Incumbents and the Social Mood

It has been a long held contention of 'Socionomics' – the analysis of social mood developed by Robert Prechter et al., based on observations of the Elliott wave principle – that political incumbents, regardless of their political affiliation, rapidly lose the support of voters in periods of negative 'social mood'. Such periods are usually associated with economic contraction and weakness in financial asset prices, and both are obviously in evidence in France today. Although the Paris stock market has risen strongly since late last year, it remains way below its previous highs. France's economy meanwhile has become one of the weakest in the euro area. The unemployment rate is in a relentless upward trajectory, continually making new record highs. Industrial production, retail sales and other aggregated economic data, month after month severely disappoint.

Meanwhile, attempts to achieve the EU's debt and deficit targets increasingly seem to be doomed, as tax revenues decline in spite of (or rather because of) the introduction of a whole raft of often punitive new taxes.




The CAC-40 in Paris: in spite of a recent show of strength, the index remains way below its previous highs – click for better resolution.



We don't want to discuss the chicken-egg question of socionomics here (the theory holds that all fundamental events can be traced back to the endogenous source of social mood, but it neglects to explain what precisely creates that mood); we acknowledge though that it has something to say in terms of how certain events hang together. There is a wealth of empirical observations confirming its views on the feedback loop between politics and the surrounding economic environment. This should be no surprise really: after all, politics is mainly about acquiring resources by political means (i.e., by coercion) and then redistributing them to various interest groups, as well as deploying some of them to whatever is thought necessary to maintain the status quo and the existing power structure. As H.L. Mencken remarked, every election is a sort of advance auction of stolen goods.

Politicians advertise themselves as being able to 'control' the economy – the standard promise made by every political party and every political ideology is that it will improve the economic lot of its supporters. However, not every means employed in this endeavor is equally suited to producing the desired result. 'Pro labor' policies end up creating massive institutional unemployment; 'fair distribution of wealth' retards economic growth; 'protection' provided to specific sectors of the economy or specific industries ends up hurting not only every consumer, but ultimately the 'protected' sectors themselves.

The list is endless – in actual practice, the very interventions in the economy that are supposedly designed to bring improvement invariably bring about its opposite. This is simply due to the existence of economic laws: it is not possible to produce an outcome for the economy by means of intervention that is not sub-optimal compared to the outcome that would have been achieved by an unhampered free market. Just as no politician can order the sun to shine or not to shine, he cannot suspend the laws of economics. That's just how it is.

However, by constantly asserting that they can do just that, politicians open themselves up to the wrath of the electorate when things don't play out as planned. In France, things have certainly not played out as planned recently.




France's unemployment rate: lurching from one record high to the next – click for better resolution.



Hollande, the Man with a Handicap

France's Francois Hollande can be said to have twice the handicap of the average politician, since he firmly believes in the impossible. This is to say, he believes, in principle, in the possibility of socialism. However, we know since 1920 at the latest, when Mises showed that economic calculation is not possible in a socialist commonwealth – that socialism is not realizable.

Admittedly Hollande is not attempting to resurrect what might be termed 'hard' socialism, i.e., he is not aiming to completely nationalize the means of production. There is still private ownership of the means of production in France, so economic calculation has not been eradicated. However, he has undoubtedly introduced something that often feels like what Mises called a 'Zwangswirtschaft', a 'coerced economy', where the means of production remain in private hands, but the State decides what, when, where and how much is to be produced, and who may dispose of the assets he purportedly owns and at what terms. These Zwangswirtschaft features of Hollande's economic policy have not been applied evenly across the entire economy, but have in a seemingly haphazard manner targeted specific enterprises (most prominently Peugeot and Arcelor-Mittal, but there are other examples as well).

This has introduced what is known as 'regime uncertainty': every company that has been contemplating large scale investments in France is now aware of the problems it might create for itself. Once such an investment has been undertaken, it immediately becomes a sitting duck for the machinations of Hollande's “industrial renewal” minister Arnaud Montebourg. After all, when Peugeot and Arcelor-Mittal tried to close down loss-making factories, they found out that Montebourg did not consider their property rights sacrosanct.

It should therefore be no surprise that industrial production has lately been in steep decline:




France's industrial production –  a sorry spectacle – click for better resolution.



Not surprisingly, consumer confidence has been dented just as much. This is best illustrated by the plunge in car registrations:




French car registrations have plummeted to new depths – click for better resolution.



Oddly enough though, Montebourg's interventions actually appear to enjoy the support of voters in France. There is a deeply ingrained anti-capitalist mentality in France – a BBC survey in 2009 found that 43% of the respondents in France thought that 'free market capitalism is fatally flawed and needs to be replaced by a different system' – this percentage was higher in France than in any other country surveyed. 



capitalism, france

The French simply hate capitalism.



An important point needs to be made here: the French have yet to experience free market capitalism. Today it practically exists nowhere on the planet (although there are a few places that at least come close, such as Hong Kong), and certainly not in France, where it has never been practiced. France has more or less stumbled from Mercantilism into State Capitalism without ever pausing for a liberal breath. In other words, what the French apparently believe to represent 'free market capitalism' is actually a severely hampered market economy, a form of State Capitalism. By voting for Hollande, they have gotten their wish: now they have an even more severely hampered market economy, one that is beginning to exhibit the features of a 'Zwangswirtschaft'. A full-blown 'Zwangswirtschaft' would be akin to the economy the Germans 'enjoyed' under the Nazis, or akin to the 'war economy' in the US and Japan during WW2 – an economy where government bureaus eventually make all production decisions.

One must always ask: if free market capitalism is indeed 'severely flawed' as its detractors assert, then what precisely do the alternatives consist of? The primary alternative to capitalism is socialism, but no rational economy is possible under socialism. Such an economy will simply self-destruct; if it is not a 'socialist island' that can at least observe and emulate market prices in other economies that are still market economies, it won't last for more than a few years. In a global socialist system, the division of labor would break down in short order, and a society consisting of autarkic households living a hand-to-mouth existence would develop. This by itself would then probably destroy the socialist order again, as the central authority would no longer be capable of enforcing it. One cannot employ the apparatus of police and military to force people to do things against their will if one can no longer even feed this apparatus.

The only other alternative are various versions of the so-called 'mixed' economy, in short, a hampered market economy. However, that is what France already has. So one wonders what exactly the French want to 'replace' the current order with, unless it is full-blown socialism. Of course the French could in theory also opt for an actual free market economy, but as the above poll result shows, this is not what they want to do.

Those 43% of respondents can probably be classified as 'confused'. Their response seems largely a result of sheer economic ignorance. If they were actually convinced of the superiority of full-blown socialism, they would have to travel quite a distance to experience it, as they would have to emigrate to North Korea to enjoy its blessings at full blast.

Hollande and his government are evidently in full agreement with the anti-capitalist sentiments and prejudices informing a large part of the population though. Moreover, Mr. Hollande has actually kept all his election promises to the chagrin of all those who mistook his radical campaign rhetoric for a mere vote-buying device. One would therefore expect that he enjoys great popularity. After all, he is giving the people what they say they want, and he is giving it to them good and hard.

It turns out though that he is at present just about the most unpopular president of the post WW2 era, almost on a par with Mr. Sarkozy at his absolute popularity nadir. As der Spiegel reports:

“Never before has a French president fallen in public sentiment as quickly as François Hollande. Only 10 months after entering into office, his popularity rating is plummeting. An event aimed at getting closer to the people this week didn't help.

On a recent trip by French President François Hollande to the eastern city of Dijon, everything that could have gone wrong, went wrong. The visit earlier this week was intended to improve the president's miserable approval ratings and "renew direct contact with the French." Instead, Hollande found himself so clearly confronted with the wrath of the people as never before. He was visibly overwhelmed.

"Monsieur Hollande, where have your promises gone?" one young man hollered out to the president as he arrived in the working-class quarter of Les Grésilles. Two bodyguards immediately and violently carried the man out of the crowd. The image of the scene was too disastrous for the television news crews to pass up. Hollande's predecessor, Nicolas Sarkozy, once told a heckler to "get lost, you poor jerk!" He never lived the phrase down.

Before Hollande arrived, the police had already dispersed a group of unionists who were holding up a picture of early French Socialist leader Jean Jaurès, "to remind him that he's a Socialist." French newspaper Le Monde reported another resident was silenced after calling out to Hollande, "We're still waiting for your change, François!"

After Hollande became the Socialists' candidate for president — in the party's first-ever direct primary election — he relished the public strolls that brought him closer to his supporters. They were scheduled at every campaign event, and Hollande was happy to take the time for them. So many elderly women wanted kisses on the cheek from him that, shortly after his election, he jokingly called himself le président des bisous, or "the president of kisses."

Since taking office 10 months ago, Hollande has experienced the fastest drop in popularity ever seen in French presidential politics. In June of last year, those who said they had confidence in him numbered between 51 and 63 percent, depending on the polling institute. That number is now 30 to 37 percent, nearing the lowest approval rating of any French president on record: Nicolas Sarkozy in May 2011, at 20 percent.

Something has changed among the people, evidenced by not just opinion polls, but also Hollande's two-day, meet-the-people trip to Dijon. A few hours after leaving behind the unhappy hecklers, Hollande asked a woman who was passing by if she wanted to take a photo with him. She answered coldly, "We see enough of you on TV."


(emphasis added)

What's so stunning about this is that the unions apparently think Hollande is not 'socialist' enough. Here is a man who has almost literally turned back the clock by 30 years, imposing everything a modern-day socialist tax-and-spender dreams of in near record time, and they believe it just wasn't enough!

The danger is that Hollande, considering his apparent lack of understanding of economics and his strong faith in the idea that 'economic growth' is created by the State and a function of 'economic planning' and higher consumption, will draw the wrong conclusions from this experience. This is to say, he may conclude that said unionists are right and that France needs exactly what he has delivered thus far, only in much greater doses. In that case France could conceivably eventually become a candidate for third world status, similar to what recently happened to Greece (the Greek stock market has suffered the indignity of being removed from the MSCI 'developed markets' index).

The French better hope that their president's advisers are up to the task of convincing him otherwise. They haven't been so far, so there is every reason to be worried. It seems that France is moving ever further away from being part of the euro zone's so-called 'core' toward becoming part of its 'periphery'. If this continues, it will greatly complicate the survival of the euro.




French 'austerity': for a brief moment, they actually tried to cut spending ever so slightly. It didn't last long – click for better resolution.




French president Francois Hollande: he has lost his place in the sun.

(Photo via AP)





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2 Responses to “Hollande Entered the Kitchen – Now He Feels the Heat”

  • No6:

    Marshal Philippe Pétain was actually more popular, especially with the Germans. Vichy style food shortages cannot be far away.

  • White eagle:

    Very good Pater,but at the end you missed it. Hollande is riding a tiger and to his great horror,he is about to discover that the tiger is the boss,not him.And he cannot step down without being eaten on spot.As you noticed in this piece,he is accused of not being enough socialist and radical.He cannot blame opposition,because he has absolute majority.
    To put it in other words,his advisers are irrelevant unless he is ready for dictatorship.But he is 100% socialist!Present current is so strong that he can only go along.The last guy who really tried to put France in some sort of order was de Gaulle and there were several assassination attempts on him in the process and public uprising against him in ’68.
    Now,anyone contemplating dictatorship in France against wishes of socialist majority must be sure he is bigger man than de Gaulle. Dictatorship along the lines of socialist ideology is much easier task.France is closer to get her Chavez than Pinochet.
    But this can take some time.If French prevail in ECB and EU resort to protectionism,this decay can last a long time.

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