Thursday, April 02, 2009

Obama and the End of Privileges

by: Dominique Moïsi | Visit article original @ Les Echos

Dominique Moisi writes: "At the end of the Eighteenth Century in France, people burned chateaux; we're not at that point, thank God. But some people's privileges are no longer accepted or acceptable when the feeling of relative progress for everyone has been replaced by the reality of a crisis that strikes the multitudes with the violence of a tsunami." (Photo: AP)

In order to understand America in 2009, would a reading of de Tocqueville's "The Ancien Régime and the Revolution" be at least as useful as his indispensable "Democracy in America?"

Of course, present-day America is not in 1788, and the "Revolution" with a capital "R" is not around the corner. Lehman Brothers' fall is not the same as the Bastille's. You'd need a great deal of imagination to compare Barack Obama to Louis XVI and Michelle Obama to Marie-Antoinette ... Nor does American political tradition include recourse to collective and uncontrolled violence. And yet, French citizen that I am, living in America the last two months, watching American television news programs every evening and moving daily through an American society in full crisis mode, how can I not see this mixture of fear and anger, accompanied by a strong feeling of injustice, that was one of the characteristics of France's climate on the eve of the Revolution?

Also see below:
Eric Le Boucher | Two Post-Crisis Hypotheses

One need only substitute the lack of bread for the loss of habitation, to replace the aristocrats with bankers and financiers, and the aristocrats' tax privileges with stock options, and the comparison seems a little less artificial.

The explosion of rage and populism that accompanied the A.I.G. scandal (the insurance giant saved from bankruptcy by the government that distributed retention bonuses to its leading executives) is indicative of a deep malaise. "Main Street America" - Middle America, as opposed to the elites - is animated by a profound feeling of fear and injustice: "How am I going to live, under what roof, and who will pay for my health care?" For these millions of Americans with an uncertain future, the banking and finance worlds' elite live on another planet. And their "privileges," like those of yesterday's French nobility, no longer seem justified by the services they produce for society and have become quite simply "intolerable."

In the eyes of a good part of American public opinion, Barack Obama's economic team, from Treasury Secretary Timothy Geithner to the president's Chief Economic Advisor Larry Summers, like the king's entourage at the end of the Ancien Régime, has inherited all the bad reflexes of the "court," combining an excessive sympathy for the old logic of the financial world and an analogous ignorance about and indifference to popular emotions and sufferings.

The world of banking and finance must not only reinvent its profession and its lifestyle, but also its value system. What is so shocking about the "Madoff Affair" is not only one man's crimes, but also the behavior of many of his rich clients, who, out of greed and to become still richer than they were, lost all financial common sense.

The other evening, television network CNN reported another significant incident that occurred last week. In the state of Connecticut, a group of demonstrators rented a bus that stopped at the luxurious properties of certain A.I.G. managing executives to congratulate those who returned their bonuses and protest against those who kept theirs. At the end of the eighteenth century in France, people burned chateaux; we're not at that point, thank God. But some people's privileges are no longer accepted or acceptable when the feeling of relative progress for everyone has been replaced by the reality of a crisis that strikes the multitudes with the violence of a tsunami.

What are the negative lessons the "jurist" President Barack Obama could retain from the experience of the end of Louis XVI's reign? The first is that he must not cut himself off from the sufferings of his people; words alone no longer suffice. To not fall into an irresponsible populism, as a significant part of Congress and the media may, is one thing. To give the impression of too much "sympathy" for the world of finance and its aberrations is another. Otherwise, today's "corporate laws" run the risk of enjoying the same end as the rights of yesterday's Ancien Régime.


Translation: Truthout French language editor Leslie Thatcher.

Dominique Moïsi, a special adviser to Ifri, is a guest professor at Harvard University.


Two Post-Crisis Hypotheses

by: Eric Le Boucher | Visit article original @ Les Echos

Once again, the debate opposes classical economists, which we in France call Liberals against the others, Keynesians or former Marxists. For the former, this crisis is nothing but a "purge" of a fundamentally efficient system. Crises are the times when excesses work themselves out, like pounds at the end of the winter, in order to set off again, more dashing, for a new summer. And so go economic cycles, like those of nature.

Therefore, to them, the "subprime" crisis is nothing more than a financial clean-up in which the black sheep were too easily able to reproduce, due to a failure in governmental regulation. Once the purge is completed, the cyclical crisis will be over; everything will return to its place; growth will take off, minus the aberrations of finance.

For the others, crises appear when a "growth regime" exhausts itself and it is necessary to move on to another. Far from being simple turbulences, these are moments of in-depth mutation for the economy. The present crisis marks the end of "the economy of indebtedness," most radically for the American household, which had become the global consumer of last resort.

During the 1970s, when people were talking about "the oil crisis," history played one of its favorite tricks. It proved the second group - who explained that the post-1929 growth regime, sometimes called "Fordist" (huge vertically integrated factories, mass consumption) was exhausted - right intellectually. Then, it chose to open a new regime phase ... a free market one. History gave the non-orthodox economists the laurel crown and installed the orthodox economists in power. Bravo Marx, but Schumpeter takes the controls.

In a very complete collective book (1), the Circle of Economists reopens this perpetual debate with the present crisis: turbulence or mutation? If the first hypothesis is correct, emergence from the crisis is possible in 2010 and growth will return progressively, as and when toxic assets will have been digested. If the second hypothesis is correct, then "emergence from the crisis presupposes true structural changes beyond even the most massive simple cyclical policies (stimulus plans)," notes Circle president Jean-Hervé Lorenzi, who adds, "the risk of seeing the recession transform itself into a cumulative depression is great." What policies should be implemented to escape that? Much more massive stimulus plans, going "up to 10% of GDP," controls on capital flows, policies for the stimulation of productivity, support for new technologies and green growth.

The Circle curiously refuses to decide between the two hypotheses as it throws the choice back to political decision-makers, as though the debate between the two schools of thought should never be decided. That's too bad, even though - as is felt throughout the book - the second current is predominant within the Circle and in France, unlike in other countries. It's also too bad that "the new growth regime" should be so little detailed. The essential problem of the "regime" today in crisis is that of middle class salaries: they stagnate and households can no longer improve their circumstances without going into debt. One acquiesces to the diagnosis, but what's to be done about it without protectionism? The answer is left hanging.

The amusing thing - but is it history thumbing its nose at us once again? - is that one finds the same hope emanating from several authors' pens: room for youth. The preceding economic model "was made to order for seniors," notes Patrick Artus: strong increases in real estate prices (baby-boomers own their homes), demand for high yields (for retirement) and "increases in dividends to the detriment of salaried workers." Laurence Boone and Jean Pisani-Ferry likewise worry about the weight of "aging" on budgetary policies. Jean-Michel Charpin opens the way to a solution: demographic changes that are going to provoke "manpower shortages" in developed countries and force an upturn in salaries. People talk about limiting or taxing bosses' salaries. A mistake in approach: look at their age; it suffices to tax the old.

(1) "Fin de monde ou sortie de crise," ["End of the World or Emergence From Crisis"] The Circle of Economists, under the direction of Jean-Hervé Lorenzi and Pierre Dockès. Perrin. 19.80 Euros.


Translation: Truthout French language editor Leslie Thatcher.

Eric Le Boucher is editor-in-chief of "Enjeux Les Echos."


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