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February 13, 2017

What decides the French elections: cult or programme?

One of the questions we are asking ourselves this morning is whether Emmanuel Macron's admission that he wants to respect the 3% deficit rule will play into the hands of Marine Le Pen. Before, the media portrayed him as a saviour, and as anti-establishment, but the cult becomes harder to square with his programme. 

Le Pen seems to have concluded that now the party’s programme is out there, it is time to launch herself as the French heroine, a sort of modern Jeanne d’Arc. True to her fundamentals, she lashes out against global finance and mass immigration, and presents herself as a saviour of a dispossessed France in image and sound. 

Macron chose to move into the other direction. Responding to the critics who accused him of cult without substance, he is now giving out some hints about his programme. The latest is that he will respect the 3% deficit rule from the Maastricht treaty as outlined by Jean Pisani-Ferry in an interview with JdD. This puts him between Benoît Hamon, who wants an end to the 3% dogma, and Francois Fillon, who promised a balanced budget by 2022. A more detailed programme will be presented February 22. We think that this dents his anti-establishment credentials. And it is risky if he is to face Marine Le Pen in the final round. The magazine Marianne finds that Macron does not promise enough to respond to those who consider themselves the losers of globalisation. To talk about their anger will not be enough, and they might end up backing Le Pen.

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February 13, 2017

Sense and nonsense on globalisation

Dani Rodrick once pointed out that the economics profession is guilty of exaggerating the case for free trade. His point is not that the opposite is true, but that the argument for free trade is a lot more subtle than the certainty expressed by the profession in its public discourse.

Yesterday we came across what must surely be the mother of all exaggerations by an economist. This from Mark J Perry:

“It’s a scientifically and mathematically provable fact that all tariffs, at any time and in any country, will harm economic growth, eliminate net jobs, destroy prosperity, and lower the standard of living of the protectionist country because tariffs are guaranteed by the ironclad laws of economics to generate costs to consumers that outweigh the benefits to producers.”

It is hard to begin listing what's wrong with assertion. For a start, this is not science. Nor is the assertion "mathematically provable" - we are talking about models! - and no statement in economics is ever "true at any time and in any country". 

Why not say that the benefits of free trade are large and persistent across time and regions while acknowledging that free trade can also disadvantage some groups in society, who will thus have a rational reason to oppose it? 

Rodrick himself has been one of the few economists critical of his own profession, particular of the way it chooses to communicate. In his latest column, he comes to the defence of Theresa May’s assertion that "if you believe you’re a citizen of the world, you’re a citizen of nowhere.” He says that he himself could fit this category (as would we). 

“And yet May’s statement strikes a chord. It contains an essential truth – the disregard of which says much about how we – the world’s financial, political, and technocratic elite – distanced ourselves from our compatriots and lost their trust.”

He then goes on to ask what do global citizens really do?

“Real citizenship entails interacting and deliberating with other citizens in a shared political community. It means holding decision-makers to account and participating in politics to shape the policy outcomes... Global citizens do not have similar rights or responsibilities. No one is accountable to them, and there is no one to whom they must justify themselves.”

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February 13, 2017

Towards the next European crisis

The choreography of European crises is always the same. A long period of complacency is followed immediately by panic, without transition. The Greek crisis is now back on everybody’s agenda, as European officials are slowly realising that the IMF is digging in its heels. And Alexis Tsipras is now screaming at Wolfgang Schäuble, and is calling on Angela Merkel not to allow her finance minister to wreck the EU.

The same camplacency-to-panic transition is now occurring over Brexit. We noted a report in Frankfurter Allgemeine according to which Jean-Claude Juncker believes that the UK will find it easy easy to split the EU, by promising different things to different countries. The EU would have show unity in view of Brexit and Donald Trump, but he said he doubted that it would do that. 

In his FT column on the re-emerging Greek crisis, Wolfgang Münchau argues that the underlying problem is a failure to speak truth to power. This failure is noticeable now when somebody actually speaks the truth - like the IMF did when it said that Greek debt is unsustainable, and that debt relief is needed. The problem is that everybody lied when they crafted the third Greek bailout. The Germans lied when they accepted the principle of debt relief, knowing full well that they could never agree to it. The Greeks lied when they committed themselves to reforms they would never implement, and fiscal targets they could never reach. And everybody else is lying when they say that Greek debt is sustainable. The Greek crisis is ultimately a failure to tell the truth. This is his conclusion:

“When the truth dies, we should not be surprised if alternative facts are put in its place.

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