Saturday, August 30, 2014
6

France rises above economics

He tells the French it is OK to love equality and social awareness more than success and money... Hollande refuses to be made a prisoner of the constantly-invoked “harsh realities” of freewheeling capitalism, which are supposed to justify highly inegalitarian economic policies... The French are wise to have elected a leader who makes his appeal to his countrymen’s republican social values rather than to their disappointed economic ambitions.
“Can the Socialists Fix France (and Maybe Europe)?”
 Commonweal, 13 July 2012

You have to love the French Left. Their Marxist economics have always been hard and masculine and, above all, rigorously scientific. They have harnessed dry socialist theory to the practical management of a modern industrial economy. They write about “concrete” matters such as agricultural collectivism or the development of heavy industry, always in a scientific manner, and always without sentimentality or pity.

Those who would call attention to the rather unattractive human consequences of 20th century socialism would be accused of bourgeois sentimentality and false consciousness. The task of building socialism is not a tea party, and inevitably, many will suffer in the historical struggle.

But look at the French Left today. When confronted by a real economic crisis, one as simple as third-grade arithmetic, they disdain the “harsh realities” of capitalist economics and embrace the economics of “equality and social awareness”. In other words, when communists exterminate entire classes, that’s the cost of history. But when markets demand fiscal discipline, that is heartless. The French Left has gone from being the party of harsh reality to being the party of squishy sentimentality and wishful thinking. As ever, ideology triumphs over mere facts.

The Socialist Party now rules France. The people of France voted against the nominally capitalist party and voted Socialist, the party of equality and social welfare. This is the France that finances itself in foreign currency, has a big fiscal deficit, high debt ratios, high unemployment and almost no growth. High debt, big deficit, high unemployment, no growth: those are facts; they’re not negotiable; they cannot be “redefined”. France must either demonstrate to the bond market that she can stabilize her debt ratios, or she will eventually lose market access and default. What difference does it make that these facts are “harsh”? Can Hollande select a different set of facts?

But France has rejected austerity, and intends to raise the minimum wage, increase government spending, lower the retirement age, and build the socialist state, all paid for by levies on the “rich”. The more France spends on socialism, the more it plans to tax the rich. Those are "socialist values".

The harsh realities of capitalist economics may matter elsewhere, but not in France. Those laws have been suspended because the socialists have a vision that goes beyond mere economics.

I can think of one reason why the French don’t understand capitalist economics: because it isn't taught there. The academic discipline of postwar capitalist economics is anglosaxon, not French. In the anglosphere, we are taught about neoclassicism, Keynesianism, monetarism, the Chicago School, and the other attempts to explain the workings of a capitalist economy.

In a French university, "economics" consists of the socialist critique of capitalist economics*. The postwar French intelligentsia studied, not growth or the business cycle, but how to combine the best parts of capitalism and communism (voila: socialism!). If you go to a bookstore in Paris, you will find thousands of heavy volumes on the defects of capitalism; you won't find one book that explains modern capitalist economics, except in translation.

When was the last time that a French economist won the Nobel prize? I can’t find any (unless you count expatriates). The Nobel prize in economics goes to the anglophone, not the francophone.

Today, the ruling political party in France is not capitalist, it is socialist. That’s not a blazing insight, but it might explain why France is distinctly uncomfortable with topics such as “competitiveness”, “real wage growth”, "structural rigidities", “debt ratios”, and “fiscal discipline”. Those are foreign terms that are used to impose the anglosaxon world-view onto France.

I remember when I was a bank analyst in the 1980s, trying to explain credit ratios to European banks. They would deny their applicability to Europe because credit ratios are “American”. European banks couldn’t be understood using “American ratios”.

I see that today in France. There is a prevailing sentiment that capital markets are an alien concept and a part of the anglosaxon conspiracy. The markets are “harsh” and “unforgiving”, as if there were an another way for a country to borrow trillions of euros.

This much I do know: when France blows up, it will be blamed on capitalism, not socialism.

                                                                                                                           
*If you think I exaggerate, read this:
http://www.foreignpolicy.com/articles/2007/12/13/europes_philosophy_of_failure

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  1. CommentedMuna Ngenda

    This is the [US] that finances itself in foreign currency, has a big fiscal deficit, high debt ratios, high unemployment and almost no growth. High debt, big deficit, high unemployment, no growth: those are facts; they’re not negotiable; they cannot be “redefined”.
    But [the establishment] has rejected taxpayer interests, and intends to extend quantitative easing, increase government spending on a failing housing market, effectively raise the retirement age, and build the financier-run capitalist state, all paid for by levies on the “average Joe”. The more [the Fed] spends on cronyist capitalism, the more it plans to erode the middle class. These are "capitalist values".
    The harsh realities of capitalist economics may matter elsewhere, but not [in NY/DC]. Those laws have been suspended because the [bankers] have a [greed] that goes beyond mere economics.

    There is much glass in this house.

      CommentedMuna Ngenda

      Ah, I see. I had overlooked the nuance between sourcing finance abroad, and denominating that finance in foreign currency.

      Portrait of Christopher T. Mahoney

      CommentedChristopher T. Mahoney

      The US finances itself exclusively in domestic currency, whereas France is the reverse. While France was once able to print francs, it can't print euros.

      Portrait of Christopher T. Mahoney

      CommentedChristopher T. Mahoney

      The US is different from France, in that France finances itself 100% in foreign currency, whereas the US is the reverse. If France controlled the ECB, things would be better for everyone.

  2. CommentedFilippos Petroulakis

    The link below is to an article by Stefan Theil, an advocate of climate change denial. I know this is ad hominem, but when the only reference provided in this article is that questionable, it has to be mentioned.

  3. CommentedMaxim Kirillov

    What is this guy talking about? I advise him to extricate himself from the Cold War. In case he hasn't realized, it is over.

    "In other words, when communists exterminate entire classes, that’s the cost of history. But when markets demand fiscal discipline, that is heartless," so the author states. What? Who on the French left is praising the Soviet Union?

  4. CommentedDan Adams

    The irony on a Moddy VC from the last decade lecturing a country on its economic failures is amusing. If anyone steped above economic realities it is Moddys. At least France does it in the name of social equality even if it might fail.

    Also to compare this mildly leftwing and unsuccessful attempt to dictatorship exterminating swathes of people is an awful analogy formed by a desperate and mildly paranoid commentator.

    If any class has been decimated of late, its the American middle class whose borrowed so enthusiastically from banks rated by Moodys for hushmoney.

  5. CommentedAlexandru Ciungu

    "In a French university, "economics" consists of the socialist critique of capitalist economics*. The postwar French intelligentsia studied, not growth or the business cycle, but how to combine the best parts of capitalism and communism (voila: socialism!)."

    I've just graduated with an M.Phil in Economics from Ecole d'Economie de Paris, and I can assure you that I've thouroughly studied Business Cycles and Economic Growth (with Philippe Aghion of Harvard no less). Surprisingly though, no class in Marxism.

    So before being condescending about French education, you might want to get your facts right.

      Portrait of Christopher T. Mahoney

      CommentedChristopher T. Mahoney

      M. Ciungu,
      That's a fair criticism, in the sense that I exaggerated. But while my statement may be "descriptively false", it is essentially correct. Economics in French academia generally means something different than in the major US universities.

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