The plot against France
nytimes.com
nytimes.com
Not that I'm at all cynical (okay, you got me, I'm entirely cynical)... but really:
1). You run a company whose ratings are provided for profit - paid for by the companies that you rate, and you expect me to believe it's completely fair and unbiased? Do you think I'm that naive or stupid?
2). You can't knowingly endorse toxic financial instruments in one breath causing huge financial instability in financial markets all around the world and expect me to believe anything you have to say after that. Are you stupid?
You might as well be saying:
"You should invest all your money in This Guy, Inc., he's a fantastic risk! You shouldn't invest your money in the French, they're a terrible risk"
Small Print:
- "This Guy, Inc." is a known thief, embezzler and money launderer, but he pays us a tidy sum of a couple of billion dollars a year to look the other way, so we give him a good rating.
- We haven't found a nice way of making tidy profit off the French, so we'll steer people towards other financial instruments that do bolster our profits.
(The characters in this story are purely fictitious. Any resemblance between known thieves, embezzlers and money launderers and actual bankers is entirely coincidental.)
The question is, where do we get reliable ratings of the "safety" of investment products without the conflict of interest and the political biases of rating companies? It seems very difficult to impossible.
An even more out-of-the-box way to approach the problem is to ask why funds with such investment grade requirements are so important in the first place. In part it is because the rich park their money there, and public discourse is overwhelmingly determined by what the rich (edit: make it the top quintile in terms of income or wealth, perhaps) care about.
The other part is that retirement is largely organized privately via funds. I am increasingly of the opinion that that is a horrible idea.
Note that it is still a somewhat nuanced position. Of course, everybody should have the right to invest their savings into whatever they like. However, the normative default ought to be that a comfortable retirement can come out of a direct distribution system financed by taxes.
In the end, the real resources consumed by retirees come from the currently working population anyway. On that level, it does not matter how the necessary funds flow to the retirees.
However, there is a big difference in stability between an intransparent system of privately run funds based on volatile financial markets vs. a stable and transparent system of direct, tax-funded distribution.
There's two problems with this idea.
First, you can only get returns for this direct distribution if wages increase or population increases. If I expect my retirement savings to grow by X% in order to finance my retirement and everyone is always paying the same percentage of their wages into the retirement account my retirement is only feasible if there are more workers that pay the same fixed percent or if the wages of the workers increase. Neither are a guarantee.
Second, if my savings (or capital) are not being allocated in the market to efficient uses (through picking stocks or funds that I think will grow) then the market loses some of its predictive power. This process is partially responsible for what enables good companies to grow and bad companies to fail. In effect, we trust the managers at the big mutual funds to allocate our capital to the good companies (and sovereign debt) and away from the bad companies (and bad sovereign debt).
The second point just goes full circle as to why Mutual Funds are required to hold investment grade products rated by the big Credit Rating Agencies.
One related point as to why the incentives of the big credit ratings agencies are the way they are. Clearly, if the investor, and not the issuer, was the one paying the rating agency then the rating agency would have an incentive to give the best possible ratings. Its a matter of only releasing your ratings information to investors that have paid for it. This is currently impossible because there are millions of investors and only a handful of issuers. How are you suppose to stop investors that already know the rating from giving it to other investors who have not paid.
Perhaps one possible solution is to have the investor be able select a ratings agency to use along with a fund when allocating savings. In this scenario you know that a percentage of your savings are going to be used to pay a ratings agency for their information, but the investor got a chance to chose who that ratings agency is possibly decreasing the revenue of the bad agencies and increasing revenue of the trusted agencies.
In my opinion the solution is almost always more consumer choice.
That is, retirement funds dilute responsibility.
If you wanted to analyse this whole issue seriously, you'd have to consider two separate effects: (a) private retirement funds as the normative default creates a glut of capital and (b) private retirement funds allocate their money with rather little personal involvement and responsibility. [1]
As to the first point, things are more clear-cut. Yes, in a direct distribution system your pension depends on the future state of the economy. But so does your pension if you have retirement savings! After all, where does the growth of X% that you speak of come from?
Ultimately, no matter what the system, your pension has to come from somewhere. The fact that this somewhere is obscured by a retirement funds system is not a point in its favour - quite the opposite, actually. Transparent systems are always preferable.
[1] Yes, fund managers often are paid somewhat in relation to the success of the fund. Two problems with this: This incentive tends to focus on the short term, which is opposed to the interests of the future pensioners, and fund managers have more of an incentive to increase their volume rather than increase the quality with which they manage that volume (just like real estate brokers, with a nod to Freakonomics).
There's no better product in the market.
The fact that didn't happen sure does invite speculation that they cut some deals. Maybe let themselves be used as "weaponized" finance to punish governments the US government does not like. If such ratings were objective, operating under QE would look very crisis-like, n'est-ce pas?
On a personal level, you might stop paying for your cable TV when money gets tight and have it make you better off. Not paying for your car and finding yourself unable to get to work would make you worse off despite the "savings".
The trouble with politics and austerity is they always seem to end up missing the car payments and keeping the cable on.
I was suggesting that there are certain government programs that incur a cost to operate incur a greater cost to cease operating. They generate a net positive on the money spent. Cutting them for "austerity" is foolish.
Laffer curve may point us towards the general direction, but real world observation have showed that there is no simple, smooth curve that predicts tax income versus tax rate - human behaviour is far to much stochastic for that.
So that makes intuitive sense, but a lot of things in economics (and everything else complex) make intuitive sense but turn out to be completely wrong. The problem is that while we both "suspect" that this is true or close to true, all that really means is that our gut says it must be and we're smart enough to know about a mechanism like inflection points that can be used to rationalize it.
Wasted production -- on stuff no one wants (like wartime destruction), is a problem.
Opportunity cost is wasted production (paying people to lay bricks instead of building efficient brick-building machines, say), and that's the motivation for "free market instead of central planning", but that's what austerity means. Austerity means cutting government spending to raise the government's bottom line -- but the government's bottom line isn't like yours. If the country owes its own citizens money, it won't go bankrupt -- that's just taxation under a different name
I've been of the impression for a while that government waste and corruption grows without bound until it destroys the host, resulting in a revolution or some other kind of "reboot," and then repeat. There appears to be no way of actually cutting it without setting fire to the entire thing. Few things in nature are as tenacious as a parasite.
Ultimately, if, as a country, you're thinking of going down the tax-less spend-more road, you have to amass enough power in the hands of the people that will carry it out (in this case a dictator) that the public sector can't go on an endless tirade of strikes and sabotage. If not, guess what'll happen? The essentials from among the things the government provides will be the first to go in an attempt to rile the public up. But how many cushy do-nothing bureaucrats will get fired? That's where government spending is, in its vast majority—in the salaries of government employees. If you want to tax less and spend more, keep in mind that you'll be going toe-to-toe with the people that run government (more-so than politicians) and that it's a serious political battle for the country to take on.
So in that sense you're right--expecting to politically shift over to tax-less spend-less policy may be fruitless and unrealistic, if only because the people one is trying to lay off will always sabotage the effort.
"Immediately after the coup the junta moved to crush their left-wing opposition. In addition to pursuing armed revolutionary groups it embarked on a campaign against opponents and perceived leftists in the country. As a result, according to the Rettig Commission, approximately 3,000 people are known to have been killed, 27,000[1] were incarcerated and in a great many cases tortured." [1]
Reading "The Shock doctrine" by Naomi Klein opened my eyes. She would disagree with you on the "halfway-to-Cuba socialism":
"As for the argument that Friedmanite policies are the reason Chileans live in "houses of brick" instead of "straw", it's clear that Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the best health and education systems on the continent, as well as a vibrant industrial sector and a rapidly expanding middle class." [2]
[1] http://en.wikipedia.org/wiki/Government_Junta_of_Chile_(1973...
[2] http://www.theguardian.com/commentisfree/cifamerica/2010/mar...
I sometimes defend Pinochet, mostly economically. So do millions of other Chileans. I'd guess about half. Hell, I know people who had champagne ready for when the coup came about. Did people die? Yes. Lawfully? No. But Allende's government had already been declared illegal by the Chilean Supreme Court, and was rapidly turning into Cuban-style communism. Pinochet didn't make the stakes higher than they already were.
And economically, which was what we were talking about, again, it was a case of taxing less and spending less that worked very well.
I'd have to dig a bit for the link to his speech though, it was a few years ago.
(Besides, 3000 dead and 27000 incarcerated and many of those tortured -- sounds like a left regime rounding error... :-) )
But it is wasted of course, no idealist changes his/her mind just because they learn that their empress is naked.
http://www.independent.co.uk/news/the-pinochet-affair-i-saw-...
It was during the first three days they were held captive that Mr Schesch and his wife became aware of the lines of people being formed up and then led out of the stadium - almost certainly to concentration camps - or else inside, to face the firing squad.
3000 dead is, sadly, a rounding error for the ideology that gets five percent of the vote in my home country.
Right now I'm in East Europe and shocked at the stories of how Soviet broke the back of any complaints -- just these are worse than Chile in most countries here... And mostly unknown.
It might be different where you live.
But I do agree with what you seem to imply -- one person is too many.
You did mention the economy getting hit bad in 1982 (and 1983, and 1984), you didn't mention Chile was bailed out by an IMF loan of over $7 billion. As Chile's GDP in 1986 was $17 billion, this was a rather big bailout from Uncle Sam.
Speaking of Uncle Sam funding, you can read on the CIA's own web site a rather polished up version of its involvement in Chile at that time ( http://www.cia.gov/library/reports/general-reports-1/chile/i... ). While it mentions plenty of covert funding, what is not mentioned is how many of those strikes you speak of were bankrolled by the CIA, US AID, ITT affiliated organizations and so on. Many of the workers who were on strike were managers or professionals.
Then of course there's the question of whether a democratically elected government should be overthrown with the heavy financial and military help of a foreign power, leading to a new system where a happy day for a young woman imprisoned in secret detention centers was where she would just be raped, as opposed to a host of the bizarre things that happened at the secret detention centers that came out in Chile's 2004 government Valech commission report. That aside, the GDP growth was less than Chile's neighbors were doing at the time and was fairly small anyhow.
Yes it was. Keep in mind, the price of copper favoured Chile during Allende and disfavoured Pinochet--and it was, as we say, "el sueldo (salary) de Chile." I don't see what's wrong with the loan--Chile paid it back in full--and really, you're cherry picking when it comes to dates after the coup.
At the center of the argument is the question: does spending less and taxing less work? Keep in mind, the tax regime, to this day, is almost identical to what it was in the eighties (very low), and now Chile is the only country in the region in the OECD.
It was only ratified in 2010 after being run by socialist governments for twenty years.
Chile's GDP in 1969 was 7 billion. 1970 Allende becomes president it is 8 billion. 1971 its 9 billion. 1972 its 10 billion. 1973, the year of the coup its 11 billion. Then 1974: 16 billion, 1975: 15 billion, 1976: 7 billion, 1977: 9 billion. It was 3.5 billion less in 1976 then it has been in 1972 under Allende. So then it runs up and begins descending again. 1984 19.8 billion, 1985 19.2 billion, 1986 16.5 billion, 1987 17.7 billion.
Going from 11.5 billion in 1972 to 16.5 billion in 1986, 17.7 billion in 1987 is not all that impressive.
From 1994 to 2010, under left wing governments, Chile's GDP grew by $124 billion to $172 billion.
This notion that the coup transformed the Chilean economy for the better was at its height (in the U.S. as well) in 1982 - right before the crash, which needed a multi-billion dollar IMF loan/bailout. The story you're telling sounded better 31 years ago, before that big crash.
That's the real problem, and it's going to stop working eventually (even for the US)
Yes, pushing an agenda through ratings is bad. (But even worse is the mandatory obedience to ratings).
Governments are not lemonade stands either.
In doing so, you are making a mistake, especially when you apply it to the US.
Think about it: Why is spending more than you earn bad for a household? Because according to the rules of society you will eventually not be able to spend anymore.
The rules of society are different for the US government, and therefore your conclusion about spending vs. earning does not apply.
I believe in the principles involved in austerity, but would argue that those using that word in government are "doing it wrong".
- Do you believe the government is inefficient with its money? ( public school system) - Do you believe that the government has its hands in too many pies and should be doing less? (NSA) - Do you approve of the cost of the ACA website? What about the value we're getting for our money? - How about Mr Presidents Million dollar golf trips while he shuts down the White House? - How much good could be done with the $420 billion in interest payment we paid last year alone on our debt [1]?
There are many reasons to try to be more efficient/austere with our money. I personally strive to be debt free and self sufficient, and I would like my country to be the same. I don't think the power our foreign lenders have over us is a good thing.
[1] - http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-abou...
> I personally strive to be debt free and self sufficient, and I would like my country to be the same.
First of all, you are conflating country and government. Most of a government's debt is typically held by the country's citizen, so government debt is in fact private wealth.
Second, think about why you strive to be debt free and self sufficient, and then think about whether the same logic applies to a government that issues its own currency and is indebted only in that currency. A government that is monetarily sovereign is subject to different rules than private households and must therefore follow different strategies.
If you transfer the guidelines you have developed for your own personal dealings directly onto the government, you're making a mistake. It may feel good and morally right, but it's still wrong from a logical and rational perspective.
Of course, this wouldn't be politically correct to say outright. So instead, they disguise it under things like "fiscal responsibility." But underneath the rhetoric you can almost taste the hatred and contempt they feel towards poor people.
Of course, as in many cases, there are confounding factors. Australia's is being a major supplier of iron ore and coal.
Take a look at this study by the New York Fed.
http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf
In particular on page 10 table 8 you can see the additional impact that a credit rating upgrade or downgrade has on borrowing cost. You could also read throughout the paper and in the conclusion that a lot of what determines a sovereign credit rating is correlated with publicly available macro indicators (i.e. the market was already moving in that direction anyways). Take a look at page 9 chart 2 to see the direction that spreads are moving before an after a ratings announcement.
My point is that Ratings agencies don't swing a huge sledgehammer; its more like a small mallet. The author of the article is right you should be skeptical of the incentives behind these ratings decisions but you also shouldn't fear them.
If someone wants to say something interesting about the downgrade of France, some actual analysis combined with numbers and graphs would be much more welcome than a linkbait title based on a column full of caricatures of political opponents.
For example, will the aging population in developed countries affect their medium-term ability to repay their debts? Krugman doesn't say anything on this topic other than to say the problem isn't unique to France. Graphs and numbers on how aging affects productivity is very germane but absent in his analysis.
I actually don't blame Krugman here. Let's be honest, in this article, Krugman is a political columnist. He basically admits that this is a political rant in his second paragraph. And the thesis of the column is that some people did something he disagrees with so they must be bad people with bad motives.
I just don't like that this was posted and upvoted here. I like when HackerNews has better content than this. I can read this sort of thing in /r/politics, The Huffington Post, or The New York Times. I come to HackerNews for tech, startup, futurism, science news, etc. Any political posts should at least have a tech or entrepreneurship bent and be based in rational argument, not political one-upsmanship.
Since internal trade and capital flows are much more important for the EU economy than external trade and capital flows, what matters is the relative aging effect compared to other EU countries.
So it was valid to discard that effect for a discussion of the broader dynamics.
To rephrase, imagine a benchmark test comparing javascript engines. A good blog post comparing those tests would have charts and graphs describing relative performance, what affects performance, and so on.
I don't see that kind of reasoning here, just the political equivalent of javascript linkbait.
Again, given his goals and target audience, I don't think Krugman wrote a bad column. I just think this is the wrong medium for it.
You should be aware that if you see an analysis like that it's the same level of evidence as this piece, but the turd is polished to look more authoritative.
Not a good direction to go in. At all.
The relevant point of bringing up ageing is that this is an area that is often brought up as a medium/long term financial sustainability problem, but one for which France has better stats (b/c of birthrate) than most countries of relevant comparison - however Krugman feels that this point is ignored by "fiscal scolds" (certainly true for the two articles he mentions).
I don't want to give a point-by-point rebuttal. I just find the whole column facile, argumentative, and not befitting HackerNews. I'd rather not be facile and argumentative in expressing that opinion.
The responses I've been getting here have been arguing or reiterating Krugman's points, not convincing me that it's good content for HackerNews.
Again, there are many other aggregators more suitable for this sort of column.
And why do I think that the original post is relevant to HN - besides being interesting, well argued and factual? Because of this: http://mjg59.dreamwidth.org/28232.html
But, for what is worth : richs are leaving the country, young educated dream to leave, less educated want to work for the gouvernement, tv, radio, newspapers talk about gouvernement. And gouvernement only create new taxes and stupid debate (See leonarda...)
People are all about gouvernement spending, without a care for the debt.
It's not signs of a bright future...
[disclaimer : I'm French]
France is not only "experiencing economic difficulties". France has never experienced such difficulties. I'm not talking numbers, S&P ratings, or else, but as the population's feeling, buying power and general happiness.
I think that something was forgotten here, and it's the environment in which you cut spendings/raise taxes. Cutting spendings in the USA, where the policies are already ultra-capitalistic and spendings and small, it might be bad - In a country like France, with a left tendency (even when right is governing, it's way more socialist than the USA), cutting spendings sometimes doesn't hurt - and it's hard to justify more spendings.
When Sarkozy (right) was governing and the crisis started, he adopted a "cut spendings" policy, as criticized so much in this article, and well, it was obviously not welcomed by the people, but it allowed the country to get through the crises better than most other european countries. A lot of things seemed really bad and implemented, mostly because of the newspapers being biased and wanting to sell. e.g. a big scandal when he raised the age limit for retirement. It was only for one or two years on average, and a lot of "dangerous" and "hard" jobs categories were not touched. There were simply no more money in the bank, and paying was just impossible unless raising debt and printing money. No thanks. And when you compare, the retirement system in France was the more generous in Europe, with average retirement age often lower of 5+ years. This is just an example amongst others.
Now Hollande is governing (left). For the quick background, he is the complete opposite of Sarkozy. Sarkozy was the "bling bling" president, loving America and capitalism, etc. Hollande said on television he hates rich people, and does everything to be the poor class, normal, president. Robin Hood in a sense. Higher taxes (75% for one million revenue), more taxes if your net worth is high (even if no income), to the point that every rich known personality from France (actors, businessmen, etc.) are leaving and getting other nationalities, to not have to pay those taxes, because too high.
When you are in your 20s, and get out of school a Master, or 2, which is the norm now if you want to be able to hope to find a job, there is an all-time high unemployment rate. Opportunities are rare, etc.
And now, Hollande is the less-appreciated president of all time for France. His popularity was the lowest a president ever had after only a few months of presidency.
So, I am no politics analyst, or whatever, but this is a feeling as a person from France, seeing my country getting worse and worse because everything done is against entrepreneurship and lowering workers motivations. Seeing all my fellow french moving to the US, Canada, Argentina, Asia, and after only a few weeks, being so glad to call those places home, and saying they would never go back to France, because anywhere they are, it's so much better.
I'm not saying we should always cut taxes and never spend more, but this article misses a lot of point and is not really objective - "France’s remarkable health care system, which delivers high quality at low cost"- Yes it's remarkable, but it costs A LOT.
Just my 2cents :)
Yes it's remarkable, but it costs A LOT.
It still costs far less than the equivalent expenditure per capita in the US on healthcare. [1]
[1] https://en.wikipedia.org/wiki/List_of_countries_by_total_hea...
Does this number includes public AND private? How is it calculated?
In France there is basic healthcare, which is really good and free for everyone (free as in taxes!) and then a lot of people have additional private healthcare -
I wonder if this number is included, because for what I remember, additional healthcare in France is about the same price as healthcare in the USA. Add to it the price of the public healthcare, which I assume is higher than USA, simply because more services, and the logic is, the overall is more expensive?
Various theories explain this: inefficiencies, the USA subsidizing research for the rest of the world, etc. Really they're two sides of the same coin--those inefficiencies line the pockets of various medical-related corporations, some of which ends up going into research.
Generally the emergency room works on a triage process so going there with a minor issue means everyone with serious issues gets treated first.
If you want to go to the emerg room with a minor issue and get treated in a reasonable amount of time you may want to consider whether one of your symptoms is having trouble breathing. A quick run before going to the emerg if you're out of shape quite often produces this symptom.
It is unfortunate to misquote someone in such a polarized debate. What Hollande really said is better translated as "I don't like rich people, I don't like rich people, I have to admit".[1] Why put more violent words in his mouth?
(As mentioned in the linked article, he also later said: "This was too short a wording. I appreciate talent, work, merit. What I don't accept is indecent wealth.")
[1] http://www.liberation.fr/politiques/2012/09/10/hollande-anti...
(I'm French)
I've had very similar experience with Russian culture. It seems to have split into two really - 1) people obsessed with wealth and acquiring it, 2) people that are very suspicious of wealth and blame societal/economic problems on the first group.
Of course, but that's probably because your friends are educated middle class / upper middle class people.
I can tell you that most of my lower working class (who are working their asses off for a minimum wage) friends and family are much better off in France than they would be in the US, Canada or Asia.
What's the lesson here? The more money you make, the more incentives you have to move to a country where that money buys you more, or where that money is less taxed. Typically countries where the inequality gap is higher.
http://upload.wikimedia.org/wikipedia/commons/3/32/Gini_Coef...
> When Sarkozy (right) was governing and the crisis started, he adopted a "cut spendings" policy
He also adopted tax cuts for the richest.
Honestly I don't like Hollande more than anyone else, but Sarkozy's tenure was catastrophic on many points, and the picture you are painting doesn't match reality - or at least, it only matches the reality of people who don't have a large view enough on the different ends of the wealth spectrum. You may be no political analyst, but your message has a strongly political bias.
> Higher taxes (75% for one million revenue), more taxes if your net worth is high (even if no income), to the point that every rich known personality from France (actors, businessmen, etc.) are leaving and getting other nationalities, to not have to pay those taxes, because too high.
FUD and bullshit. The 75% is for revenues ABOVE 1M, which is very different from 75% on all revenues - in fact, there used to be a higher taxation rate in the 1930s in France, which was set at 90%. After WWII, the USA had similarly high rates (from 91% during WWII to 70% in 1964). Bullshit because only a few high profile personalities are whining (mostly actors and overpaid footballers, cry me a river), most of them well-known friends of the French right wing parties. And also because of the large number of tax exemptions who are mostly applicable to wealthy people (because they require capital to invest into real-estate and companies), their real taxation rate is usually low, even lower than middle class workers. Liliane Bettencourt, the richest woman in France (and a friend of Sarkozy) was revealed a few years ago to have approximately a 9% tax rate. It's a very similar story to Warren Buffet who had a lower tax rate than his secretary.
These ratings are supposed to indicate "the capacity to meet financial commitments". I have read articles fearing a French collapse even in left-liberal newspapers here in Germany. Meanwhile nobody worries about Sweden or Denmark not being able to pay their bills.
These articles and comments are like watching a Monte Python Witch lynching. The mob agrees - tax and spends the way to go. "Ooh, no it's the rich they're the ones." Mob: "Yea, it's the richies fault. Burn them!". "Wait, wait, it's the poor - they're not working." Mob: "Burn them!"
If we're just going to support "our guys" "Democrats" or the "Republicans". Or are we going to have some actual discourse?
If it's just "our guys" then "Hey if a little's good, a lot is better!" So, let's take these good ideas to the limit!!! Why not cut government completely? Ooh, that might be dangerous - imagine mayhem as we start fighting amongst ourselves to protect our property or as our defenseless borders are attached. We might end up being run by a repressive communist regime.
OK, forget that. Let's go the other way - let's tax income at 100% and let the government spend it all! Hmm, it's hard to imagine why anyone would bother to work in that situation, could millions end up desperately poor like in Russia? But OK, let's keep going... Do we like the way the government spends money? That's an awful lot of power in very few hands. Some of it will go for good (programs for the poor). But some of it's going to end up in places where it harms the poor - i.e. the war on Drugs where police in Texas are using forfeiture laws to take property (like cars) from the poor. And, if you clench your butt at a traffic stop, O_O, yikes, well...
Hmm, not good - course both are pure anecdotes. In reality, we're gonna be somewhere in between. And that's the rub isn't it? Because I suspect it actually depends. There are times when either can help and times when either can hurt. Right now, we're running up an ungodly deficit, which might be OK, if it seemed like all that spending was actually helping. But it doesn't feel like it is.
Personally, I don't like where the country is today. We work way to hard, there are too few jobs and I'm so disappointed in Obama. I truly believed he was going to try to make things better, more transparent more fair. Instead, it feels like he's laying the foundation of a massive federal spy state. Where the only good job will government ones and you'll only get those by owing someone a huge favor. It all feels very sleazy to me.