Malfunctioning market signals

Cautionary lessons from Germany’s plight:

The shifting landscape raises pointed questions: Is an economy built on energy-hungry industries sustainable when fuel is very expensive? Can an export-driven strategy succeed when major trading partners are vulnerable to sanctions, and when countries are more keenly attuned to the security risks of globalized trade?

Some economists have argued that the German business models were partly based on an erroneous assumption and that cheap Russian gas wasn’t as cheap as it looked.

The economist Joseph Stiglitz, a Nobel laureate, said the market failed to accurately price in the risk — however unlikely it may have seemed at the time — that Russia could decide to reduce or withhold gas to apply political pressure.

It would be like figuring the costs of building a ship without including the cost of lifeboats.

“They didn’t take into account what could happen,” Mr. Stiglitz said.

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