French Demons in America

America is suffering, and this suffering is really going to reveal itself today in ballot boxes. President Barack Obama is going to lose his governmental majority. It’s not very hard to understand why: he hasn’t been able to lower the unemployment rate.

Since the summer of 2009, one out of 10 Americans is out of work, a rate that has not been so high for such a long time since the 1930s. Thus, America is addicted to the idea of “job creation.” It’s the first objective of economic policy, even more so than in Europe. It appears even among the missions of the Central Bank, alongside low interest rates and price stability.

Barack Obama cannot be accused of having caused this unemployment rate. His responsibility here is limited to having constantly told the American people in 2008, “yes we can,” yes we can get out of this rut quickly. But the bad news here goes much deeper. There’s something broken in the “job machine” beyond the scenario of low employment rates (already seen in the beginning of the 2000s). At the risk of sounding like a Debbie Downer, let’s just say it: when it comes to jobs, America is starting to resemble France. Not only because the proportion of unemployed workers there is so high for the first time in 25 years; but also because unemployment is becoming structural.

More than six million Americans have been out of work for over six months, or 42 percent of the total number of unemployed. As the average of the last decade has been between 15 percent and 20 percent, the current weight is approaching the one found in France, which stands at 60 percent. Another fact: the number of salaried workers working less than they would like has doubled in the last two years, to reach above nine million – a bigger proportion than in France, where this situation only affects 1.3 million workers.

The volatility of the American job market comes from the financial crisis, which destroyed an essential resilience: mobility, considered up until now to be a huge superiority that America had over Europe. It was the “suitcase effect”: when the crisis touched upon a city, the inhabitants left to live elsewhere, where there was work. This tradition in a country of migrants has continued over the course of decades, the suitcase becoming the moving truck. But, today, the departing candidate has a major problem: he can’t sell his house. Therefore, he can’t buy another one elsewhere. He’s “stuck,” as we say in the stock market.

Thus, mobility is hindered, as it is in France (notably with the transformation laws that make up more than 5 percent of the price of a house, making moving very expensive) and in Europe (with the language barrier). From this comes a spectacular result: the unemployment rates are very different between states. Nevada (where Las Vegas is) has a 14 percent unemployment rate, Michigan 13 percent, Florida and California 12 percent, while the two Dakotas and Nebraska have full employment, at less than 5 percent — a much bigger difference than in France, where the rates are between 8 percent in Ile-de-France and Limousin, and 13 percent in the Nord-Pas-de-Calais.

Employment is not the only domain where America seems to be copying French mistakes. The exact same thing is happening with lending to small businesses. Last year, American bankers established loan interest rates for businesses according to their credit score, whereas the French established them according to the size of the business.

Very precise studies had made this difference obvious. But American bankers have forgotten this skill. Strangled by their past insane actions, they have drastically reduced their commitments. Since the beginning of 2009, their outstanding credit to businesses has lowered by over $400 billion! Big businesses like Microsoft or Goldman Sachs are raising funds directly from the market, while the small pharmaceutical laboratory in Carson City is threatened with financial asphyxiation. The same applies to the small business mechanic in Bourg-en-Bresse.

Of course, America still has other assets – powerful universities, the issuance of international money, a tonic demographic, an enormous capacity for innovation and, above all, a formidable entrepreneurial spirit. But the crisis is showing that her assets are weak. She could easily end up suffering from the same troubles as Europe. What a catastrophe!