Thursday, September 13, 2007

L'An Quarante

In French there is an expression, je m'en fiche comme de l'an quarante, which one might translate into English as, "I couldn't care less." Robert's Dictionnaire des Expressions et Locutions gives several possible etymologies, but the most likely is that the phrase, which first appeared around 1790, was coined by sans-culottes, who were indicating their indifference to the fortieth year of the reign of Louis XVI, which they were confident would never arrive.

I mention this because the NBER Working Papers series recently released a paper by renowned cliometrician and Nobel laureate Robert Fogel in which he gives his forecast for what global capitalism will look like in 2040--l'an quarante. What he says about Europe is the following:

To my mind, the most unsettling of the forecasts in Table 2 is the relative decline of the European Union implied by its stagnation in population and its modest growth in GDP.

Comment on the report can be found here. If you have access to the NBER WP, the number is 13184.


"Vous êtes audacieux?" Sarkozy asked a group of CEOs assembled for the award of a prize for bold innovation. "Eh bien, très bonne nouvelle, je fais partie du club." The president appears to believe that audacity, like virtue, is its own reward, that if only the French, and in particular the French business class, could be persuaded to become less risk-averse, they would soon prosper beyond all dreams of avarice. Sometimes, indeed, it is good to forget the downside of risk. But actively to promote the belief that risk has no downside and that courting it as a matter of principle is the manly course is to encourage what economists like to call "moral hazard," which might more prosaically be described as haste to rush in where less greedy appetites would hesitate to tread.

Sarkaudace seems to have made Danton his model--De l'audace, encore de l'audace, toujours de l'audace, et la France est sauvée!--while forgetting that Danton found his way prematurely to un sarkophage--though of course he does also enjoy a pedestal on the island across the Boulevard St.-Germain from the UGC Danton, so there are perhaps posthumous rewards for those forts en gueule who make careers of urging risks on their compatriots. But the president might want to pause long enough to read Thomas Philippon, Le capitalisme d'héritiers, who tries to explain why French firms are so cautious and why they are likely to become less so whether presidentially exhorted or not. The government could do more to encourage risk-taking by revamping higher education than by exhorting CEOs.

Esquive la politique

Under the rubric Vive la politique!, and in conjunction with the colloquium of that name it has organized, the newspaper Libération is presenting today a series of mini-debates between leading figures. Unfortunately, so little space is allotted to each that what emerges is largely mush. One might have expected more illumination from an exchange between finance minister Christine Lagarde and leading economist J.-P. Fitoussi on the theme "Is Politics the Slave of Finance." Instead we get banalities. Fitoussi delivers himself of an oracle worthy of the Pythia at Delphi: "The supposed function of the markets is to coordinate the future plans of economic agents." He then wanders off into a meditation on the difficulty of the task and briefly evokes certain state regulatory functions, such as setting short-term interest rates (or is it inflation targeting, which he doesn't mention, or growth of the money supply, or a combination of expected inflation and potential growth, etc.). In keeping with his central theme, however, of coordinating expectations of the future among diverse economic actors, I would have thought he would emphasize the all-important role of information. In the current liquidity crisis, the lack of transparency, and in particular the role of bond-rating agencies, bears an important share of responsibility. The flow of liquidity outside the regulated banking system and into the unregulated world of hedge funds, off-balance sheet operations by banks, structured investment vehicles, and collateralized debt obligations has been facilitated by the unregulated but highly remunerated work of bond rating agencies and investment bankers, which put these vehicles together. This is where politics has a role to play in structuring the financial markets. Merkel and Sarkozy discussed this point at their meeting this week, hence it is all the more surprising to find it omitted from the discussion between Fitoussi and Lagarde, although Lagarde does at least touch on the need for "rules" and "transparency." But the time for buzzwords is past; what is needed is legislation.

Those in search of greater light, try here, here, here, and here.

ADDED LATER: In fairness to Fitoussi, he does a much better job when given ample space, as in this interview, where, in particular, he makes the point about information that I criticize him for not making in Libé.

France, Germany, Iran

Yesterday I reported on Franco-German tensions. Le Figaro adds some depth to that story today. And now there is word that Sarkozy is trying to enlist other EU countries in sanctions against Iran and that Germany is resisting. If he fails, according to Le Monde, he will fall back on a "coalition of the willing" comprising France and the UK (assuming that Gordon Brown is on board, for which no evidence is given). In fact, Le Monde takes a rather economistic approach to the attitudes of other countries, suggesting that Germany and Italy are dragging their heels because of commercial relations with Iran, while London wants to take a strong line but is held back by "wariness in the financial redoubts of the City."

The relation of the US to this maneuvering is evoked only in the story's lead, where Sarkozy's meeting with Bush in Kennebunkport is mentioned. Did Bush urge this sanctions policy on Sarko? Did Sarko offer it up to Bush as a token of improved Franco-American relations? Or is he pursuing a tough line with Iran completely independently of the US? With American saber-rattling on Iran picking up in recent weeks, Sarkozy ought to play his cards a little less close to his vest. And Le Monde might do well to consider that there are reasons for not wanting to align Europe on American policy toward Iran that have nothing to do with trade with the Islamic Republic.

See also here.