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Thu Jun 14, 2018, 12:06 AM


We are all Ordo-liberals now

Both the French and German governments have recently expressed a desire to avoid budget deficits. Bob Hancké examines the history of a ‘dangerous idea’ – Ordoliberalism, or the belief that balanced budgets produce growth.


At what was probably the most unpropitious moment in recent economic history to make the claim, US President Richard Nixon declared that we ‘are all Keynesians now’. In his view, the key problem of macroeconomic management, namely how to stabilise a modern economy, balancing growth (and employment) with inflation, was fundamentally resolved. Less than two years later, the advanced capitalist countries went into a tailspin, world economic growth stalled while both unemployment and inflation shot up.

Wolfgang Münchau, one of the more astute observers of European and German political economy in the Financial Times, recently wrote a column arguing that the strict fiscal policies of the new German Minister of Finance Olaf Scholz, a social democrat (!), will damage Germany’s partners in EMU. He calls it an accident to happen. We did not have to wait long for the next instalment in what could, indeed, be a massive pile-up. The same day, the FT also reported that the French Finance Minister Gérald Darmanin is aiming for a zero deficit. Darmanin wants to restore France’s credibility in Europe. Some context might be useful: the last time France had a zero deficit or a budget surplus was sometime in the 1970s; and France is not really suffering from a poor credit rating, despite 40 years of deficits.

Sado-monetarism and Ordo-masochism

In any case, there seems to be a deeply masochistic streak running through the broad centre and centre-left. It’s one thing for mathematically illiterate right-wing parties such as the Tories in the UK to insist on fiscal discipline – they never really bought into the welfare state, and the ‘necessity’ of sorting out a crisis gives them the opportunity to make savage cuts that hit the poor and wage earners (while leaving the bankers alone).

But it’s a completely different thing for the left and the progressive centre (as Macron and his acolytes like to see themselves) to blindly insist on austerity. Not only is it unnecessary: in both countries and in many other EMU member states the economy is stable and probably simply needs a few years of sustained growth to sort out the budgetary pressures. It is simply counterproductive: if an economy is growing slowly, cutting demand is not a solution but exacerbates the problem.


Robert Hancké – LSE European Institute

Bob Hancké is an Associate Professor of Political Economy at the LSE. His research interests include the political economy of advanced capitalist societies and transition economies as well as macro-economic policy and labour relations. His books include Unions, Central Banks, and EMU: Labour Market Institutions and Monetary Integration in Europe (Oxford University Press 2013), Intelligent Research Design (Oxford University Press 2009) and Debating Varieties of Capitalism (Oxford University Press 2009).

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Reply We are all Ordo-liberals now (Original post)
Exotica Jun 2018 OP
sandensea Jun 2018 #1
Exotica Jun 2018 #2

Response to Exotica (Original post)

Fri Jun 15, 2018, 01:11 AM

1. GREAT article. Thanks for this!

While it's important not to fall into the trap of the deficit puritan, a lot can depend on how one goes about it.

If an administration say, inherits a deficit of 4% of GDP, and declares: "This is unacceptable; we must bring it down by half in four years," that, provided they do it equitably and inherited a healthy economy, could work at first blush.

But if, like many right-wing governments, their idea of being a deficit hawk is cutting spending on public works, social programs, or utility/public transport/medical subsidies - while cutting taxes on the rich and big business (especially those sectors that backed them in the last election), then they're just neo-liberal.

That, as you know, is practically a dirty word in much of Europe and Latin America (think Paul Ryan).

Suffice it to say, that approach will usually worsen any budget deficit, while pissing off most of society once they begin to see cherished benefits shrink or even disappear.

A vicious cycle usually ensues, and before long you have an Argentina situation (as Argentina in fact has right now).

All the more so once voters understand that their "sacrifice" is paying for a fat tax break at the top - one that today's elites, unlike past generations, mostly just sock away in some shady tax haven.

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Response to sandensea (Reply #1)

Fri Jun 15, 2018, 02:02 AM

2. I have seen multiple posts wishing we had a Macron-style POTUS


My mind reels at this on a liberal board.

He is centre-right, he is anti-labour, pro-privatisation, his policies are for the absolute top of the economic food chain, he slashes the welfare state, is a self-described libertarian, etc etc.

His social positions are to the left, but in Western Europe, that is like saying water is wet.

Of course he is better than the nazi-lite Le Pen, but that is like saying a Big Mac is better than deep-fried rhino dung.

Why Macron Is Not The New Left


Since his election in May 2017, international observers have fairly unanimously welcomed Emmanuel Macron as today’s modernizing figure in French politics and depicted him as a pro-European Social Democrat with an assertive reformist touch. Yet, it took no longer than one year for the French to qualify him as a “right wing” president. Looking at his political agenda and governing style, there are indeed no grounds for thinking that l Macron contributes to the renewal of social democracy in any sense or way. The French President has attracted enormous sympathy due to his bold voluntarism on the international stage, currently populated mainly by various kinds of autocrats, an outrageous Donald Trump and a declining Angela Merkel. But behind the seductive style of a young and charismatic leader, a careful examination of his domestic action unveils a blend of socio-economic neoliberalism, authoritarian conservatism and monarchical governing philosophy.

The Embodiment Of The “Bloc Bourgeois”

Over the past ten years, political scientists have analysed how national party systems are slowly but powerfully being reshaped by a structural sociological change in traditional constituencies. The left-right divide has been increasingly disrupted and overtaken by a new opposition between those citizens who see the economic and cultural opening to Europe and the world as a positive development and those who feel threatened by such integrative trends and call for closure of the national space behind strictly demarcated borders. The new cleavage clearly rests on a sociological divide insofar as the first group embraces mainly urban well-educated, well-earning people, while the second is mainly constituted by blue collars, the unemployed and people leaving in desolated rural and semi-rural areas. The fact that the mechanisms of representative democracy only work within the framework of the nation-state (when they are still effective) whereas important decisions regarding especially socio-economic policies are made at the EU or global level has slowly brought about the dissolution of a strong sense of popular sovereignty and its replacement by a widespread feeling of powerlessness and anger.

Against this backdrop, Macron has unambiguously profiled himself as the representative of the wealthy part of society so much so that he is now dubbed as “the president of the rich”. He embodies the attitude, the values and the desired trajectory of the upper classes, on the one hand, and he conducts policies that serve their interests, on the other. This is confirmed by opinion polls conducted recently for the first anniversary of the presidency. Those who support both the personality and the action of the president are rather old (37% of the 65+) and educated, 42% of them are managers and 48% earn more than €6000 a month. In contrast, those who reject both the president himself and his agenda are rather young (42% of the 18-24 age group), less educated (workers or blue collars) and tend to live in rural regions. 51% of them earn less than €1250 a month. The fact that 42% of those who voted for the very conservative candidate François Fillon in the last presidential election are now part of the most enthusiastic supporters of President Macron is furthermore very telling of the social forces on which his presidency relies.

Old Neoliberal Recipes

The fiscal policy measures enforced rapidly in the first year of his presidency have all pointed in one direction: alleviating the fiscal pressure on owners of all sorts of capital, be it companies or the richest households. It was quite telling that Macron and his government awkwardly referred to the fallacious, elitist and outdated concept of “trickle-down economics”, a theory which has been meanwhile abandoned by all serious economists.

The main socio-economic reform has been a further deregulation of the French labour market and labour law which will make it easier to lay off workers and accentuates the trend towards the decentralisation of collective bargaining. In contrast, the extension of unemployment benefits to freelance workers (and those who voluntarily leave their jobs under certain circumstances) will only come at the price of a lower level of welfare benefits and the enforcement of new disciplinary measures (such as sanctions and the cutting of benefits if claimants reject more than two job offers). Moreover, current projections suggest that the measures will only benefit a handful out of millions of potentially concerned workers.


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