The commemoration of the 40th anniversary of François Mitterrand election has given the opportunity to numerous events and broadcast documentaries reminding his action in essential areas as the European construction, freedoms, culture or economy. It is about this last issue that controversies have been the most acute with the evocation of the rebound policy launched in June 1981 which was followed by the “rigor turnaround” in March 1983. This debate is coming at the precise moment when the new president of the United States, in a radical rupture with his predecessor policy, has launched a rebound plan looking like through numerous points to the 1981 one and going even further: budget deficit increase, investment program in infrastructures, direct support in cash to household consumption and measures in favor of education and the protection against unemployment.
What’s happened in 1981? The put in application of the program the candidate had proposed to French people who elected him to do it. The minimum wage and social benefits increase as the reduction of weekly working time (39 hours and, what is rarely mentioned, the creation of a fifth team for the production lines workers) and the lowering of the departure age for retirement at 60 years old. Was it a rupture with the “capitalist system”? In some way, yes, because that system, whose definition leaves place to large interpretations, had not adopted these dispositions before. That program had not the approval of two men, Michel Rocard and Jacques Delors, who, when they were inside the government in charge of putting it into practice, were not ceasing to criticize it. That will give rise to the “rigor turnaround”.
The examination of the figures shows today that these critics were not justified. In particular, the trade deficit increase, invoked to justify the 1983 decisions, was in no way provoked by the rise of national consumption. It was coming from the consequences on the country energy bill of the dollar vertiginous rise. At the end of 1979, the new president of the Federal Reserve, Paul Volcker, to fight against inflation had started a strong interest rates increase policy, which was transferred on the American currency rate and had sent the United States into recession.
The Joe Biden rebound plan strongly looks like to François Mitterrand one’s. 2000 billion dollars expenditures through eight years will be spent to upgrade the country infrastructures. In 1982, the Mauroy government had created the Special Fund for Major Works which were not limited to the building projects of the Head of State. The rebound of the High Speed lines, whose works had been interrupted by the Barre government, hundred kilometers of highways and the modernization of public transportation had then been launched along with increased financing for social residences.
The Biden Plan also includes a consumption support: 1 800 billion dollars during ten years. Its application, with notably a 600 dollars check sent to household during this year first quarter, which will be followed by a second one of 1 400 dollars in the coming months has allowed the American economy to rebounding in a much more vigorous way that what we observed in Europe. Growth of the last two quarters seems solid: 1.1% and 1.6% on quarterly rhythm. In France, the same period figures have respectively been a 1.3% fall and a 0.4% light rebound. In 2020, recession in the U.S. have been clearly less deep (-3.5%) than in Europe. 2021 forecasts in the country evaluate growth between 6 and 7%. In France we hope to reach 5% but it seems much too optimistic to many people. So we look at the American president choices with envy.
His plan is financed by a very high budget deficit increase which would reach 14% of the GDP in 2021, i.e. more than 3 400 billion dollars. During the first seven months of the finance bill year which finishes in the U.S. at the end of September, the deficit will lead the federal debt above the authorized ceiling. The Congress will have to pronounce itself on its increase which will generate a tough confrontation between Republicans and Democrats. That policy comes with fiscal projects which are going in the direction of wealth redistribution, with the increase of the profit tax rate and of inheritance and donations rights. Joe Biden is not going until creating a high wealth tax as in France in 1981, but his philosophy is not very far from that.
Budget deficit did not have any problem to be financed and has not generated interest rate increases, the Federal Reserve intervening to keep them at a level, as in Europe, near zero and for mid-term maturities under 2%. To the opposite, and to the difference with what happened in France forty years ago, American trade deficit is getting larger under the impact of the rebound and could reach 1 000 billion dollars in 2021, i.e. 100 billion more than in 2020.
It is in that context that has just surged worries about an inflation rebound. The 2020 recession had been provoked by the Covid-19 pandemic and not by the adoption of a restrictive economic policy as in 1980. So, statistical comparisons from one year to the previous one are difficult to interpreting especially about prices evolutions. But whatever are the causes, it is a new phenomenon whose nature could worry financial markets and incite the Federal Reserve, whose it is the mission, to intervene to slow activity through adopting a less accommodative monetary policy.
Observed prices increase come from factors which have nothing to do with economy. The pandemic had provoked the deep fall in the sectors affected by restrictive measures. The prices of these goods and services then deeply fell, as in transportation or hospitality businesses. The coming back to a normal situation provokes the coming back to normal prices. At that has been added circumstances phenomenon, the blockage of the Suez Channel, the hacking of a pipe-line or more the break-out of the semi-conductors supply chain. All of them had, at a given moment, an impact on supplies. These ones having become rarer, their prices increased.
Even if that rise is both temporarily and artificial, we cannot exclude that it is attributed by Joe Biden opponents, to his policy a little like, in 1983, these who had affirmed that the policy followed since 1981, had been a failure. But it has a low probability that this contest is enough to convince the Federal Reserve to proceeding to a 180° turnaround and to make it adopting a restrictive policy which would have heavy consequences on stocks markets.
The success of the Joe Biden policy is possible, once the perturbations caused by the pandemic exit are surmounted and then, we will talk about him as a new Roosevelt who had, himself, allowed his country to emerging from the 1929 crisis. The left, in France, could take inspiration from that. But it would be better, in order to have a socialist finding again the way to the Elysée, to avoid going before through the election of a French Trump.