: "Current projections show that the public finances are not sustainable in the long term in the face of demographic change." It could hardly be clearer.

"More confidence in market processes" is the title of this year's report, and the common thread through the report is a warning that a policy of redistribution can be overdone and more confidence should be placed in the market. This also applies to the labor market, where a national minimum wage will come into effect next year. The report calls this an experiment with an uncertain outcome that will hurt the chances of new job-market entrants and low-skilled people to ever find a job.

Overall, the Five Wise Men give the government at best poor marks in terms of energy, labor-market and social policies. But certainly, no government has ever seemed to be bothered by this since the Council's inception in 1963. Why should it be different this time?

Merkel has already made a widely publicized remark ridiculing the assertion that the minimum wage, which only takes effect next year, can produce an economic loss now. But her dismissiveness in the face of the intellectual rigor of the report simply goes to show that the chancellor could use a refersher course in business psychology. After all, every act of economic stupidity the government announces is further cause for companies to cut back on investment and job creation.