Monthly articles (English and French) on the theme "Querying economic orthodoxy"

No. 38 - February 2009

Towards Recovery


If tailored and communicated well, public recovery programmes can not only stimulate and replace private demand, but also convince consumers and firms that they are not in for another Depression. This will ensure that they stop waiting and start spending again.
Olivier Blanchard, Economic Counsellor and Director, Research Department, International Monetary Fund (see The Economist, 29 January 2009)

If past errors are the architects of recession, present anxieties are its builders.

In January (1), a journalist asked the Mexican billionaire Carlos Slim if the the current problems were not keeping him awake at night. Slim's reply wasted no words: Why? Should they?

In another interview (2), Hans Smits, chief executive of the port of Rotterdam, refused to be pessimistic, explaining that the German, French and Dutch recovery plans seem to me to be encouraging, not to mention the positive effects of the new American presidency.

However, pessimism abounds. In the press, in the market commentaries, we are flooded with horrifying predictions. The situation is extremely grave, the crisis will do on and on, it is even worse than 1929 according to the lugubrious British minister Ed Balls (3). This last statement has the curious property of being true if everyone believes it, and false if no-one believes it. For if everyone sank into total pessimism and acted accordingly, we would indeed have no future. And if everyone acted optimistically, the crisis would evaporate. Balls should have held his tongue.

It may indeed be true that certain company executives have an interest in painting the economic scene in deepest black, in order to justify their lousy results or their excessive layoffs.

Who is right? One might be tempted to accuse Mr Slim and Mr Smits of facile optimism, but these men are investing serious money in real businesses; unlike certain hedge funds which put speculative money into improbable houses of cards. In New York, in the very eye of the storm, Mr Slim has recently invested important sums in the New York Times and in the department store group Saks Fifth Avenue. In Rotterdam, that great centre of world trade, Mr Smits has no intention of cutting back any of his investment projects.

Bully for them! It is people who act like that who will put an end to the crisis. Hope builds progress; pessimism prevents it.

On 19th February, François Blancard, chief executive of Crédit Foncier, the biggest French mortgage bank, announcing better profits in 2008, explained (4) that 2009 has begun well: we have registered 12,000 loan applications in the first six weeks of the year, as against 6,400 in the same period of 2008...we have budgeted for 9 billion euros of new lending to individuals in 2009 [as against 8.1 billion in 2008].

On 9th February, John Varley, chief executive of Barclays Bank, delivered another encouraging report (5): Customer and client activity levels were high in the first month of 2009, and we have had a good start to the year. In particular the operating performance of Barclays Capital, benefiting from the now complete integration of the Lehman Brothers North American businesses, was extremely strong.

Again in mid-February, Dominique Lagarde, deputy chief executive of Electricité de France,
announced (6) that in 2009, we shall invest 8 billion euros in France, that is 2.5 billion more than in 2008. That is our contribution to the recovery plan. And Jean-Paul Agon, chief executive of L'Oréal, remains optimistic (7): we think that the cosmetics market can remain positive in 2009, and our ambition is to do better than the market.

Circumstances may be grim, beauty and elegance will still be important!

As I write, at Christies here in Paris, the works of art in the collection of Yves St-Laurent and Pierre Bergé are selling like hot cakes.

Let us not be unduly downcast by the desperate comments of so many experts, politicians, jounalists, market traders and bloggers. The moaning minnies may perhaps be of some use if they persuade governments to be a little quicker in coming to the rescue of troubled economies. But pessimism is certainly more harmful than helpful. By depressing us, it encourages us to worsen the crisis by acting perversely.

For everyone and every business that, falling victim to anxiety, cuts back spending any more than is absolutely necessary, is guilty of aggravating our problems. My or your reduction in spending is other people's reduction in income. That can only serve to make matters worse. So, let us at all costs avoid being stingy. So far as circumstances permit, let us behave normally; even spend as much as possible! Let us seek out and spread the good news! Let us rebuild our confidence, like those good gentlemen I have quoted. For that is the way to economic recovery.

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1 See Le Monde, 22 January 2009

2 See Le Monde, 2 January 2009

3 Ed Balls, member of Parliament for Normanton (England), is Secretary of State for Childresn, Schools and Families; he was previously Economic Secretary to the Treasury.

4 See Le Monde, 21 February 2009

5 See Barclays plc preliminary results for 2008

6 See Le Monde Economie, 17 February 2009

7 See Le Monde, 18 February 2009