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Alain Boublil Blog


Keynes, please come back !

The measures Emmanuel Macron has announced to try to answer to the deep discontent in France which is expressed through the « gilets jaunes » movement carry, all of them, the same logic: to rise employees purchasing power whose pay is inferior to the average. These increases or bonus are partly financed by the State because they are not subject to taxation or they result from an increase of current bonus exempted of social charges. A small share will remain to be supported by employers. The objective is to reduce the tensions through a diminution of inequalities but the main consequence will be a rebound of consumption. Until now the government economic strategy and its predecessors for several years was to encourage enterprises through a tax reduction. Is Keynes back?

The English economist has marked the 20th century as Adam Smith and David Ricardo had transformed the economic thinking during the 19th century. As a civil servant in the Finance department in London, he participated to the negotiations of the Versailles Treaty but he resigned, disagreeing with the government because he thought that the amount of the damages imposed to Germany was excessive and dangerous for the future. His first book, “The economic Consequences of the Peace”, alerts about the risks they carry, not only for the affected country but also for the world economy and for the peace. His next publications will attract the attention of President Roosevelt who will draw his inspiration from them to conceive the “New Deal”. This new economic policy will have permitted to the U.S. to emerge from the worst crisis the country has never known. The New Deal will enter history with the name of his inspiration.

His thought will be frequently caricatured and presented as a rebound policy through public expenditures leading to other forms of damaging disequilibrium. The best example of these caricatures is the judgment given during a long time about the policy initiated in France by the left in 1981 which would have generated a massive trade imbalance and forced the government to decide devaluations and to adopt a new rigorous plan. We know today that nothing like that is true. The worsening of France trade deficit between 1981 and 1982 was not caused by the consumption rebound but by the massive dollar rise, the currency in which was libeled oil imports, itself the consequence of the restrictive policy decided by Paul Volcker, then the Fed chairman, characterized by astronomic interest rates. But the wrong story has lasted. Keynesian policies would result in going from one unbalance to another one but not to bring back equilibriums. That generated the debate with monetarists who, under the influence of Milton Friedman, thought that the appropriated tool was the monetary policy. And came the habit to oppose “salt water” economists whose universities were along the ocean, in California or in Boston to “fresh water” ones because they were located in Chicago, along the lake.    

Keynes thought was much deeper and it is why it is so topical and it is counter-productive to caricature it. Keynes’s reasoning, which has been validated by history, is that market laws cannot always by themselves restore macroeconomic equilibriums, especially regarding employment and it is the State duty to intervene through different forms. So, he has invented the economic policy concept. If the principles exposed in the General Theory he will publish some years later, are still the purpose of debates, basically he was right as when he was worried as soon as in 1919 about the risks the Versailles Treaty damages were exposing Europe. It is why, once World War II finished, and in order it doesn’t start again, all the countries, under ways adapted to their political culture, have adopted or heightened social security systems and have used monetary and budgetary tools at their disposal to reach their growth objectives.

The debate today is about the nature of public intervention, between supply side policies and demand oriented policies. It is quite possible to put Keynes money on the supply side to the condition that this injection is targeted and assorted with conditions. Time when yesterday profits make today investments and tomorrow jobs is over and France is testing it, which is not without links with the current crisis. Most of the profits are employed to finance acquisitions and to remunerate shareholders and the top management. French foreign exchanges degradation along with the stagnation of purchasing power, employment and growth shows it. There are not low-paid employees who buy luxury cars, one of the main sources of the trade deficit in manufactured goods.

The turnaround launched by the government is going in the right direction but it is not strong enough because it is not assumed and it is confronted to budget deficit taboos. Yet, the elasticity of consumption expenses to a purchasing power increase is much higher than the elasticity of investment and job creations to an increase of enterprises margins. The experience of these last ten years shows it well. Charges and taxes reductions in favor of them have created public indebtedness because they have not generated social and fiscal receipts able to compensate them. It is why it is necessary to abandon that way and to reorient economic policy in the direction initiated by the government and without hangs-up.  

Of course, the Brussels issue will remain to be addressed with the temporary increase of the budget deficit generated by this policy turnaround. But the consumption acceleration generates more growth and so more fiscal receipts than the increase of enterprises margins especially when they go along with a reduction of corporate taxes as it is the case in France today. This policy is much more efficient in order to improve public finance situation that what has been done since 2013. But it put consumers facing their responsibilities. Globalization is irreversible. Those who are denying it suffer of it at their expenses. Since Donald Trump arrival at the White House, American trade deficit has increased. But it is not possible to denounce the “globalized elites” and, in the same time not to take into consideration the origin of the products you buy, the location of your next vacations and the fiscal practices of the café where you are going with your family or your colleague. 

Keynes has proved the necessity of the State intervention to restore economic equilibriums. Against generally accepted ideas, he has not proposed a universal formula. The chosen policy depends, at a determined moment, from the particular situation of the concerned country. The purchasing power deficit along with growth and social and fiscal receipts ones has, in France a well known cause: the choice, at the wrong time to give the priority to enterprises margins without taking account their capacities to use these new resources in favor of the announced objectives. And when, a top of that, the State is a shareholder of a company, it should not get out of checking if these resources are employed to ruinous foreign acquisitions or to disastrous de-localizations for employment. Public action forms a whole. One of its major qualities is its consistency.         


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