Libert?, Egalit?, Fraternit?. And, of course, Credibilit

It might not be the obvious comparison, but Scott’s ponderings about the state of transatlantic breast relations and the state of French feminism made me remember another Franco-analogy that recently crossed my mind: I believe the current relationship between many countries, certainly in Old Europe, and the US of A has a lot in common with the relationship between the Third Estate (aka “the people”) and Louis XVI in the time immediately preceding July 14th 1789, the date usually considered to mark the beginning of the French Revolution. And no, I am not attempting to compliment President Bush for his fashion sense…

Of all the European absolute monarchies, the French is probably known best. After all, it was Louis XIV who famously claimed not simply to represent the concept of sovereignty but to literally incorporate it – “L’?tat, c’est moi!”. Believe it or not, it took legal scholars and political philosophers a good deal of time to come to the conclusion that he was probably exaggerating. And the same is true with respect to absolute power – it’s basically an oxymoron. The ability to govern depends on what the British legal philosopher HLA (Herbert) Hart once called the “rules of recognition”. No one can exercise power without the recognition of at least those within his gang – even a totalitarian system needs to be recognised by those who have invested in the common venture by enforcing it (whatever their reasons may have been).

To misconstrue these origins of power can have dire consequences, as Thomas Sargent and Francois Velde found out for the case of the Bourbons whose family enterprise ran into a vicious circle of eventually fatal financial troubles [ Sargent, Thomas J., Velde Francois R. (1995) Macroeconomic Features of The French Revolution, in Journal of Political Economy, Vol 103, No. 3, 1995. S.474-518 ]. Their problem was that their seeming absolute power could not control the interest rates which people would charge for lending to the French King. As there was nothing in the French legal system keeping an absolute King from fighting wars and later defaulting on his debt, his access to the financial market was significantly limited and credit was more expensive than that of Britain, whose “cost of capital” was lower because the British Kings had to deal with a powerful Parliament after the glorious revolution of 1688 and therefore had established a credible commitment mechanism, the Bank of England, to enhance their credit rating and handle Crown lending.

When something becomes unsustainable, it usually stops. So in 1788 Louis XIV needed fresh taxes to avoid another state bankruptcy and called the Estates General – but when he tried to extract even more from the third estate, “the people” could not agree to this without significant changes to the ancien r?gime. Changes that would give at least their social and economic elites some say in how the state was run. Changes that would legally limit absolutism in a credible way. These changes weren’t planned in the way things eventually developed. In 1789 very few will have imagined the bloodshed that lay before Paris.

We might not remember this particularly well given our media adjusted shortened attention spans. But earlier this year, there was a smug superpower that believed it could convene “allies” at will because they weren’t really necessary, just good PR. There was a superpower whose government believed that mere determination were a sufficient substitute for long term strategy, and that winning a battle equalled winning a war.

Obviously, America has established facts in Iraq. That’s a superpower’s prerogative. As it was the Louis’ prerogative to send their soldiers fight against the British. While establishing facts is certainly an important power, it is by no means absolute – and as we have seen, it is usually temporary, if the intention is to pay with the money of people not asked beforehand

As weird as it may seem to children on a playground, their behaviour is probably a good proxy for that of state actors. Thus, while it is certainly impossible to ignore the facts that have been established, it is also impossible to ignore the way in which this has been done (and while I agree that there is some responsibility on the part of European leaders, it was predominantly the American administration’s condescending attitude and unwillingness to listen that caused the trouble). If the rest of the world, and Old Europe in particular, would just say “fine, just don’t do it again without even listening to anyone” that would actually amount to saying “fine, do whatever you want, despise us on the way, and be sure to count on us when things don’t quite work out.” This is obviously impossible. So Old Europe in particular is finding itself in the position of the Third Estate: Somehow still believing in absolute monarchy, weak, but forced to legally bind the monarch for the common good.

Thus, in my opinion, the future of transatlantic relations will be about credible commitments. More than anything, the United States need to convince their refound allies that they are willing not establish facts without consulting first; that they have understood they overstepped the rules of recognition for their power. It is difficult to say which institutional form this commitment will take. Maybe this could be the new job for NATO. But whichever form it will take, I hope they will be doing a better job at it than Louis XVI did. I might like talking about the French Revolution. I would not like living through one.

17 thoughts on “Libert?, Egalit?, Fraternit?. And, of course, Credibilit

  1. Interesting post:

    “to pay with the money of people not asked beforehand” – are we talking about the Chinese and the Japanese here?

    “that they are willing not to establish facts without consulting first”

    In fairness to the US, I guess they would argue that they did plenty of consulting, but there was no agreement. It happens.

    One side said if we do this the following will happen. The other side said, no it won’t something very different will happen.

    So the US administration decided to put it to the test. Who was right, judge for yourself.

    Perhaps the whole problem is that our ‘national identities’ are falling apart. There is no ‘Old Europe’ (except in the statistical sense that we are getting older), and the is no single set of attitudes that characterises the US population (which would it be, Fox or Kugman?). This is not 1789. In some ways demagogues in France erect the idea of ‘American culture’ and their equivalents in the US erect the idea of ‘French socialism’ (lead by Chirac?), because they both need each other. This crossfire makes them feel comfortable, confronting a more complex reality would bring too many unpleasant and unwelcome surprises.

  2. Edward Hugh: I take issue with your notion that France and America “both need each other”. This sounds more like Eurocentric thinking, trying to insinuate Europe into the American consciousness, while to a certain extent Europe is pretty much absent from the American consciousness. In other words, America needs Europe less than Europeans imagine.

    So the dependency is not equal. The European welfare states are still forced to freeload off of the American worker-consumer (through an export-dependent economy) in order to sustain their lifestyles.

    The recent overtures of the Bush Administrations are being misread in Europe. It just makes sense to try to get others share the burden in Iraq, so why not ask? In the long run, the barrier might be worn down…. It’s a mistake to assume that the Adminstration is now contrite; on the contrary, Europe is still pretty much considered a wimp of a continent as far as they are concerned. But if the wimp can be worn down with humanitarian appeals, then why not try?

  3. Tobias: Honestly, when I read your Third Estate/Louis XVI analogy, at first I assumed that the Third Estate would be the much-maligned American people, and Louis XVI ostentatious Europe….

  4. Tobias,
    much as it discomfits me to agree with Markku, the political entities of Europe are closer to ‘les Grand Bourgeois’ than to ‘le peuple’.

    Otherwise, George Bush is much closer to louis XVI than Europe is, Markku, if he didn’t so much resemble the Napoleon of the Egypt fiasco.

  5. Tobias’s article confuses the two (Grand Bourgeois/Peuple) then, because I’d say that the non-aristocratic elites, were more trying to understand/explain/defuse/ride the situation, but the political muscle came from the hungry and angry street.

    The bourgeois didn’t tear down the Bastille, and they certainly didn’t have the bloodlust that drove what followed.

    Now, as to whether we have an analogous situation developing in the U.S., I would say it depends entirely on how the Social Security/Federal Budget situation plays itself out over the next decade.

    For the retirees who have paid 40+ years into the system, have neglible savings, underfunded pensions, and deflated 401(k)s if that, Social Security is difference between an impoverished retirement and slow starvation.

    Class resentment can fester for a long,long time but once it becomes a matter of survival, all bets are off.

  6. The “sans-culottes” intervention was an “accident”, none of the tree Estates had any intention to go that far in up-turning the situation, I reckon that their models were both the British and American revolutions. What was different was, I think, that simply in Paris there was as many people than in the whole USA of the time, and most of them were very poor, something that could not happens in the former British colonies. From their viewpoint, things could not go worse, so any convincing charlatan could easily rise what amounted to an army.


  7. The USA need Europe (and Japan) in a way that is much more similar to the Louis XVI analogy than is actually proposed ; the USA, both government and private companies, are net borrowers to the rest of the world, and if the flow of funds from the rest of the world were to stop, the country would go the way of Argentina (the Krugman scenario…). Although Europeans are unwilling to provoke that situation, more so than the bourgeois at the time of Louis the sixteenth, obviously.

  8. Linca: wrong, wrong, wrong. To paraphrase Balzac: “the borrower is a slave to the lender, but if the lender is big enough, the reverse is true”. Europe continues to be a slave to the borrowing United States. And if the US sneezes, the rest of the world will catch the cold.

    An economic downturn in the US will cause a downturn everywhere else in the world. It is imperative to the entire world that the US economy stays healthy.

    Why has the rest of the world gotten into this fix? Well, for some reason, the entire world seems to be extremely keen to sell their product to the American consumer. And these damn Americans have had the gall to open their markets up to the world to an extent never seen before. In fact, this has gone on for so long now that the entire world has engineered their economies around the American consumer. As they say in America, the customer is always right, – even when he may be wrong….

    The question you should ask is this: can Europe ever have that kind of power and influence? And the answer is this: only if the European consumer can pay less taxes, and have more money to spend, making the European consumer the force the rest of the world has to reckon with. But to do that, Europe will have to give up their comfortable pensions and perks, and start really competing with the Americans….

    There really is no free lunch in life. Freeloading has its limits, and Europe, as a freeloader, has limited options to choose from.

  9. “trying to insinuate Europe into the American consciousness”

    No, I’m saying it’s there. It is the Americans who talk about the French. They seem obsessed with them. Since the wall came down they seem to feel lonely, so they boost up their identities with a lot of silly nonesense about ‘socialist’ France. It makes them feel better.

    Actually, as I said they really need the Chinese and the Japanese, and anyone else prepared to buy their debt in large quantities.

    Of course I’m not talking about all Americans here, as I said our identities are disintegrating by the day. I’m also not talking about those Americans who set up fabulous companies like Yahoo, Google, Amazon etc. I’m simply talking about those who want to live in the fantasy world of spending ever larger quantities of money on tanks whilst getting heavily into debt. They need the French to distract them from this unpleasant reality.

  10. Markku,
    You seem to take balzac’s tongue-in-cheek observation as the gospel truth, but it just isn’t so.

    Being a significant debtor means that you might have some leeway on negotiating your way out of bankruptcy, but if you don’t or can’t offer a plan to pull yourself out of your financial ruin, the financial lifeline gets cut lest you drag them down as well.

  11. The European pension funds, which are essentially a direct transfer of money from the 40 year old worker to his 70 year old parents, have strictly no impact on the amount of consumption done by European societies as a whole. Money that goes to taxes also ends up being used for consumption, through the state spending into the private sector or salaries to state employees. So, taxes are irrelevant to the actual amount of consumption.

  12. Linca, that’s the trouble with the European pension system: a direct transfer of money from one generation to the next.

    When there is a transfer first to the private investment sector, the economy gets revitalized, generating new jobs, new sales, new industries, new growth, all of which generate income from interests and dividends. This is why America is so much stronger than Europe – the private sector is utilized more thoroughly.

    Money going to government taxes is always less efficient because the government cannot possibly be more efficient than the free market in determining where investment capital is needed – only the free market really knows that. In fact, the assumption that the government knows better – is the assumption that the Soviet Union made….

    Taxes are incredibly relevant to the amount of consumption: when people have more money to spend (because of less taxes), they tend to spend it. And even when they save it, they basically spend it (in the future). Thus, the less taxes there are, the better for the economy.

    Try to rise above soviet, socialist thinking. What’s past is past.

  13. “Money going to government taxes is always less efficient because the government cannot possibly be more efficient than the free market in determining where investment capital is needed – only the free market really knows that. In fact, the assumption that the government knows better – is the assumption that the Soviet Union made….”

    That’s an article of faith, not a truth. Try to rise above pre-1929 thinking, since then every successful economy has had significant government intervention in business, including the USA. Indeed, the real cause of the strength of the US economy is the large amount poured by the government in fundamental research, something quite unmatched by its European counterparts, and also a field the free market has never, and never will, seriously invest in. Sometimes, the government knows better.

    The free market can be as impressively inefficient as the Governement, and has reapeatedly shown in in recent years, for Enron-like scandals to the bursting of the dot-com bubble, and to the absurd compensations of top executives.

    “Taxes are incredibly relevant to the amount of consumption: when people have more money to spend (because of less taxes), they tend to spend it. And even when they save it, they basically spend it (in the future). Thus, the less taxes there are, the better for the economy.”

    Tax money is spent in much the same way as the rest of one’s money, since eventually it ends up in a private indivudual’s pocket, quite simply. Taxes don’t change the amount of money available for consumption. They aren’t a pit wherein money disappears into an other universe. And because of the redistributive effect of taxes, more money is spent immediately instead of saved, which does end up improving the economy.

  14. “That’s an article of faith, not a truth.”

    It’s a truth proven by evidence, I’m afraid. European welfare statism is more of an article of faith, as it is artificially kept alive by exports to the American worker-consumer.

    Government funding for research was a by-product from the Cold War; most of this research, however, did not have an immediate free-market application (otherwise the internet would have been around by the sixties). The overwhelming amount of R&D that does have a non-military application is privately funded.

    Free-markets are quicker to correct themselves than governments are. Just look at how long it’s taking Japan to clean up their house, not to mention a whole host of statist countries in the world. It’s not the relative insulation systems have from calamity that matters, – it’s how quickly can they adapt and emerge from calamity that matters.

    Enron served as a useful warning; the lesson from Alstom, on the other hand, seems to have been lost. How convenient…

    Okay, I guess I can’t dissuade you from paying more taxes. But keep in mind, then, that European subservience is assured, as the high rate of taxation will keep Europe weak and insignificant in relation to the US.

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