GOING GETS TOUGH, SO DIRIGISME STEPS IN.

THE FREE MARKET IS AMATEURISH, THE GOVERNMENT IS SERIOUS.

(Posted On NYT's Krugman blog June 13, 2009)

As consummer spending has collapsed, the government of the USA (and of many other countries), has stepped in.

It is equivalent from switching from the Anglo-Saxon laissez faire to traditional French dirigisme (notice both words, laissez faire and dirigisme are French, because the debate started in France, and anticipated Adam Smith, who went there to study). Anyway, everything right with this picture.

In a country such as France, the citizens are chronic savers, obsessed by the wool stocking (bas de laine) in which they store for the future like squirrels and various corvids. So, chronically, people borrow little.

So who make the economy turn, and strive to the future? Well, the French government tax, spends and borrows. Now, who is the government? Well, France is a genuine democracy, so the government represents the People. (In recent elections, a few days ago, Sarkozy won, but all the vote of the left and ecologists gathered a bit more).

All of this to say that there is nothing wrong with going the French way to enliven an economy rather than the Anglo-Saxon way. Where it crucially matters, for defense, the USA actually follows French methods rather than the whim of the invisible hand.

What is the difference with the so called American model? Well, in the USA, the head of JP Morgan is supposed to finance what he considers worthy, projects presented to him by individuals. In practice this is all at the whim of a few unsupervised individuals that can do whatever. Jamie Dimon may be no demon, but his predecessors in the 1920s financed IG Farben (of Zyklon B fame) and Hitler.

It may be better to do the heavy financing, one ought even to say it is clearly better, in a democracy, to have the democracy do the heaviest financing, rather than little plutocrats in the shadows, doing invisible stuff with evry body’s money.

And indeed, where it crucially matters, in defense procurement, the USA follows the French model rather than the whim of the invisible hand.

So the stimulus has to be made bigger, a VAT and a carbon tax have to be introduced in the USA (to reduce the deficit from the larger stimulus; instead of viewing taxes as taxing, view them as enforced economic activity under democratic supervision).

But, first of all, government spending has to be freed from private wealthy interests: the stimulus has to go where it will multiply maximally. France does this to some extent with a big bureaucracy (bureaucracy being tellingly a French word). But that could no doubt be reduced (as Sarkozy wants to).

Patrice Ayme
http://patriceayme.wordpress.com/