Earlier this year the young, optimistic (rather than charismatic,) political outsider, Emmanuel Macron was elected president of France and poster boy for what we were told was the dawn of a resurgent European Union. That was then, this is now, and less than six months later, policy failures and self inflicted embarrassments such as declaring he would rule in the style of a Roman God have caused support for the former Golman Sachs banker to collapse even more rapidly that that of his predecessor in the Elysee Palace, the hapless socilist Francoise Hollande.
In the Spring of this year Macron, helped by the propanganda machines of the French establishment and the E. U. Commission comfortable defeated the anti-Brussels, anti-globalist, anti - Islamification National Front. Media coverage of the candidate projected a softer and more progressive image for the EU after its treatment of Greece had revealed the undemocratic and authoritarian nature of its power structure.
Attempts to explain the rapid decline of Macron and his government have focused on his pompous approach to governance—literally comparing his leadership to that of the Roman God Jupiter, his obsession with photo - opportunities and his defence of a lack of policy statements by airily declaring that ordinary voters could not understand the complexities of government. But there are deeper causees too. He has misdiagnosed the origins of the French economic malaise, and therefore his Jovian decrees are doing more harm than good.
It’s easy to point to the errors in the president’s perspective by merely examining the data. Macron’s economic policy cites a bloated public sector as the fundamental cause of France’s economic ills. The truly horrendous level of government debt is cited as evidence of this: as of March 2017, the debt stood at 111 percent of GDP, almost twice the 60 percent of GDP maximum allowed by the E. U's Maastricht Treaty.
Private debt however is worse still: 187 percent of GDP, a result of easy credit and the encouragement of consumer spending to prop up an ailing economy. So, why does Macron, in common most other politicians of al parties not worry about this far higher level of debt?
The reason is he was schooled in mainstream economics. Thus Macron has been indictrinated with the idea that private debt is not relevant. It’s just a "redistribution", according to Ben Bernanke, which "absent implausibly large differences in marginal spending propensities" between savers and lenders, "should have no significant macroeconomic effects." The more cynical among you will recognise that as an exercise in talking bollocks.
Bernake's belief is contradicted by the data for countries which, like France, have a private debt ratio well in excess of 100 percent of GDP. There ought to be little or no correlation between credit (the annual change in private debt) and unemployment if Bernake is correct. However, in his home country of the USA, the relationship between credit extended by the banks and unemployment since 1990 is minus 0.91: meaning the more debt people take on, the more is spent in the domestic economy. In France’s case, the correlation is lower but still substantial at minus 0.62, when according to mainstream economics, it should be close to zero.
So credit matters, not merely because savers are much less likely to consume than debtors, but because bank credit creates new money. And that is what the Macron government has faied to understand, resulting in its having focused on reducing government debt by squeezing private credit.