Macronomics will not save France

Anatole Kaletsky wrote in “A ‘Macroneconomic’ Revolution?” that the new French President has figured out the golden mean of economic policy that will lead France out of the swamp of despair into which its economy has sunk for a decade.

Typical of socialists, Kaletsky blames Europe’s lost decade on too much capitalism, or as he says, market fundamentalism. In the great film Casablanca, the Police Chief tells his deputy to “round up the usual suspects” after a crime has been committed. There was no effort to investigate or search for evidence. He had a standard set of criminal types that he harassed on a regular basis in order to appear to be doing something. Socialists respond to every economic crisis by rounding up one usual suspect – capitalism.

The US had become increasingly socialist since the election of Wilson. A nation that takes 45% of GDP for all levels of government, has over three million pages of business regulations that grow at the rate of 100,000 pages per year, and most of its citizens get their income from the government cannot be considered a capitalist or market fundamentalist nation. Europe has been socialist much longer. See Hayek’s Counter-Revolution in Science and Bastiat’s essays for evidence from the 19th century France. Germany was completely socialist by 1918 and still indicted capitalism for its problems.

Macron tries extortion on Merkel

French President Emmanuel Macron pressured German Chancellor Angela Merkel recently to bail out the failed southern conference of the Big EZ. According to a Dow Jones Newswires report,

The French leader said the eurozone has deepened disparities, loading indebted nations with yet more debt and making competitive countries even more competitive.

France's public debt stands at more than 96% of economic output, compared with 68.3% in Germany at the end of last year. Unemployment is above 9% in France but closer to 4% in Germany.

Mr. Macron is calling for a shared eurozone budget that could be used to for a variety of reasons, including helping currency members in economic distress, believing that would help address flaws revealed by the 2010 debt crisis.

For the eurozone to have a future, the French leader said, it must have "powerful solidarity mechanisms."

The French leader said Germany should assist with a stimulus of public and private investment in Europe and work with France to find "the right macroeconomic plan."

Trump still off key about trade

At the recent summit held in Europe of the seven richest countries, the G-7, President Trump trashed the German trade surplus, “The Germans are bad, very bad. Look at the millions of cars that they’re selling in the USA. Horrible. We’re gonna stop that.” German newspapers translated “very bad” as “evil.” Many "reputable" financial publications, including the Wall Street Journal, sang harmony with Trump. Here is a sample of the lyrics:

Germany’s current account surplus–the amount its exports outpace its imports–recently hit 270 billion euros, close to 8.9 percent of its gross domestic product. This upward trending trade surplus shows little signs of slowing and Germany’s current account balance may rise above 9 percent of its this year. Despite years of criticism from the Obama administration and the International Monetary Fund, Germany has shown no willingness to address the persistent imbalance.

Germany’s persistent current account surpluses add to German GDP while they subtract from the GDP elsewhere around they [sic] world. Germany is not just exporting products–it is exporting stagnation, job losses, and deflation.

Germany’s trade surplus with the U.S. is particularly large and damaging. It exports high-end manufactured goods to the United States–such as cars, auto-parts, chemicals and airplanes. Cars, for instance, make up more than 10 percent of its exports to the U.S. A more balanced trade in these goods would mean many more high quality jobs in the United States in regions that badly need them.

D-Day lesson - decentralize decision making

June 6, 1945, Allied forces invaded the Nazi fortress of Europe. Not everyone cheered. General Douglass MacArthur said of the invasion that he would court martial the SOB who had planned it. Of course, he knew well the planner. He had worked as MacArthur’s aid for several years: General Dwight Eisenhower. The mass slaughter of Allied troops in the invasion horrified MacArthur. His philosophy had been to land where the enemy wasn’t and then attack. In dozens of amphibious landings MacArthur lost fewer men than the Allies lost at Anzio alone. Churchill had lobbied for the main landing in the south of France where the German presence was much thinner. Instead, Eisenhower and the Allied command chose to jump right into the the teeth of German troops in Western Europe.

The D-Day invasion succeeded in spite of being a very poor military strategy. But why? The Germans held a significant advantage and were very confident. The answer lies mostly in the field of organizational behavior, specifically, the issue of centralized versus decentralized decision making. In organizational theory, the larger and more complex the situation, the more decentralized decision making must become. Centralized decision making works best with routine and simple operations.

US in rut like old German socialism

Mainstream economists and the Federal Reserve are trapped in a rut, condemned to repeating the mantra that monetary policy can save us even though it hasn’t for seven years. Germany after World War I faced a similar situation and the US should heed the lessons.

Socialist ideas swept through Germany like the swine flu in the last half of the 19th century. Otto von Bismarck, the Kaiser’s prime minister, devoted his career to fighting socialists while preserving the monarch by co-opting socialist policies. He promoted unions, nationalized railroads, mines and other large industries. State regulation of industry exploded. He provided social security, healthcare and unemployment benefits. By WWI socialists could not point to a single policy of theirs that Bismarck had not already deployed. Socialists dominated parliament but they weren’t happy because the Kaiser ruled and they didn't.

That changed with the revolution after WWI that gave the German socialist parliament control of the nation. Socialists were jubilant. Now they could demonstrate to the world the superior nature of true socialism. The only problem was that Bismarck had already implemented all of their ideas. They had nothing new to offer. Ludwig Mises described their quandary in his book Omnipotent Government: