Monday, January 16, 2012

"No Backbone"

Frédéric Martel interviews Emmanuelle Mignon, President Sarkozy's erstwhile "idea person," who fed him ideas for the 2007 campaign. He comes up with a scoop:
Il ne faut pas compter sur elle pour trahir, ni pour dire du mal. J’ai l’impression qu’elle garde pour Nicolas Sarkozy une grande affection et du respect.
Plus tard, en 2011, lors de plusieurs rendez-vous et déjeuners en tête à tête avec elle près d’EuropaCorp, le studio de cinéma qu’elle a rejoint, elle me fera un jour une confidence, une seule. Sachant qu’elle trahit un secret d’État bien gardé, elle parlera de ses difficultés à travailler avec un homme imprévisible qui n’a pas « la suite dans les idées », et qui, sans consistante idéologique, est souvent velléitaire et versatile : « Sarkozy n’a pas de colonne vertébrale. Si je suis partie, c’est pour ça. Il n’a aucune colonne vertébrale. »

Feldstein Warns Europe

A blunt warning from a conservative economist that Europe is headed for disaster with its belief in "expansionary austerity":
The most frightening recent development is a formal complaint by the European Central Bank that the proposed rules are not tough enough. Jorg Asmussen, a key member of the ECB’s executive board, wrote to the negotiators that countries should be allowed to exceed the 0.5%-of-GDP limit for deficits only in times of “natural catastrophes and serious emergency situations” outside the control of governments.
If this language were adopted, it would eliminate automatic cyclical fiscal adjustments, which could easily lead to a downward spiral of demand and a serious depression. If, for example, conditions in the rest of the world caused a decline in demand for French exports, output and employment in France would fall. That would reduce tax revenue and increase transfer payments, easily pushing the fiscal deficit over 0.5% of GDP.
If France must remove that cyclical deficit, it would have to raise taxes and cut spending. That would reduce demand even more, causing a further fall in revenue and a further increase in transfers – and thus a bigger fiscal deficit and calls for further fiscal tightening. It is not clear what would end this downward spiral of fiscal tightening and falling activity.
If implemented, this proposal could produce very high unemployment rates and no route to recovery – in short, a depression. In practice, the policy might be violated, just as the old Stability and Growth Pact was abandoned when France and Germany defied its rules and faced no penalties.
It would be much smarter to focus on the difference between cyclical and structural deficits, and to allow deficits that result from automatic stabilizers. The ECB should be the arbiter of that distinction, publishing estimates of cyclical and structural deficits. That analysis should also recognize the distinction between real (inflation-adjusted) deficits and the nominal deficit increase that would result if higher inflation caused sovereign borrowing costs to rise.
Italy, Spain, and France all have deficits that exceed 3% of GDP. But these are not structural deficits, and financial markets would be better informed and reassured if the ECB indicated the size of the real structural deficits and showed that they are now declining. For investors, that is the essential feature of fiscal solvency.


A few moments ago, a French friend posted on Facebook this query in English: "So, how does it feel to be a degraded country?" And I pointed out that it is unfortunate that the French translation of "downgraded" is "dégradé," which takes us from the language of bond traders to that of honor, as though France had been derelict in its duty and had its sword broken over its commander's knee.

This amusing anecdote unfortunately illustrates a larger truth: the tendency to moralize economic matters and to think in terms of dereliction and sin rather than better and worse choices among competing economic alternatives. The economic problem is difficult enough. Let's not compound it with an unnecessary overlay of virtue and vice.

As for France's "degradation," bond traders don't find it particularly humiliating. The price of French 10-yr bonds has barely flickered since the downgrading.

Camille Landais on the Proposed Reform of "le Quotient Familial"

The reform proposed by the PS is reasonable, Landais argues, and the reaction of the UMP has obfuscated the issue:
Ce qui mine la progressivité de l'impôt sur le revenu, c'est surtout qu'on a sorti du barème quasiment tous les revenus du capital. Et le fait qu'un tas de revenus du capital échappent littéralement à l'administration fiscale.
Le quotient familial, en revanche, fait partie des choses qui minent le consentement à l'impôt. Car personne ne sait exactement comment il marche et quels sont ses effets sur la redistribution. Ce que vous recevez pour un enfant dépend à la fois de votre revenu (plus il est haut, plus le gain est fort) et du rang de cet enfant dans sa fratrie... Les gens perdent de vue que le quotient familial profite bien plus aux gens aisés qu'aux autres.
Landais also has interesting comments on the social VAT and the Tobin tax.