Nobel Prize in Economics in 2014 and Honorary President of the Toulouse School of Economics (TSE), Jean Tirole is considered one of the most influential contemporary economists of our time. Before the second round of the legislative elections, Sunday, July 7, 2024, he analyzes the economic programs of the National Rally and the New Popular Front and expresses his concern about certain measures.
What are the economic stakes of the programs of the National Rally and the New Popular Front? These programs claim to respond to the discontent and concerns of citizens.
But it is disrespectful to them to resort to magic money and to old ideas with harmful consequences in the short or long term, such as freezing prices and rents or resorting to a dirigiste economy; it is disrespectful to them to invoke sources of financing with low yields to hide the coming explosion of debt. What could result from the implementation of these programs can only worry any citizen concerned with preserving our social system and our liberal democracy.
We cannot increase purchasing power without growth
Both programs, although different, focus mainly on sharing wealth, the pie, and contain very few measures leading to wealth creation, increasing the size of the pie. However, the too slow growth of the purchasing power of the French comes precisely from the short-term policies followed for five decades, gradually eroding our education, our universities, our public finances, our innovation and our industry. Let us be clear: inequality, and first and foremost inequality of opportunity, is an existential problem, and we can do more to reduce it; but the absence of a sustainable response to the demands of the French will not solve the problem of purchasing power. We cannot redistribute money that we do not have.
Debt is expensive
France is living beyond its means. Its deficits are sometimes justified: the government’s significant spending during Covid saved many traders and businesses. But overall, they are used to finance consumption, doing little to prepare for the future. Ultimately, the public debt – the debt of all of us – has increased from 30 to 110% of GNP in 40 years. Its repayment is costly for our fellow citizens. In the event of a victory by the RN or the NFP, it will weigh much more heavily on the purchasing power of the French, for two reasons.
First, the large budget deficits created by the implementation of these programs will rapidly inflate the debt, mechanically increasing its repayment. Then, lenders will demand higher interest rates. Today, France borrows at a maturity of 10 years at a rate of 3.2% while Germany pays 2.4%; the difference in the borrowing rate between the two countries (the “spread”) will seriously increase. A lot of money burned for nothing, which could be used to finance education, health or the ecological transition…
Both programs support demand, and expect new tax revenues to limit the increase in debt. This ignores two facts: first, employment is at its highest in a long time and there is little to stimulate. Second, France is an open economy and it is our trading partners who will benefit from our recovery, increasing an already dizzying balance of payments deficit.
The risks in Europe of our headlong rush
Unlike Covid-related spending, the massive increase in government spending is a political choice: this French pathology of over-indebtedness will be perceived from the outside as a solitary and inconsequential experience that should not be supported. The European Central Bank will probably not intervene to save France, and besides, it has no right to do so in such a situation.
As for the other Member States, they will not accept opportunistic behaviors that we would never accept from them. Moreover, the non-compliance with European rules proposed by the two programs could well mark the end of European construction with the attached risks and the economic and geopolitical downgrading of France, too small to act on global regulations or to prevent autocratic leaders, such as Putin, from making the law.
Companies are not taxable at will
The NFP program puts a heavy burden on businesses. French and foreign companies will invest abroad rather than in France, depriving our fellow citizens of sources of employment and income. In addition, the sudden increase in the minimum wage will reduce the hiring of the least qualified.
More generally, unemployment, which had fallen thanks to reforms to unemployment insurance and apprenticeships and to the fact that foreign companies trusted our country to invest, will rise again. To mask this development, the NFP wants to create subsidized jobs in associations and communities, while studies show that these jobs are most often not real jobs and harm the future of their holders.
The RN maintains the fanciful idea that penalizing immigrants can enrich the country. All studies show that the cost of immigration for public finances is close to zero (immigrants contribute slightly less, because they are more unemployed, but receive significantly fewer social benefits than the French because they are on average younger), and that ultimately, immigration benefits our economy (by bringing it workers in jobs in shortage in particular).
Let’s respect our fellow citizens
Let us take two emblematic and demagogic measures of the two programs: the abolition of the pension reform and the subsidies for energy prices. Many French people were dissatisfied with the pension reform; the latter, it is true, could have been more ambitious and more balanced at the same time. But they also know that a reform is necessary: the balance of the system requires either higher contributions (but they are a burden for workers), or lower pensions, or an extension of the working week. The choice between these three is a societal choice. Simply, we cannot have our cake and eat it too. Going back on this reform, already insufficient two years later, is madness.
The massive increase in subsidies for fossil fuels will have serious consequences for our climate objectives (any discount on the price of gasoline is a subsidy for oil). The RN does not seem to be without concerns. The NFP, torn between three components with irreconcilable philosophies, offers an ecological policy that is either incoherent (massive subsidies for oil and renewable energies!) or indeterminate (no position on nuclear power, which is nevertheless essential to avoid polluting too much in the decades to come). Beyond poorly thought-out climate policies, let us also note that the drop in the price of gasoline will benefit the wealthy much more!
Why not try ?
Apart from those who make it their mission to criticize the market economy, liberal social democracy, and Europe, many of those who are preparing to vote RN or NFP are doing so out of dissatisfaction and because “we haven’t tried yet, so why not?”. However, trying must not plunge the country into downgrading, which will inevitably affect the less well-off, but rather prepare its future.
Some in the case of the RN say they are reassured by the fact that Jordan Bardella is backpedaling. Certainly, and my opinion is that the RN is looking towards the 2027 presidential election and wants to avoid an economic crisis before then. But then what is the point of voting for a party that will only implement its program later and in the meantime will plunge the country into a political chaos unprecedented in recent French history?
Our country is in danger. Moderates are making unnatural alliances, neglecting that entrusting the country to the demagogues who built the two programs endangers our social democracy. Our compass should be investment in our collective future.
