The hypocrisy of neo-liberalism, as so often with modern philanthropy, became very obvious after the fire at Notre Dame. Emmanuel Macron should give the super-rich their money back and instead tax them fairly and revamp the French economy and EU fiscal policy.

Originally posted in German at Makroskop

Translated and edited by BRAVE NEW EUROPE

The flames were barely out before money rained on Notre Dame. France’s rich families donated hundreds of millions of euros.

In 2018 the French state virtually exempted the rich and super-rich of the country from property tax and now, as a quid pro quo, is being relieved of the burden of reconstructing Notre Dame. It has been estimated that the French state´s compassion for the rich from January 2018 onwards will deprive the state of at least three billion euros a year. Now these same, wealthier citizens are giving something back to the state and “their president”. Isn’t that the quintessence of fair play?

The super-rich have already donated almost a billion. That sounds great, but for how many years should the tax relief of three billion a year be offset in order to put that one-time donation of a billion in perspective? A hundred years, or even two hundred? The matter is basically very simple and the Yellow Vests are right when they say that those who do everything possible to avoid paying taxes have no credibility when it comes to charitable donations.

The bliss of the wealthy

Sometimes language helps to clarify the facts. In German, the word Vermögen (wealth) has something to do with ability. It is said that someone is “capable” of something when you think he is achieving something. In French, wealth (as in English) means “fortune”. That is also the word for happiness. Whoever has good fortune, despite being utterly incapable, can be asked more readily by society to share his fortune with others.

In this respect, President Macron could not explain to his compatriots his decision to drastically reduce the wealth tax (since there is now only one tax on real estate, la fortune is completely exempt). He argued that it was necessary to relieve top performers of their tax burden. But those who have fortune do not ever really have to be top performers. In Germany, you can sell something like this without people taking to the streets in droves, because language helps to conceal the facts. In France it’s obviously not that easy.

Public relations is not enough

On the evening of April 15th, the day Notre Dame caught fire, Macron wanted to explain to his compatriots in a major televised speech the results of his great public discussion tour all over the country. The president had spent many days and hours discussing France’s problems with mayors and experts and finding new solutions. He probably wanted to announce that he was once again making corrections to the “reforms” in order to calm the heated emotions of the people, which manifested themselves in the Yellow Vest movement.

But even that would probably not have had much effect. The French simply do not understand what they have supposedly done wrong. Inflation no longer exists; reforms have been under way since the previous president Francois Hollande; mass incomes have barely risen for years; the state is radically cutting back expenditures; but the nation is making no headway. Only the super-rich are getting richer and richer.

The role of the system

But just at the point where one would have to seriously question the system, a simple reflex takes effect in France, as in most member states of the European Monetary Union. One looks at one’s big neighbour and says, yes, if they are doing well in this system, the system cannot be at fault. It is precisely this intellectual barrier that we cannot overcome. It is an obvious question whether the conditions for one nation can apply to another. But – and this is a simple fact – it is not possible to raise this logical follow-up question at the political level.

There are reasons for this, which have to do with the paucity – or complete lack of – training among politicians. But it is also because elected politicians are only interested in their own system and are told at every international meeting that they should only concern themselves with their own circumstances. Any reference to the consequences of the system or repercussions from the situation in another country on that in one’s own is immediately countered with the plea that there are special conditions in that country which make that policy a success.

I recently discussed the situation in their country with senior cabinet members from Turkey and South Africa. Both knew every detail of their national economic policies and were prepared to identify their own shortcomings. But it did not even occur to either of them to ask the question whether there were and are exogenous factors outside their sphere of influence that are responsible for the awful situation. Nor did they grasp my reference to the international monetary system, which, via speculation in the currency markets, has massively shaken the economies of these two nations. One does not want to admit such factors and prefers to study only one´s own role rather than once to look for responsibility in the “markets” or “misconduct” of other countries.

But the fact that the country can be turned upside down without improving its economic situation has one simple reason: France lives in an unsuitable macroeconomic environment. This environment is called “European Monetary Union”. If you live in such an environment, even the best will and the best “reform policy” won’t help.

The decisive regulating sluice-gate …

There are exactly three macroeconomic sluices that must be opened in order to stimulate a stagnating economy. One is interest rates, the second is real exchange rates, i.e. international competitiveness, and the third is fiscal policy. The weight of these factors naturally varies from country to country. But it is also clear that those who have none of the three sluices at their disposal are doomed to failure.

If the situation is the same as in most Western countries – namely that the interest-rate instrument is running out of steam downwards without showing any effect because wage developments are deflationary and nobody wants to intervene in this area – then there are only two sluices left. One is the real exchange rate, which has actually not been used in the European Monetary Union. Countries such as Italy and France cannot achieve anything here, because any attempt to improve their own competitiveness by means of wage pressure will choke off the domestic economy and cause more damage there than can be compensated for by exports.

Germany, on the other hand, has secured itself a lead by years of wage dumping right at the start of monetary union that cannot be made up. Although wage restraint initially weakened the domestic market, years of real devaluation have made the export sector so large that high competitiveness (the low real exchange rate) is an ongoing positive factor (though recently wages and domestic demand have recovered slightly). For the other euro-zone countries, however, the high real exchange rate is constantly having a negative impact, without any means of even offsetting it.

…does not exist in the EU

That leaves fiscal policy. Here the hands of the EMU countries are tied by the treaties, including the Maastricht Treaty. If one addresses this question at international negotiations and conferences, one gets a frighteningly simple answer: one can never change the treaties, even if one wanted to, because unanimity is necessary for this, which one can exclude as a political possibility.  Since leaving EMU as a political option after the Brexit debacle has, in the eyes of a normal politician, become even more absurd than it already was, only minute policies remain available which might somehow cause a “German” miracle in France.

Macron has rightly drawn much criticism on himself for his presidential style and behaviour. But basically he just joined the long queue of politicians who simply don’t know what to do. It is only logical that he has served the rich with the enormous reduction of the wealth tax; after all, it was they who financed him to power. But the fact that he was able to refer to Germany for the quasi abolition of the wealth tax made it of course much easier to sell this pure (and pointless) redistribution as an economic policy measure to stimulate investment.

Since the majority of academic economists no longer understand the economic context, and most of the media are forced by publishers into neoliberalism, and the politicians themselves and large sections of their staff consist of lawyers, rigorous macroeconomic thinking simply does not exist at the point of decision-making. Of course you can find ways around high institutional hurdles, but you have to be clued up and know what is really at stake. It seems that the economic and social situation in the EU needs to get much worse before such solutions are even thought about.

Only consistent macro-economic thinking can prevent the repeated serious discussion of bogus solutions such as reducing taxes for the rich or for companies as an antidote to the economic crisis. But this is exactly what will happen again in Germany. The German Federal Minister of Finance and the Federal Minister of Economics are classic examples of politicians who are totally overwhelmed by the issue, but who presumably therefore surround themselves with top civil servants with similar leanings.

Charity is not politics

There is certainly room for philanthropy in a functioning society. But it must not become a substitute for social policy and a justification for abandoning redistribution mechanisms. Society’s cohesion is not guaranteed by voluntary and, in most cases, self-serving donations from the rich, but only by a policy that prevents the differences between rich and poor from becoming too great from the outset. We must not leave it to those who have had good fortune to compensate for inequality.

A competent French president would have politely thanked the super-rich for their willingness to step into the breach for the construction of Notre Dame, and at the same time rejected the offer. He should have said that it was precisely in the light of this willingness that the abolition of the tax on “fortune” was a mistake that would be corrected immediately. Society, he should have said, is ready and able to cope with reconstruction in such a way that at the end of the day any Frenchman could say that he did what he was capable of doing, and what a democratically elected government expected him to do.

 

PS: I wrote this article on April 22nd, before President Macron explained his policy in detail to the press. On April 25th I watched the press conference on French television for an hour and found myself fully confirmed in my view. Not only did Macron deal almost exclusively with France, he also made it clear that he did not understand the central economic connections and therefore slavishly followed the mainstream.

He made some small concessions in terms of content. A minimum pension is to be introduced and the adjustment of pensions is to be re-introduced (indexed to inflation). Tax cuts of €5 billion are to be financed by the elimination of loopholes in corporate taxation and a reduction in government spending. Public deficits are taboo because future generations should not be burdened, Macron said.

He was massively in favour of an extension of working hours in France, without being able to explain what this would achieve in a country with still very high unemployment. The only justification was that, by international standards, the French work much less per person. There was no mention of productivity, which is high in France. That is analytically extremely poor and shows that Macron is not up to the task and – presumably for that reason – needs so many words. In fact, I find the man’s garrulousness difficult to bear.

One positive aspect is that he wants to abolish the ENA, the elite school from which half the bureaucracy is recruited in France and which causes a lot of damage, because the graduates of this school have no position in economic matters and simply cannot compete internationally. According to some press reports, he mentioned the German imbalances in one sentence, but in the part I did not hear. Whether something will come of this is an open question.

All this simply re-affirms the course he took at the beginning of his presidency, which he is not prepared to correct after his many talks (or monologues) to the nation and the protests of the Yellow Vests. The fact that he won’t reverse his highly controversial abolition of the wealth tax assures that the Yellow Vests will go on protesting and shows that Macron is basically unwilling to admit his mistakes.