Two French Nobel Prize winners in economics, Jean Tirole and Esther Duflo, have taken diametrically opposed positions in this campaign. You yourselves represent these two currents. How do you explain such divergences?
Christian Gollier : That’s an excellent question. How can we explain that a social science based on facts can lead to such disagreements on the potential impacts of two economic programs? Today, two blocs of economists are opposed: the bloc of left-wing progressives for whom the main objective is not growth, but the reduction of inequalities. And a bloc, which could be described as more liberal, which believes that the priority is to increase the size of the pie so that it benefits everyone, and in particular the most vulnerable households.
These economists, of which I am one, believe that we must find a good compromise between prosperity and the reduction of inequalities. Indeed, we know that excessive taxation with a redistributive aim risks in reality discouraging investment and limiting the creation of wealth to be redistributed.
Anne-Laure Delatte: I agree with you that the 300 economists who signed a column in support of the New Popular Front program – I should point out in passing that Esther Duflo did not sign it – have a deep aversion to inequality. On the other hand, I do not believe that the fight against inequality necessarily means low prosperity, quite the contrary. The supply-side policy as it was conducted by the government did not have the expected results: the increase in the employment rate did not compensate for the reductions in compulsory levies, which led to an unprecedented increase in public spending.
This is why, in order to revive activity, the NFP is banking on both a purchasing power shock in favour of the working and middle classes, but also on long-term investments in education, health and public services, which contribute significantly to the level of productivity of a country, and are essential to ensure its prosperity.
Christian Gollier, you reject the RN and NFP programs, considering that they represent a major risk for the economy. Do you think that they proceed from the same logic?
C. G. : First of all, I want to limit my analysis to my sole legitimacy as an environmental economist. In these elections, the economic and ecological programs have been completely relegated to the background, which is very regrettable. That being said, we must not be caricatural: apart from the repeal of the pension reform and the defense of protectionist measures, the two programs have little in common.
Given the various backpedalings of the last few weeks, it is difficult to judge the RN’s economic program. Since the party made its “austerity shift” at the start of the campaign, we have the feeling that there will be no clear break in the short term with the previous government on business competitiveness or public debt. On the other hand, the RN in power will seek to dismantle our environmental regulations, which would be a catastrophe for the planet but also for the green energy, automobile and construction industries.
For its part, the NFP program assumes a real economic “break”, with an extreme left that has visibly prevailed over social democracy within the alliance. This program, more radical than that of the socialists in 1981 with the exception of nationalizations, feeds real concerns of the experts on the public accounts, investments, employment and prosperity of the country.
A.-L. D. : I do not have this reading of the program. On the contrary, I see it as a social-democratic program that allows the country to be put back on a long-term trajectory in the face of climate challenges. By signing this platform in support of their program, I do not think that the 300 economists of which I am a part are giving carte blanche to this coalition.
They believe, however, that there is another path than that taken by previous governments, a path that raises revenue from the richest and large companies to reduce the public deficit, reduce inequalities and commit to future spending.
I would like to remind you that, on the other side, to finance the 12 to 17 billion euros of reduction to 5.5% of VAT on energy products, the RN is banking on the elimination of social benefits for people of immigrant origin. However, economic studies clearly show that the cost of immigration for public finances is zero or almost zero. Either they are lying to their electorate, or they are incompetent.
C. G. : I completely agree with you on this point, there is no additional revenue to be expected from the fight against immigration, studies showing that in economic matters reasoned immigration is favorable to the prosperity of the country.
Christian Gollier, what worries you so much in the NFP program?
C. G. : There is a real anti-business and anti-market will, like the freezing of food prices, which each time it has been implemented has led to problems of rationing and impoverishment. How do we finance the return to retirement at 60 or 62? It is a societal choice to know whether we want more leisure or more purchasing power. But to pretend that we can have both is not reasonable.
As for the minimum wage of €1,600, it is not at all certain that companies will be able to pass it on in their prices, which could threaten their viability. And if they were to increase their prices, this would weigh on their competitiveness, fuel inflation, and risk further affecting household purchasing power.
A.-L. D. : We can, like Christian Gollier, only retain these few measures which are seen as scarecrows in economic circles, or have a social-democratic reading of this programme, resolutely focused on social progress and ecology.
On the minimum wage of €1,600 for example, the objective is to allow people to live decently from their work. We can imagine support mechanisms for companies that would not be able to absorb this increase. The coalition has already started to think about this type of proposal.
Basically, I think that what really worries the opponents of the NFP is neither the increase in the minimum wage, nor the few price freezes, nor even the repeal of the pension reform. What really worries the opponents and the markets is the radical nature of their proposals in terms of taxation. By making income tax more progressive and reforming the wealth tax to make it truly effective, the left wants to increase taxation of the richest, which is what the ruling class of this country fears.
The left proposes to tax the wealthy and multinationals to finance the ecological transition. Isn’t this an interesting avenue?
C. G. : With compulsory deductions representing 47% of GDP, France has the highest tax rate in Europe after Denmark. Increasing this tax burden by another 5%, going as far as quasi-spoliation on high incomes and transfers, as recommended by the NFP, would be a real disincentive to investment for capital holders. If such a program were to be implemented, a good part of the productive wealth would leave the country. This would be a disaster for everyone, even if the desire for equality is laudable in itself.
In reality, the left is making a diagnostic error in believing that it is by taxing the richest that it will reduce poverty in our country. Unlike labor, capital is very mobile, which also explains why taxation on capital has decreased until recently in developed countries, unlike taxation on labor. This is an empirical question, but it is very likely that at the level of tax pressure proposed by the NFP, the increase in the tax rate will reduce tax revenues, in accordance with the Laffer curve: “Too much tax kills tax.”
Wanting to tax billionaires at a global level as we have done for multinationals is an interesting avenue, but doing it at a national level would be a serious mistake, especially in this country which is one of the least unequal countries, thanks to an already very efficient redistribution system.
A.-L. D. : How can we say that inequalities are not increasing in France when the 500 richest people have seen their wealth increase from 200 to 1,200 billion in ten years, a six-fold increase? With two other colleagues, we estimated that a reformed ISF could bring in between 15 and 30 billion euros per year.
Regarding income tax, let us remember that these are marginal rates; no one’s income would be taxed at 75%! The rates are applied by income bracket. And I would remind you that the United States pushed the marginal rate of the highest bracket to 90% in the 1960s and that this did not prevent the country from becoming the world’s leading economic power.
As for public aid for the ecological transition, I am completely in favour of it, but this must involve conditionality, as is increasingly the case almost everywhere in the world. We must eliminate brown tax loopholes and only keep green tax loopholes.
Will these additional tax revenues be enough to finance the very large NFP expenditures?
A.-L. D. : This trial, systematically made to the left, is becoming a little tiresome. Certainly, the NFP program foresees a massive increase in public spending, but the left is also the only one to want to raise additional revenue, and therefore to present a program with a real budgetary balance. According to the independent estimates that we have carried out with other economists, the increase in taxation should bring in between 60 and 120 billion per year.
Enough to reduce public deficits and commit to future spending, particularly in the face of the ecological crisis. The Pisani-Mahfouz report estimates the need for additional budgetary spending per year at 30 billion to finance the ecological transition. This program is the only one to finance them.
Opposite us we have a central bloc which has only increased the deficit, and an RN whose “pro-business” program seems curiously to “reassure” the economic world.
C. G. : In fact, for three weeks, the RN has been displaying a program of economic and budgetary seriousness that is much more reassuring for the business world than that of the NFP. It is perhaps a facade, as the RN has accustomed us to speeches of economic irresponsibility in the past.
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Anne-Laure Delatte. A research fellow at the CNRS, attached to the economics laboratory of Dauphine University, she is a specialist in finance, tax havens and the eurozone. A former member of the Economic Analysis Council, she is one of the 300 economists who signed a column published at the end of June in The new observer in defense of the orientations of the New Popular Front program.
Christian Gollier. This specialist in climate economics directs the Toulouse School of Economics, which he co-founded in 2007 with Nobel Prize winner in economics Jean Tirole. Co-author of the 4th and 5th IPCC reports, he is one of the great defenders of carbon pricing. In recent days, he has signed several press columns to denounce the economic programs of the RN and the NFP.
