New Chief Economist: "The state should not permanently intervene in the market"

Wolf Heinrich Reuter, the newly appointed chief economist of the National Bank, advocates for a more limited role of the state in the market, emphasizing the principles of ordoliberalism. "The state should not intervene in the market permanently," Reuter stated, drawing from his experience working with economists like Lars Feld.

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The state should not intervene in the market permanently.

Reuter expressed concern over Austria's high state spending quota, which stands at 55% of economic output. He described this as a very high figure in international comparison, especially considering the demographic pressures on future spending in areas like pensions, healthcare, and elderly care. He warned that financing current spending through debt, or relying on future tax increases, could diminish Austria's attractiveness as a business location and reduce incentives for work and investment.

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But yes, the question of whether more of it is needed is justified. Yes, I would say so. Ordoliberalism is about the state concentrating on setting rules and providing the framework. Ordoliberalism does not say that the state has no role, it has an essential role. But it should not intervene in the market permanently. And I believe that would do Austria good, to generate more economic dynamism.

While acknowledging the utility of fixed rules in guiding political decisions, Reuter cautioned that simply capping the state spending quota at 49%, as suggested by Clemens Fuest of the Ifo Institute, is insufficient without specifying the measures to achieve it. He stressed the need to curb significant increases in specific spending areas, particularly pensions, health, and care.

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Apart from severe crises, that is a very high value in international comparison, and we are only at the beginning of the demography-driven spending increases. Currently, part of the state spending is financed by debt, but in the long term, revenues from taxes and levies will also have to be correspondingly high. This can reduce the attractiveness of the location and the incentives for work, investment, and entrepreneurial activity.

Reuter identified himself as a proponent of well-designed debt rules, not necessarily strict ones, that prevent current fiscal policy choices from burdening future generations. He cited Germany's constitutional debt brake, prior to its recent modifications, as an example of a rule that effectively reduced the national debt. He believes such rules are crucial for ensuring fiscal sustainability and intergenerational equity.

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Fundamentally, fixed rules help politics to resolve conflicting goals today and to make priorities. But the rule alone, that the state spending quota may not exceed 49 percent, does not achieve anything yet. One must also say with which measures one gets there. In particular, one must curb the very strong increases in certain spending areas. In Austria, these are primarily pensions, health, and care.