The Economic Crisis Is Everyone Else's Fault

My travels through Europe revealed something to me that seems very important: the French way of understanding the seriousness of this economic crisis seems less comprehensible than the American way.

One must be cautious about “impressions,” but I’m not even pretending to be scientific here. Throughout October, my experiences of everyday conversations with French people from various backgrounds who have not followed the crisis because of their jobs, has convinced me that the suggested remedy is largely incorrect. I think that the same thing is true for the U.S., but in a different way.

The common denominator between these two false diagnoses is that the citizens have allowed themselves to be convinced by their elected officials that the crisis was caused by others. For the French it’s simple: they accuse the evil speculators, the rich, and the bankers; the same goes for the Americans. This is the most practical explanation for governing officials.

This crisis is one of an “addiction” to debt. For the U.S., it began with a private debt crisis: household indebtedness, in particular mortgage debt. For European countries it was indebtedness by the state.

To counter the risk of depression, George W. Bush and especially Barack Obama dramatically increased the public debt. Now, America finds itself suddenly indebted just like a social-democratic European country, but without offering its citizens the same level of public services.

Not being a candidate for any public office, I can allow myself to say some disagreeable things, which guarantee that I will never be elected anywhere: the crisis was caused by citizens demanding services for which they didn’t want to pay. The public debt problem is the result of unsustainable promises made by politicians who believed that loans would indefinitely finance these promises.

Why is it more difficult for the French to understand this crisis? It seems to me that it is because the politicians on the right dare not overtly say that the French “social model” is no longer viable. But the Republicans in the House of Representatives — suicidally perhaps — dare to say this clearly.

In France, they continue to keep the voters under the illusion that small increases in value-added taxes and the elimination of “niches” will put France back on the right path. If Nicolas Sarkozy had dared to say that we must re-question everything, from social security and the TGV (the French national rail operator), to national education and public television, he would have already lost the election. Nevertheless, his policy is going in the right direction, though it dares not speak the entire truth that the only alternative is to gradually return to a rigorous fiscal policy.

If Francois Hollande is elected in the spring, he must exercise a very similar policy; he won’t have a choice… there isn’t enough money to hire thousands of civil servants.

The French don’t understand because they don’t feel personally responsible for the inflationary bubble. They have certainly profited from the welfare state, but they were told that the viable French model was what the rest of the world dreamed of copying.

The Americans understand it a little better (but only a little) because they were personally responsible for their inflationary bubble. They borrowed to the last penny in order to buy houses and cars that they couldn’t afford, and they used credit to make up for their declining purchasing power. This real estate portion of the issue and the ensuing financial crisis is lost on many of the French.

I tried explaining to my French friends that anger against bankers was futile, but I failed. Yes, it is scandalous that those who have mismanaged banks to the point of needing to be saved by taxpayers have received huge bonuses. Yes, it is abnormal that these bankers accept the nationalization of their losses but insist on the privatization of their profits. Unfortunately though, seizing the money of bankers now won’t resolve the problem of public debt or demographic imbalances, which cause such a drain on the social systems of the older “rich” countries.

Regulating the banks in a way that prevents the actions of these recent speculators is certainly a good idea, but only if one admits (according to the theoretical American model) that speculating is not bad in itself. What is bad is forcing the state to rescue speculators who made bad decisions. Although this debate is interesting, it doesn’t change the fundamental problem: we must completely reconsider public finance; not only concerning resources (taxation), but also and especially with regard to expenditures.

America has stated the problem clearly, but it doesn’t have the resolve to fix it. In France, I don’t think that the problem has been clearly stated.

In addition, there is another reason to account for the lack of understanding among the French: the issue of European integration adds to the chronic deficit problem and complicates everything. This question of sovereignty over fiscal matters is very confusing. We accuse the Greeks, but, what have the Greeks done? They simply went further than the French in perfecting the myth of the “social model.” They have been more irresponsible, but essentially, they made the same mistake: we cannot live beyond our means indefinitely.