Never has the hold of states over the economy been so strong

Governments around the world are maneuvering to combat the pandemic and its economic impact, even in those deemed to be the most liberal.

From the first confinement to the second, passing through all the intermediate stages, the French have been able to see to what extent the decisions taken by the executive power to try to slow the spread of Covid-19 limit their freedoms.

These exceptional measures could be taken because Parliament had authorized it, by voting for a state of health emergency. The extension of this state of emergency until February 16, 2021 has certainly caused a stir - the opposition parliamentarians would have liked to be able to discuss the measures already taken and those which are being considered -, but, in essence, in France as in other countries, it was recognized that governments had to intervene, including by taking very coercive measures unthinkable in normal times.

Here as elsewhere, citizens, their representatives and the press are not deprived of sometimes virulently criticizing decisions taken at the top of the State - too early, too late, ill-adapted, ineffective, etc. One fundamental point seems unchallenged: faced with a large-scale threat such as the pandemic, private or public initiatives taken locally cannot be enough. The state has a protective role to play and it must play it.

Still rising deficits

This intervention in the health sector has a strong impact on economic life, as we saw in a particularly spectacular way during the first confinement, from March 17 to May 11, much stricter than the current confinement, which, according to the first Banque de France estimates, should lead to a GDP loss limited to around 12% in November.

Very quickly, activity fell by 30%, forcing the government to take measures to support businesses and help the most affected households. The general state budget for 2020 had been established on the basis of 244.6 billion in net revenue for 337.7 billion in expenditure, which left a deficit of 93 billion euros. Incidentally, it should be noted that from the start, more than a quarter of expenditure was not covered by revenue ... On March 23, a first amending budget law provided for a decline in revenue of 7.1 billion and expenditure in an increase of 6.2 billion, and therefore an increase in the deficit of over 13 billion.

The confinement had been announced for two weeks, it was extended twice and the accompanying measures had to be strengthened. The second amending finance law of April 25 provided for a further drop in revenue of 36.1 billion and an increase in expenditure of 37.9 billion, or an increase in the deficit of 74 billion and even 76 billion with the so-called special accounts. On July 30, a third amending finance law reduced revenue forecasts by 24.5 billion and increased expenditure by 12.7 billion, which led to a further increase in the deficit of over 37 billion (39 billion with the special).

A crisis of 186 billion euros for the year 2020 alone ...

At that time, we thought we were done with the budget measures, at least for this year. The recovery plan of around one hundred billion euros would be included in the finance bill for 2021. It was without counting without the second confinement. The draft of a fourth amending finance law for 2020, which was not at all planned, had to be tabled in Parliament on November 4.

In particular, it provides for around twenty billion euros more to help businesses, employees and households in precarious situations. In total, the health crisis is expected to have cost 186 billion this year: 100 billion in lost revenue and 86 billion in expenditure.

As for the deficit of all public administrations (State, local authorities, Social security), which was to stand at 2.2% of GDP this year, it is now expected at 11.3% of GDP, unprecedented since the end of World War II. Another figure showing the gravity of the crisis and the vigor of the government response: the weight of public spending should reach 64.3% of GDP this year, a level never before reached.

Since the 2008 financial crisis, public expenditure has exceeded 55% of GDP annually; in 2019, it was possible to reduce them to 54% of GDP. The finance bill for 2021 plans to start a decline again and reduce them to 58.5% of GDP; but it was established before the second confinement ...

In the G20, 11,000 billion dollars disbursed

Let those who see Emmanuel Macron as a dangerous socialist (yes, yes, there are still some ...) look at what has been done elsewhere: everywhere, the State has had to intervene, whatever the political color of the or parties in power. Those who have the courage can browse the IMF's regularly updated list of measures taken in 196 countries. Since the start of the crisis, around 11 trillion dollars have been spent by the top twenty world economic powers.

As is the case in every crisis (the last time was in 2008-2009), when states, such as Germany or the United States, widely open their portfolios, we see comments like: c t is the rediscovery of Keynesianism, in reference to John Maynard Keynes who, in the aftermath of the 1929 crisis, had developed the theoretical tools to inspire vigorously interventionist public policies in the event of a downturn in economic activity.

Obviously, most of the leaders who take decisions today to support the economy have not read Keynes and their advisers are not all seduced by his theory which mainly inspires political parties on the left.

Even the American federal state intervenes massively

The most obvious example is that of the United States, which notably launched an aid program, the Coronavirus Aid, Relief and Economy Security Act (CARES Act), which is expected to cost around $ 2.3 trillion. This program provides, for example, for the sending of checks of 1,200 dollars per person (2,400 for a couple, 3,400 for a couple with two children).

Donald Trump had insisted that the Treasury checks that would be sent in this context bear the following mention: "Economic Impact Payment, President Donald J. Trump". This requirement had obviously raised a lively controversy. Asked about this point during one of his press conferences, Trump replied, very comfortable: "I'm sure people will be very happy to receive a big, nice fat check and my name is on it." In an election year, it could be useful ...

We can then notice that in the fall, when Democrats and Republicans were discussing a new support plan in the Senate, Donald Trump, after multiple reversals, seemed ready to accept a plan of 1.8 trillion dollars, lower to the one demanded by the Democratic minority, but still very consistent. The Republican senators did everything to prevent an agreement: they did not want to further increase the federal state's spending and therefore its weight in the economy.

Public interventions demanded, but contested

Very clearly, it would be wrong to see in the policies pursued here and there in recent months changes in political doctrine. There is simply a consideration of reality. This reality is both simple and complicated.

Simple, because at the base, there is a strong requirement that we find everywhere: in our modern societies, it is no longer considered tolerable to let an epidemic decimate the population, science must provide the means to fight effectively against such plagues. Complicated, because the recommended solutions can cause strong rejection reactions (wearing a mask, curfew, confinement).

The same problem is found in the economic consequences of the fight against the disease: it is not considered tolerable that the measures taken lead to the impoverishment of part or all of the population. But the implementation of this policy turns out to be complicated in a society which is itself complex. We see it with the debates on essential goods and the competition between small businesses, large-scale distribution and distance selling.

The simplest solutions, like strict containment, are also the most expensive. As soon as we try to find more flexible methods with differentiated treatment, we inevitably run towards a risk of incomprehension and the rise to the niche of pressure groups defending particular interests.

Who should pay?

And we are far from being at the end of the difficulties. If the demand for a protective state, whether in terms of health or standard of living, is fairly unanimous, opinions very quickly diverge when the question arises as to who will pay the cost of this protection. Take a simple test.

Start the discussion on the topic of expenses to be incurred for our hospitals. Say that we must substantially increase the number of beds in intensive care units, hire doctors, nurses and orderlies and sharply increase salaries in this sector to generate more vocations. And strongly criticize this government for doing nothing. You will for sure be heartily approved.

Then observe that the overall deficit of all branches of Social Security, including the Old Age Solidarity Fund, should stand at more than 46 billion in 2021 and that the deficit of the sickness branch alone should approach 30 billion . Emphasize that the situation is serious and that we cannot continue like this, especially if we want to incur new expenditure to strengthen the hospital sector.

Then suggest an increase in social contributions or a larger increase in everyone's contribution to the payment of their current health costs. It's a safe bet that this part of your speech will not be very successful. The suggestions are many when it comes to claiming expenses, they are less so when it comes to income.

A kind of recognition

However, beyond the still very strong theoretical oppositions on the role of the State and the weight of collective spending, and despite strong tax competition between States, we see in the long term in developed countries, a tendency to increase. the weight of tax revenues in the broad sense (including social contributions). There are certainly very strong differences between countries and periods of stabilization or decline.

But in the end, despite all that one can hear against power in general and politicians in particular, there is a kind of recognition of the indispensable role of the state, which cannot be limited enacting laws and maintaining order and security. Criticism is permanent, sometimes violent, but as soon as a serious problem arises, it is on the side of the State that we seek the solution.

At the same time, we are also observing a very strong rise in importance of a few very large companies around the world. Faced with Google, Facebook, Apple or Amazon, governments seem to be losing their power. Conspiracy theories that governments are puppets manipulated by hidden financial powers find very fertile ground on which they can prosper. The reality is however quite different, and it will be necessary to refine the attacks against capitalism, which today has many faces.

The many faces of capitalism

In China, things are very clear today. The regime adapts very well to the existence of very large private companies alongside public companies and one can easily be a billionaire and a member of the Communist Party. But make no mistake: the only boss is Xi Jinping.

More and more often, in their annual reports, large listed companies think of paying homage to his thinking and criticism of government policy is strongly discouraged. Jack Ma, himself a multi-billionaire and a member of the Communist Party, should have known. The founder of Alibaba took the liberty, during a conference organized on October 24, to sharply criticize the organization and operation of the Chinese financial system.

The response was quick. On November 3, the authorities announced the suspension of the IPO procedure in Hong Kong and Shanghai of its financial company Ant, an operation that would have enabled it to raise more than thirty billion dollars in funds. The message, no doubt, will be received five out of five by all the big and big bosses.

At the other end of the spectrum, in the United States, we have a country that does not know about planning and leaves business behind. This does not mean that it is totally absent from the field of economics. We must never forget that the Internet owes its existence to computer research carried out within the Department of Defense, which has actively supported and continues to support aeronautics, space and, more generally, all high technology.

On the other hand, the federal state does not intervene in the life of companies, except when they reach a size considered large to the point of endangering competition and innovation. In the past, this was particularly the case in the petroleum industry and telecommunications.

What to do with GAFA?

Renewing the business fleet is a vital necessity for the United States. Lester Thurow, famous economist from the Massachusetts Institute of Technology, who died in 2016, explained it to us a few years ago: “It's true, we have a significant trade deficit. But we are always creating new businesses that investors from all over the world come to invest their money in. This influx of capital allows us to finance our imports. ”

Today, many voices are raised to denounce the excessive weight of large high-tech companies. Even within the United States, they are criticized in particular for hindering the development of new businesses: as soon as one of them begins to emerge from the lot of start-ups, it is bought out. And, outside the United States, there are concerns about the tax optimization policy of these giants, which deprives states of significant tax revenues.

Donald Trump, even if he hardly seemed to carry the big Californian groups in his heart, never did anything against them. Joe Biden could also hesitate to weaken these groups which contribute to the influence of American power in the world. On the other hand, it could be a little more cooperative within the OECD to reform the taxation of the digital activities of these groups. And it would not be negligible.

When we see what the States have spent this year and what they will spend again next year to ensure the resumption of activity, we can without taking too many risks predict that the question of knowing who should pay will keep us busy in the next few years. We can certainly consider that the public debt should not be repaid, at least not in full, but we must not kid ourselves: in economics, there is no free meal. State protection comes at a cost. It will have to be paid for. And if we could get the money where it is, it would be better ...

Recall that Joe Biden, if he refused to include in his program the most radical proposals of the left aid of the Democratic Party, pledged to reverse the cut in corporate tax and tax on the income of the better-off decided under the Trump presidency.

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