Tuesday, December 2, 2008

The Center Cannot Hold

Holy smokes! Conservative economist Ken Rogoff is recommending "moderate inflation in the short run – say, 6% for two years" as the only way out of the crisis. The financial system is just too screwed up to fix one institution at a time. I can hear the alarm bells ringing at the European Central Bank. Mon Dieu! The end is nigh.

Riots Ahead?

Will riots again break out in the banlieues? Sudhir Venkatesh thinks so:

I am struck at the resonances between the voices of young people in contemporary France and the cries of those who rebelled in U.S. inner cities in the 1960’s — arguably the last time we had nationwide un-civil unrest. French youth in the suburbs are mostly North African in origin — or from other parts of Francophone Africa. They are also mad as hell. Decades of poverty and social exclusion have created a growing cohort of teenagers and 20-somethings who feel no investment in their nation.

The indifference of the French government toward such frustration is truly remarkable. The state of national denial is best exemplified by the refusal of the French government to allow either private or government bodies to gather statistics based on race or ethnicity. The French tell us that in their “republic,” everyone must be content to be (simply) a “citizen”; acknowledging attributes like race or ethnicity — or religion — would affirm differences, foster inequality, and thereby lead to threats against the national ideal of a brotherhood of Frenchmen.

Pisani-Ferry on Stimulus

Jean-Pisani Ferry considers the problem of coordinating stimulus plans in the Eurozone. In Europe, with its patchwork economic governance, debate will naturally gravitate toward this question of coordination. In the United States, however, criticisms of the still-unformulated Obama stimulus package have tended to focus on the question of what theoretical assumptions will inform the plan and whether the proposal will please economists who make different assumptions about how the macroeconomy works. Greg Mankiw, for instance, asks about the robustness of certain nostrums under alternative models and notes that IMF chief economist Olivier Blanchard published a paper with Roberto Perotti which found that

... both increases in taxes and increases in government spending have a strong negative effect on private investment spending. This effect is consistent with a neoclassical model with distortionary taxes, but more difficult to reconcile with Keynesian theory: while agnostic about the sign, Keynesian theory predicts opposite effects of tax and spending increases on private investment. This does not appear to be the case.

Mankiw: "
I am especially attracted to the goal of robustness: we should try to find a stimulus plan that works under a variety of alternative business cycle models." A pious wish, but does such a beast exist? Still, it's good to have the caution flag raised as we prepare to spend on the order of a trillion dollars. One of the problems with Europe's balkanized system of economic management is that the complexities distract from the essential question that Mankiw raises.

Advisors on Stimulus Plan

Le Figaro reports that Sarko is huddling daily with advisors who are helping him to polish the presentation of his stimulus plan, expected on Thursday. Who is advising him? Christine Lagarde, of course, but also Henri Guaino, Raymond Soubie, and François Pérol. Lagarde, the minister of finance, and Guaino, the ubiquitous speechwriter, need no introduction. The latter two names may be less well known. Pérol is a managing partner of the Rothschild Bank who was on Sarkozy's staff when he served as minister of the economy. Soubie, a Sarko advisor, was formerly the head of a human resources consulting firm. Both are énarques. In one of the earliest posts on this blog, I commented on the prevalence of lawyers and relative absence of énarques in Sarkozy's cabinet. The énarques have not disappeared, however, even if many of them are lurking in the background, like Pérol and Soubie, rather than occupying the front-line positions.

Stanley Hoffmann turns 80

On Friday there will be a colloquium at Harvard in honor of Stanley Hoffmann, the doyen of French studies in the United States. You can see the program here. Stanley was born in Vienna 80 years ago, spent the war years in France as a Jewish child hidden in a Catholic school (the film Au revoir, les enfants parallels his story), and wrote his thesis on Pierre Poujade before coming to Harvard in the 1950s as part of a distinguished group that included Henry Kissinger and Zbigniew Brzezinski. He has been a beacon to generations of Harvard students, as well as my mentor and friend for thirty years. Stanley has kindled a passion for France and for Europe in more Americans than probably anyone else in the world. His erudition is exceeded only by his wisdom and wit.* François Furet once said of him that "he is one of the great professors of the twentieth century." His greatness continues to enlighten us all in the twenty-first. Happy Birthday, Stanley.

* Stanley is also the kindest, gentlest, and most generous critic imaginable. I once wrote a paper in which I referred to a book that "Paul Hazard published in 1954." Stanley wrote in the margins of the draft I sent him: "If Hazard published that book in 1954, I must be mistaken in thinking that I read it in 1949, but you might want to check on the date."

"Buy French!"

Readers of a certain age will remember the "Buy British!" campaigns of the 1960s. Sarko, speaking to mayors yesterday, recommended a policy of "Buy French! Buy local!" and cost-be-damned if that's what it takes to do your patriotic duty. Ceteris Paribus puts it well:

Ca fait déjà un bout de temps que je me dis, en rigolant, "vivement que la gauche revienne au pouvoir, qu'on puisse avoir une politique économique un peu libérale". Aujourd'hui, je ne rigole plus.