RWER issue 54: Manifesto of the appalled economists
Real-World Economics Review, issue no 54
To read the whole manifesto go to http://www.paecon.net/PAEReview/issue54/Manifesto54.pdf
Manifesto of the appalled economists
First signatories: Philippe Askenazy (CNRS, France) ; Thomas Coutrot (scientific council of ATTAC, France) ; André Orléan (CNRS, EHESS, president of the French Association for Political Economy) ; Henri Sterdyniak (OFCE, France).
English translation: Gilles Raveaud (Paris 8) and Dany Lang (Paris 13), September, 24th, 2010. The translators are grateful to Edward Fullbrook (Real-World Economics Review).
You may sign the manifesto at
Crisis and debt in Europe: 10 pseudo “obvious facts”, 22 measures to drive the debate out of the dead end
The world economic recovery, permitted by a massive injection of public spending into the economy (from the United States to China), is fragile but real. One continent lags behind, Europe. Finding again the path of growth is no longer its priority policy. Europe has embarked on another path: the fight against public deficits.
In the European Union, these deficits are certainly high – 7% on average in 2010 – but this is much less than the 11% in the United States. While American states whose economic weight is greater than Greece’s, such as California, are virtually bankrupt, financial markets have decided to speculate on the sovereign debt of European countries, especially those of the South. Europe is in fact caught in its own institutional trap: states must borrow from private financial institutions, which obtain cheap cash from the European Central Bank. As a consequence, the markets hold the key to the funding of the states. In this context, the lack of European solidarity gives rise to speculation, all the more so when the rating agencies’ game accentuates the mistrust.
It took the downgrading, on June 15th, of the rating of Greece by the agency Moody’s, to bring the European leaders to use the word “irrational” again, a word that they had used so much at the beginning of the subprime crisis. Similarly, we now discover that Spain is much more threatened by the fragility of its growth model and of its banking system, than by its public debt.
In order to “reassure the markets,” a stabilizing fund for the Euro has been improvised, and drastic as well as indiscriminate plans of cuts in public spending have been launched all over Europe. Civil servants are the first affected, including in France, where the increase of their pension contributions is a disguised cut of their wages. The number of civil servants falls everywhere, threatening public services. Social security benefits are severely reduced, from the Netherlands to Portugal, as well as in France, with the current pension reform. Unemployment and the lack of job security will necessarily increase in the forthcoming years. These measures are irresponsible from a political and social perspective, and even in strictly economic terms.
This policy, which has temporarily brought down speculation, has already very negative social consequences in many European countries, especially on the youth, workers and the most vulnerable people. It will eventually stir up tensions in Europe and thereby threaten the European construction itself, which is much more than an economic project. The economy is supposed to serve the construction of a democratic continent, peaceful and united. Instead, a form of dictatorship of the market is being imposed everywhere, and especially today in Portugal, Spain and Greece, three countries that were still dictatorships in the early 1970s, only forty years ago.
Whether it is interpreted as “the desire to reassure markets” on the part of frightened governments, or as a pretext to impose choices driven by ideology, this submission to dictatorship is not acceptable, since it has proven its economic inefficiency and its destructive potential, both at the political and social levels. A real democratic debate on economic policy choices must be opened in France and Europe. Most of the economists who participate in public debates do so in order to justify or rationalize the submission of policies to the demands of financial markets. Admittedly, all governments have had to improvise Keynesian stimuli plans, and even sometimes to nationalize banks temporarily. But they want to close this parenthesis quickly. The neoliberal paradigm is still the only one that is acknowledged as legitimate, despite its obvious failures. Based on the assumption of efficient capital markets, it advocates reducing government spending, privatizing public services, flexibilising the labour market, liberalizing trade, financial services and capital markets, increase competition at all times and in all places…
As economists, we are appalled to see that these policies are still on the agenda, and that their theoretical foundations are not reconsidered. The arguments which have been used during thirty years in order to guide European economic policy choices have been undermined by the facts. The crisis has laid bare the dogmatic and unfounded nature of the alleged “obvious facts” repeated ad nauseam by policy makers and their advisers. Whether it is the efficiency and rationality of financial markets, or the need to cut spending to reduce debt or to strengthen the “stability pact”, these “obvious facts” have to be examined, and the plurality of choices of economic policies must be shown. Other choices are possible and desirable, provided that the financial industry’s noose on public policies is loosened.
We offer below a critical presentation of ten premises that still inspire decisions of public authorities all over Europe every day, despite the fierce denial brought by the financial crisis and its aftermath. These are pseudo “obvious facts” which are in fact unfair and ineffective measures, against which we propose twenty-two counterproposals that we would like to bring into the debate. Each of the proposals is not necessarily unanimously supported by all the people who have signed this manifesto, but they have to be considered seriously if we want to drive Europe out of the current dead end.
Pseudo “obvious fact” # 1: financial markets are efficient
Today, one fact is obvious to all observers: the crucial role played by financial markets in the functioning of the economy. This is the result of a long evolution that began in the late seventies. However it is measured, this evolution constitutes a clear break, both quantitatively and qualitatively, with previous decades. Under the pressure of financial markets, the overall regulation of capitalism has deeply changed, giving rise to a novel form of capitalism that some have called “patrimonial capitalism”, “financial capitalism” or “neoliberal capitalism”.
The theoretical justification for these mutations is the hypothesis of the informational efficiency of financial markets (or Efficient Markets Hypothesis). According to this hypothesis, it is important to develop financial markets, in order to ensure they operate as freely as possible, because they are the only mechanism allowing an efficient allocation of capital. The
You may read the whole manifesto at http://www.paecon.net/PAEReview/issue54/Manifesto54.pdf