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Beyond Greece, Eurozone Has Other Achilles’ Heels

April 29, 2010 14 comments

By Marquis Codjia

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The current brouhaha over Greece’s budgetary mischance and its alleged adverse effects on Europe are an epochal episode in the history of the emergent European economic zone, but these are not the decisive areas where decision-makers, including political leaders and financial markets participants, should pay heed.

Greece’s debt pains would ultimately be resolved, because Eurozone behemoth Germany will strategically come in line with its continental peers; also, supranational channels – such as the European Central Bank and the IMF – will be coerced into using their balance sheets to provide liquidity to cash-strapped Hellenes.

The real fear presently is contagion – avoiding that the ambient financial pandemonium metastasizes into other economically comatose countries within the union. If any of these countries, clustered under the unflattering acronym of P.I.G.S. (Portugal, Italy, Greece, Spain), is downgraded by rating agencies – as was recently the case for Spain and Portugal who lost a few notches, the potential bailout costs and risk premia will rise stratospherically.

Eurozone leaders should swiftly settle Greece’s problems because of perception risks. No doubt the country is a financial and geostrategic dwarf (2% of Eurozone GDP and no major federal institution headquartered). Plus, other ‘weakest links’ such as Spain and Italy possess far greater self-financing capacities and have a different debt structure (domestically held vs. 95% of Greek debt held by foreigners). Notwithstanding, if trans-European perception is that Eurozone will not show geo-economic solidarity vis-à-vis its members in times of uncertainty, then the concept of political union loses its relevancy, and economic agents, including financial markets, will certainly reflect their despondency by driving the single currency lower.

Broadly, other systemic inefficiencies continue to thwart progress within the Eurozone.

First is the lack of a clear political structure in the federation. European leaders, particularly those from prominent countries (UK, Germany, France), seem at this point more content with a federal hierarchy replete with political figures (preferably from minor countries) who pose no leadership threat to them, and a plethora of bureaucratic institutions filled with functionaries picked on an unwritten pro-rata rule to satisfy member states. This strategic stance of an elusive political union grounded in an economic zone is antithetical to the very concept of federation that subtended the initial EU agreement.

To illustrate this, let’s consider a simple example: whom would current U.S. President Barack Obama or China Premier Wen Jiabao negotiate a strategic partnership with if either leader needs a European counterpart? Would they call upon the current President of the European Commission José Manuel Durão Barroso? Or the current President of the European Council Herman Van Rompuy? Or the current (6-month rotating) President of the Council of the European Union José Luis Rodríguez Zapatero? Or EU heavyweights French President Nicolas Sarkozy or German Chancellor Angela Merkel? Or a combination of all of these leaders?

Second, the lack of a clear, single political leadership begets an absence of a uniform socio-economic agenda in the union. It seems as though European leaders want the pros of economic integration, but abhor its cons altogether without attempting to minimize or obliterate them. EU citizens must define what the Eurozone stands for: is it a free-trade area, similar to NAFTA (North American Free Trade Agreement) or ECOWAS (Economic Community of West African States), where partner countries retain their political, economic and social independence, and can compete against each other? Or is it a political and economic union steered by broadly uniform national social policies, similarly to a single country? Or is it, rather, something in between, or neither?

Third, European Central Bank’s powers must be broadened beyond price stability. Unlike the U.S. Fed, the bank’s only primary mandate at the moment is to keep inflation low, with other objectives subordinate to it. The ECB should intervene further in the regional economy, and help avoid systemic disequilibria if need be. In sum, the institution should be allowed to use its gigantic reserves to calm jittery markets in times of uncertainty, among other roles.

Fourth, Eurozone membership should be reviewed; this includes not only the admission process, but also membership conditions and stipulations for exclusion. Understandably, the political undertones of this process call for some diplomatic verbiage, but overall, countries seeking membership in the privileged “Club Euro” must meet stringent criteria, and such criteria should be thoroughly enforced. The current Stability and Growth Pact, which aims to limit budget deficits and debts, is a good start but the ineffective control scheme around it permitted the kind of statistical fraud that Greece authored when seeking admission nearly a decade ago. In sum, sound economic fundamentals and strict governance rule, in addition to geography, should be the rationale for co-opting new members into the Eurozone.

Finally, the EU enlargement process should pay special attention to two key dossiers: U.K. and Turkey. The argument here is not in favor of a quick admission (in Turkey’s case), but for a clearer acceptance framework, more effective than the current 31-chapter “Acquis Process”.

Both dossiers are complex and politically charged, but their quick resolution will do more good than harm to the EU. Turkey has many woes (human rights concerns, Cyprus dispute, perception of Islamism despite the country’s secularism, business regulation, etc.), but its advantages are also interesting. It is 16th largest GDP in the world – per IMF’s 2009 ranking, outpaced in the Eurozone only by Germany, U.K., France, Italy and Spain. This means that, out of the current 27 EU members, it ranks 6th on GDP measurement. The country is geographically larger than any EU member and its ca. 73 million citizens are outnumbered only by Germany’s ca. 82 million; this may open up potential new markets for growth-seeking EU businesses. Politically, Ankara is an important geostrategic ally of the West and a member of such key organizations as G-20, OECD and NATO.

As for the U.K., a current EU member that opted out of the Eurozone, its Labor Party-led government defined in the late 1990s five economic tests that must be met prior to adopting the Euro as national currency, either via parliamentary ratification or referendum. Euro adoption remains a domestic hot button issue and thus may not be addressed for many years. But, it’d be interesting to see how politicians and business leaders will react once the euro reaches parity with, or gradually outpaces, the pound sterling. So far, the euro has risen 65% vs. the pound, from a low of 57 cents in 2000 to 94 cents a decade later, briefly nearing parity late in 2008 (.98 in December 2008).

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Confronting The Entitlement Conundrum – Why Social Security May Be America’s Financial Weapon of Mass Destruction

April 18, 2010 67 comments

By Marquis Codjia

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Warren Buffett, the billionaire investor and long-time Chairman of conglomerate colossus Berkshire Hathaway, emphatically stated in 2002 that derivatives were “time bombs, both for the parties that deal in them and the economic system”. Given the deleterious role these securities had in the recent economic crisis, the “Oracle of Omaha” certainly evinces prescience in addition to his mythic business acumen.

Yet, what will likely choke off economic growth in the U.S., and by percolation, usher in global economic disequilibria, is managing mammoth entitlement benefits due to – or rather, promised to – millions of Americans over not only a year or two, but decades in their lifetimes, once they face thorny existential episodes such as illness, old age, disability, or loss of employment.

Of all government-steered social schemes, Social Security – the federal Old-Age, Survivors, and Disability Insurance (OASDI) program – is the largest, claiming 20% of the national budget in 2009 or $678 billion, right after defense (23%). Other known schemes are unemployment benefits, Medicare and Medicaid.

A conceptual understanding of Social Security is helpful to gauge the dynamics at work in the entitlement debate. Simply explained, Social Security allows retirees to earn pension income from contributions made by current workers – via specific payroll taxes. Understandably, the system remains balanced if contributions made exceed benefits paid – as is currently the case.

However, current projections posit a funding gap starting in 2016 – in other words, expenses will outrun revenues, thus coercing the country into seeking external funds (from new loans or cuts in other programs). Worse, successive governments have borrowed and used up over the years cumulative surpluses held in the Social Security Trust Fund.

The funding deficit is caused by a panoply of factors, the most important of which are the increase in life expectancy, the lowering birth rate, and aging baby-boomers (resulting in fewer workers paying for more retirees).

What’s flummoxing is that the current political elite – like their forerunners in both parties – seem to be voluntarily embroiled in partisan ramblings, and gladly enjoying esoteric rhetoric that renders the populace obtuse, and discredits the urgency and criticality of the social security debate. Consequently, our most intellectually dynamic citizens do not give this topic the socio-economic import it deserves.

The ensuing status quo threatens to turn a tractable conundrum into a veritable crisis – a “time bomb” into a “financial weapon of mass destruction” against America’s social fabric. Former and current Fed chairmen, fortunately, fathom the essence of the matter; thus, Alan Greenspan advocates a mix of measures to bring entitlement programs under control and ensure long-term economic prosperity, while Ben Bernanke warns that “Americans may have to accept higher taxes or changes in entitlements… to avoid staggering budget deficits.”

Several elements form the disquieting body of thoughts that justifies the hyperbolic, or apocalyptic, formulation used in this analysis.

First, the absence of a real, serious forum to gauge the merits of viewpoints engaged in the Social Security overhaul disputation. As noted earlier, this status quo seems to be furthered, at the very least, by consecutive administrations for the past three decades, because either the issue is thorny and politically unpalatable to constituents or elected officials deem it of lower priority. In sum, they dare not venture topics that may derail re-election prospects.

To fill the rhetorical void, snippets of partisan parlance are interjected here and there, mainly to polarize citizens and eschew a thorough debate. One such snippet is the notion that Social Security should be privatized and entrusted with professional portfolio managers because the government should let free-market decide and any form of public management of the behemoth fund is a type of communist intervention intolerable in capitalist America. In this article, the pros and cons of this argument cannot be evaluated with granularity but factual observations reveal the latter’s practical limits. It’s easy to wonder what financial devastation the country would have suffered had the Fund been invested in the stock market before the recent mini-crash. It’s also easy to observe how effective a manager the government can be by analyzing operational results at the Federal Employees Retirement System (FERS), the Army Medical Department, Medicare, and Medicaid, all of which remain sound programs.

Second, the much needed overhaul of the IRS and the country’s tax collection scheme is taking longer to occur, and this delay, coupled to the ongoing government waste at the federal, state, and legislative levels, annihilates any serious endeavour to cut budget deficits.

Next, the systemic spectre of a vicious cycle looms. If the ratio of retirees to active workers grows excessively, there will be fewer contributions to pay pension benefits, and such a reduced purchasing power will yield lower private consumption. Companies will then be forced to cut their workforce if sales are lethargic, and the smaller remaining workforce will contribute even less to the Social Security Fund, and so forth.

Fourth, the Fed – as the lender of last resort – can lend to the U.S. Treasury should public finances deteriorate but it can’t sustainably keep printing money via its quantitative easing tactic lest the dollar tumble on defiance from capital markets and heightened inflation.

Fifth, the country’s incapacity to lower its trade deficits will likely not be solved in the near future because the American industrial complex is currently unable or disinclined to produce superior goods affordably, and opening up U.S. markets to foreign suppliers serve as geostrategic levers in international discussions.

In the end, entitlement specialists and those well-versed in the Social Security issue ask the following: why aren’t authorities implementing the Social Security Trust Fund’s proposal (2009 Report) to marginally raise the tax rate or the salary cap on payroll tax in order to fix the funding gap? For example, raising the payroll tax rate to 14.4% in 2009 (from 12.4%) or cutting benefits by 13.3% would fix the program’s gap indefinitely, while these amounts increase to ca.16% and 24% if no changes are made until 2037.

Avantages et Dangers de Facebook et Leurs Impacts Sur le Commerce Electronique

April 13, 2010 9 comments

Par Marquis Codjia


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Le demi-milliard d’utilisateurs actuels de Facebook constitue un marché gigantesque dans le commerce global et un baromètre-clé dans d’autres secteurs, y compris la politique, les mass-médias, le monde sportif et les activités caritatives. Compte tenu de la diversité de ses membres et son expansion géographique, le premier portail social constitue une population numérique qui s’apparente à une organisation mondiale.

En fait, Facebook s’est métamorphosé récemment en un “ONU sur internet” – du moins lorsqu’on tient compte de la couche de la population mondiale qui sait utiliser l’ordinateur.

L’on pourrait analyser les usagers de Facebook sous plusieurs angles, en fonction de l’objectif de l’étude ; toutefois, pour des raisons de commodité, deux domaines peuvent être retenus pour représenter la diversité des membres.

Le premier est anthropologique et est indissolublement lié à l’instinct grégaire basique des humains. Les usagers peuvent s’inscrire en tant qu’individus et inviter des amis – et les amis des amis – pour créer et maintenir leurs propres groupuscules sociaux ou réseaux. Avec d’autres fans, ils expriment leur admiration pour une entreprise, une marque, un produit ou un individu. Ils montrent leur engagement pour une cause en rejoignant des groupes ou des forums. Lorsqu’ils en ont envie, ils s’adonnent à des jeux, quiz  ou autres créneaux de divertissement disponibles sur le site.

Le deuxième domaine est socio-économique. Les membres peuvent s’identifier comme individus – c’est-à-dire les consommateurs, ou la demande – ou en tant qu’organisations – c’est-à-dire les producteurs, ou l’offre. Ce dernier groupe peut être subdivisé aussi en entreprises, organisations caritatives, politiciens et célébrités.

Pour les particuliers, Facebook offre force avantages. Les usagers peuvent rechercher des nouveaux ou anciens amis, échanger avec ceux-ci, et élargir leurs réseaux à d’autres personnes qui partagent leurs goûts, à l’aide des amis de leurs amis ou des groupes auxquels ils adhèrent. Ils accèdent à d’utiles renseignements auxquels ils n’auraient autrement pas accès – rapports universitaires, documents de recherche, lancement en ligne de produits électroniques, etc. Les membres peuvent également partager des photos, vidéos et documents audio, et utiliser le portail comme une agence matrimoniale efficace.

Cette contigüité est utile car elle permet aux utilisateurs de communiquer sans crainte avec des connaissances ainsi que des étrangers, et fournit une illustration empirique de la théorie des six-degrés de séparation.

La théorie des six degrés de séparation, également appelée théorie de la “toile humaine”, explique que toute personne sur terre serait reliée à n’importe quelle autre, au travers d’une chaîne de relations individuelles comprenant au plus cinq autres maillons.

Les dangers de Facebook se rapportent principalement à l’intrusion dans la vie privée et au manque de productivité.

Indéniablement, une présence sur internet comporte un risque d’étalage de la sphère privée, que ce soit dans les portails sociaux ou autres forums; les usagers de Facebook renoncent ainsi à une partie de leur vie privée simplement en s’inscrivant et en postant des « mises à jour » sur leur “murs”, puisque personne ne sait avec un haut degré de certitude comment les données des membres sont gérées. Cette violation de la vie privée est accentuée par les paramètres de confidentialité inadéquats que la plupart des usagers, en particulier les mineurs et les personnes âgées, présentent dans leurs comptes, ce qui les rend vulnérables aux prédateurs en ligne et à d’autres comportements illicites. Les membres – à contrecœur et à leur insu – peuvent être référencés (« taggés ») dans des images et des écrits qui pourraient fournir une représentation étrange ou inexacte de leur personnalité, leurs vues ou leurs intérêts.

Tout simplement, Facebook peut éroder ou détruire la réputation d’un individu au fil du temps, sauf s’il contrôle strictement comment ses données privées sont diffusées.

L’intrusion dans la vie privée peut également se produire par le biais de la pléthore d’applications disponibles sur le site; ces outils sont des formidables techniques de marketing qui servent à recueillir des informations précieuses – y compris les adresses e-mail – des membres, lesquelles peuvent ensuite être vendues à des entreprises légalement constituées ou des organisations illégales (par exemple, les « spammeurs » ou fournisseurs de courriers indésirables). Par exemple, considérons, un instant, une question comme « Quelle est votre robe de mariée de rêve? » et imaginons, ensuite, quel trésor d’informations précieuses les participants fournissent aux acteurs de l’événementiel nuptial, alors que ces intervenants, naïfs et crédules d’habitude, croyaient participer au départ à un simple jeu.

Sur le plan de la productivité, l’utilisation de Facebook favorise un climat de procrastination et de dépendance, conséquence directe des diverses fonctionnalités (jeux, etc.) existant sur le portail. Nonobstant, ce comportement est le bienvenu pour Facebook, parce que plus les utilisateurs passent du temps sur le site, mieux c’est.

Pour les organisations et les célébrités, y compris les politiciens, une présence sur Facebook offre moult avantages et relativement peu de risques. Cette absence de préjudices est le produit de la sophistication de la gestion des risques et des techniques de promotion de marque qu’utilisent ces entités et les fonctionnalités intégrées disponibles sur le site. Vu que les sociétés ont un contrôle total de leurs comptes Facebook, elles utilisent leurs pages Facebook comme des extensions naturelles à leurs sites Web ou leurs intranets.

Les avantages pour ce groupe se rapportent principalement à l’amélioration de leur qualité de marque et de leur stratégie commerciale en ligne. Une présence sur Facebook favorise un changement des paradigmes tactiques d’e-commerce. Les organisations peuvent évaluer leur « part de marché numérique » et leur niveau de popularité par leur nombre de fans comparativement à des rivaux, stratifier démographiquement ces fans selon les sections ou niches désirées, même si de tels chiffres peuvent ne pas refléter la part de marché réelle.

Avoir des admirateurs sur des pages ou dans des groupes est inestimable parce que les entreprises et les célébrités ont à leur disposition une base de données de clients potentiels gratuite et fiable, sur qui elles peuvent tester de nouveaux produits ou services. Les newsletters, jeux et applications de Facebook offrent un moyen direct de mener des études de marché moins cher et recueillir les commentaires des consommateurs personnellement. Par exemple, une entreprise peut tester un nouveau concept sur des fans de Facebook, ou sur un échantillon représentatif, avant de faire progresser son processus de R&D et de lancer un nouveau produit.

Des communiqués officiels peuvent également être directement diffusés, en temps réel, à de vastes pans de la clientèle. D’autres options intéressantes sont présentes sur Facebook Ads (Facebook Annonces), un service qui permet aux usagers de cibler une démographie spécifique, et Marketplace, un marché numérique où les produits peuvent être commercialisés directement aux clients.

Risks and Rewards of Using Facebook and How They Affect Corporate E-Commerce Tactics

April 7, 2010 31 comments

By Marquis Codjia

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The estimated half-billion Facebook current users form a gigantic market for global business and a chief barometer in other sectors, including politics, mass media, sports and charitable undertakings. Given its user diversity and geographical expansion, the leading social portal constitutes a digital populace akin to a global organization.

In fact, Facebook has morphed lately into an “online United Nations” – if nothing else, when factoring the fraction of the world’s population that is computer-literate.

Facebook users can be cross-analyzed in multiple ways, based on the aim of the analysis; however, for the sake of simplicity, two areas can be retained to depict the membership diversity.

The first area is anthropological, and is indissolubly tied to basic human gregarious instincts. Members can register as individuals and invite friends – and friends of friends – to create and maintain their own social groupuscules, or networks. With other fans, they share their admiration for a company, a brand, a product, or an individual. They show their commitment for a cause by joining groups or forums. If they feel playful, they indulge in games, quizzes or other entertainment conduits available on the website.

Second area is socio-economics. Members can identify as individuals – that is, consumers, or the demand side – or organizations – that is, producers, or the supply side. The latter group can be further divided into businesses, non-profits, politicians and entertainers.

To individual users, Facebook offers many an advantage. Users can search for new or old friends, interact with them, and expand their networks to other individuals who share their likes and dislikes – via friends of their friends or groups in which they maintain membership.
They access helpful information that otherwise may be unavailable to them – academic work, research papers, web premieres of electronic products, etc. Members can also share pictures, video and audio content, and in that process, use the portal as a powerful dating or matrimonial agency.

Such intermingling is useful because it allows users to fearlessly communicate with acquaintances as well as strangers, and provides an empirical illustration of the six-degrees of separation theory.

The six-degrees of separation theory – also called the “Human Web” theory – explains that everyone is at most six steps away from any other person on Earth, because each person is one step away from another person they know and two steps away from each person who is known by one of the people they know.

Disadvantages to Facebook individual users relate mainly to privacy and productivity.

Unmistakably, the risk of public exposure is inherent in any online presence, be it social portals or other forums; Facebook members thus relinquish part of their privacy simply by registering and posting status updates on their “walls”, since no one knows with a high degree of certainty how member data is managed. This privacy breach is compounded by inadequate privacy settings that most users, especially minors and the elderly, have in their accounts, leaving them vulnerable to online predators and other mischievous acts. Members – unwillingly and unbeknownst to them – can be tagged in pictures and writings that provide an uncanny or inaccurate depiction of their personality, views or interests.

Simply put, Facebook can erode or destroy one’s reputation over time unless a member controls strictly how their information is disseminated.

Privacy infringement can also occur via the portal’s plethora of applications; these tools are formidable marketing conduits to collect valuable information – including emails – about members, which can then be monetized with legitimate businesses or illegal organizations (e.g. spammers). For example, think about a quiz like “What will your wedding dress look like?” and how respondents, credulous that they’re partaking in a game, can unawares provide useful data to a vast number of players in the wedding planning industry.

On the productivity front, Facebook usage favors a climate of procrastination and addiction that comes with the various features (e.g.: games) existing on the portal. This behavior is however excellent for the company because the more time users spend on the site the better.

For organizations and celebrities, including politicians, a Facebook presence offers many rewards and relatively few, if any, negligible risks. This absence of detriment is a consequence of the sophistication of risk management and brand promotion techniques that these entities use, and the built-in features available on the site. Since corporate persons have full control of their accounts, they view their Facebook pages as natural extensions to their websites or intranets.

The rewards to this group relate primarily to the enhancement of their brand appeal and their online commercial strategy. A Facebook presence furthers a paradigm shift in e-commerce tactics. Organizations can gauge their “online market share” and popularity level by their number of fans vis-à-vis the competition, and slice it demographically into desired niches or strata, even though such number may arguably not be reflective of actual market size and characteristics, and may not translate necessarily into real consumers.

Having admirers listed on their pages or related groups is precious because businesses and celebrities have at their disposal a free and valuable database of potential, loyal customers to whom they can pitch their new products or services. Newsletters, quizzes, and applications from Facebook offer a direct way to conduct market research cheaply and collect firsthand consumer feedback. For example, a firm may test a new concept with Facebook fans, or a representative portion thereof, prior to advancing its R&D process and launching a new product.

Formal announcements can also be directly disseminated, in real-time, to vast swathes of the clientele. Other interesting features are Facebook Ads, a service that allows sponsors to target specific demographics, and Marketplace, a digital market where products can be marketed directly to patrons.

Obamanisme contre Reaganisme – Quel modèle économique pour sauver l’Amérique?

April 4, 2010 8 comments

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Par Marquis Codjia

Dans les années 80, Ronald Reagan déclarait avec emphase que «le gouvernement n’est pas une solution à notre problème», mais plutôt, que “le gouvernement est le problème.” Aujourd’hui, de nombreux spécialistes analysent le bien-fondé d’une telle affirmation à la lumière des plans de sauvetage massifs que les pouvoirs publics ont de part le monde enclenché pour préserver le tissu économique mondial.

Ces experts ne sont pas seuls. L’actuel chef de la Maison Blanche, qui a affirmé ouvertement pendant la campagne présidentielle de 2008 son admiration pour la personnalité politique de Reagan – au grand désarroi de certains irréductibles démocrates –, a jusqu’ici mené des politiques économiques trop antithétiques au Reaganisme.

Beaucoup d’Américains se remémorent le côté débonnaire, jovial et hollywoodien du Président Reagan ; pourtant, l’ancien dirigeant développa une érudition économique qui lui servit tout au long de la récession qui marqua sa présidence.

Face à une économie dysfonctionnelle au début de son mandat, le président Reagan enracina sa politique dans le dogme de l’économie de l’offre, promouvant un quatuor de mesures qui finirent par révolutionner la dynamique sociale de l’Amérique et relancer sa croissance.

Tout d’abord, il proposa des réductions d’impôt sur les fruits du travail et du capital pour inciter les entreprises et les entrepreneurs à investir et innover, tout en encourageant les contribuables, inondés de liquidités en raison du niveau d’épargne élevé, à consommer pour relancer la machine économique. Ensuite, la déréglementation de secteurs économiques ciblés visa à éviter des coûts inutiles pour les investisseurs. Troisièmement, il promut une série de coupures budgétaires importantes – à partir de 1981 – qui résultèrent en une réduction de 5% des dépenses publiques (environ 150 milliards $ EU courants). Quatrièmement, Reagan chercha à resserrer la politique monétaire pour combattre l’inflation.

Le plan du défunt président eut un succès mitigé.

L’inflation connut une baisse spectaculaire de 1980 à 1983 (13,2% vs 3,2%), les recettes fédérales augmentèrent à un rythme plus élevé que les dépenses (au taux moyen de 8,2% contre 7,1%), et les 16 millions d’emplois créés ont contribué à la chute du chômage de 3 points (7,5% par rapport à un pic en 1982 de 10,8%). D’autres dithyrambes du Cato Institute, think-tank libertarien, incluent une véritable augmentation du revenu médian des familles de 4000 $ EU et une augmentation de la productivité.

Cela dit, le reaganisme et ses paradigmes libéraux ont structurellement dévasté des pans du tissu socio-économique de l’Amérique: les coupes budgétaires couplées à la hausse des dépenses militaires dues à la guerre froide ont créé un gouffre béant dans les finances publiques (par exemple: déficits budgétaires importants, expansion du déficit commercial). En outre, une certaine culpabilité peut être attribuée au leader républicain en ce qui concerne le krach boursier de 1987 et la crise des banques d’épargne des années 80 et 90, tout simplement parce que, au minimum, ces deux crises survinrent sous son mandat. Afin de résorber les déficits budgétaires, l’administration se lança frénétiquement dans des emprunts obligataires qui catapultèrent la dette nationale de 700 milliards $ EU à 3 000 milliards $ EU, dont une partie (environ 125 milliards $ EU) servit à subventionner l’industrie de l’épargne bancaire paralysée par les faillites de 747 institutions.

Le mot-valise « Obamanisme » – utilisé pour décrire la politique économique actuelle défendue par le président américain Barack Obama – est un nouveau concept qui, naturellement, a besoin de temps pour se développer avant qu’une analyse plus poussée ne puisse être effectuée sur ses mérites.

De toute évidence, l’administration actuelle – face à une économie chaotique – a adopté jusqu’à présent, ou envisage d’adopter, des politiques diamétralement opposées aux préceptes de Reagan: impôts plus élevés, réglementation accrue, plus de dépenses et une politique monétaire laxiste.

L’initiative de sauvetage des banques du président Obama était correcte pour deux raisons: d’un côté, la décrépitude des marchés de capitaux aurait métastasé en un chaos général plus coûteux, et de l’autre, le fait que les banques sont maintenant relativement stables témoigne de l’efficacité du programme, malgré le travail restant à accomplir dans ce schéma de sauvetage bancaire.

Même si le plan de relance économique actuel prendra un certain temps pour atteindre les objectifs souhaités, les résultats préliminaires à ce jour sont tout à fait mixtes: les banques hésitent à prêter, le secteur des prêts hypothécaires est toujours léthargique, la consommation privée atone entrave les investissements des entreprises et la productivité économique mondiale. L’économie enregistre peu à peu des milliers d’emplois mais le taux de chômage reste encore à 9,7%.

Alors, entre l’Obamanisme et le Reaganisme, quel modèle économique peut sauver l’Amérique aujourd’hui?

La réponse est : aucun.

Aucune politique économique ancrée dans un dogme partisan ne peut sauver l’économie; pour être efficaces, les autorités doivent utiliser une combinaison d’idéologies, extirper les meilleures zones d’efficacité de chacune et les amalgamer dans un plan cohérent profondément enraciné dans les préceptes d’une l’économie prudentielle.

Premièrement, le gouvernement doit équilibrer son budget en maîtrisant les pertes bureaucratiques au niveau fédéral et étatique, en cherchant une plus grande efficacité dans ses programmes sociaux et en maintenant une base d’imposition capable de fournir des rentrées fiscales suffisantes. La récente nomination de Jeffrey Zients au poste de Chief Performance Officer (Chef des services de l’analyse de performance) des Etats-Unis est une heureuse décision.

Deuxièmement, le gouvernement et le pouvoir législatif doivent accepter de supprimer ou de réduire sensiblement les dépenses électoralistes ; même si certains des projets subventionnés sont valides, le manque de transparence et le fait que trop de pouvoir reste dans les mains d’un député sont des faits troublants. Citizens Against Government Waste (Citoyens contre le gaspillage des deniers publics), organisme privé et non-partisan, a estimé dans son dernier rapport de l’année 2009 que les dépenses électoralistes se sont élevées à 19,6 milliards $ EU, en hausse par rapport aux 17,2 milliards $ EU de l’année précédente.

Troisièmement, le gouvernement doit investir dans l’éducation, les sciences, la santé et les services de loisir afin d’assurer une main-d’œuvre productive et une population éduquée. Tout citoyen apprécie un bon système scolaire local, une police efficace, et des services sociaux opérationnels. Quatrièmement, un processus progressif et équilibré de réglementation des secteurs vitaux est nécessaire pour égaliser les chances de tous les agents économiques et éviter les effets négatifs des risques systémiques.

Enfin, le code fiscal devrait être plus efficace et plus facile à comprendre pour que plus de recettes soient recueillies. Actuellement, on estime qu’il coûte au fisc américain entre 25 et 30 centimes pour chaque dollar derecettes fiscales collectées, sans compter les milliards dépensés par les citoyens dans leur planification fiscale. Nous avons un code d’imposition foncière simplifié dans nos villes, pourquoi n’en serait-il pas de même au niveau fédéral?

Obamanomics vs. Reaganomics – Which Can Save the Economy?

April 2, 2010 70 comments

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By Marquis Codjia

President Reagan in the Oval Office delivering his Tax Reduction televised address in July 1981 (Photo courtesy of the Reagan Library, Official government record)

In the 1980s, Ronald Reagan asserted emphatically that “government is not a solution to our problem,” but rather, “government is the problem.” Nowadays, many specialists revisit the soundness of such avowal in light of the mammoth government-engineered bailouts that questionably helped safeguard the global economic fabric.

Those experts are not alone. The current White House chief denizen, who uttered openly during the 2008 presidential campaign his admiration for Reagan’s political persona – much to the ire of some diehard Democrats – , has so far spearheaded policies overmuch adversative to Reaganomics.

Many Americans remember President Reagan for his debonair, articulate and Hollywoodian public posture; yet, the former leader had developed a sophistication in economic analysis that served him throughout the recession that hallmarked his presidency.

Faced with a dysfunctional economy at the onset of his mandate, President Reagan ingrained his policies in supply-side economics, advocating a quartet of measures that revolutionized America’s social dynamics and reignited its growth machine.

First, he proposed vast tax cuts on labor and capital to incentivize corporations and entrepreneurs to invest and innovate, whereas citizens, freshly cash awash due to increased savings, were heartened to spend. Next, deregulation in targeted economic sectors aimed at eschewing unnecessary costs to investors. Third, he steered a package of major budget cuts approximating – from 1981 onwards – a 5% reduction in government expenses (circa $150 billion today). Fourth, Reagan sought to tighten monetary policy to combat inflation.

The late president’s plan delivered mixed results.

Inflation experienced a spectacular fourfold decrease from 1980 to 1983 (13.2% vs. 3.2%), federal receipts grew higher than outlays (at an average rate of 8.2% vs. 7.1%), and the 16 million new jobs created helped shrink unemployment by 3 points (to 7.5% from a 1982 peak of 10.8%). Other accolades from the Cato Institute, a libertarian think thank, include a real median family income rise of $4,000 and a higher productivity.

This said, Reaganomics and its no holds-barred canons structurally devastated parts of America’s socio-economic fabric: fiscal cuts coupled with a surge in Cold War military spending created a yawning abyss in the nation’s finances (e.g.: large budget deficits, trade deficit expansion). In addition, some culpability can be attributed to the Republican leader vis-à-vis the 1987 stock market crash and the Savings and Loans crisis, merely because, at a minimum, both pandemonia occurred under his watch. In order to cover budget shortages, the administration then embarked on a borrowing spree that catapulted the national debt to $3 trillion from $700 billion, part of which (circa $125 billion) subsidized an S&L industry crippled by the failure of 747 thrifts.

The portmanteau Obamanomics – used to depict economic policies espoused by current U.S. President Barack Obama – is a new concept, which understandably needs more time to develop before a studious analysis can be conducted on its merits.

Clearly, the current administration – also faced with a chaotic economy – has so far adopted, or is envisaging, policies diametrically opposed to Reagan’s precepts: higher taxes, increased regulation, more spending, and a loose monetary policy.

President Obama’s plan to save banks was the correct initiative for two reasons: decrepitude in capital markets would have metastasized into a more costly, general chaos, and the fact that banks are now relatively stable attests to the program’s effectiveness, notwithstanding the remaining work to be accomplished in the bank bailout’s scheme.

Even if the current economic recovery plan will take a while to reach its desired goals, preliminary results so far are altogether mixed: banks are loath to lend, the mortgage sector is still lethargic, the lackluster private consumption is hampering corporate investments and the global economic productivity. The economy is gradually adding thousands of jobs but the unemployment rate still stands at 9.7%.

So, which of Reaganomics or Obamanomics can save the economy today?

The answer is none.

No economy policy ingrained in political partisanship can save the economy; to be efficient, authorities must use a combination of ideologies, extirpating the best areas of each and amalgamating them into a coherent plan deep-rooted in sound economics.

First, the government must balance its budget by reining in bureaucratic waste at the federal and state levels, seeking higher efficiency in its social programs and maintaining a tax base able to provide sufficient inflows. The recent nomination of Jeffrey Zients as U.S. Chief Performance Officer is a welcome decision.

Second, the government and the legislative branch must agree to suppress or significantly reduce pork-barrel spending; even if some of the projects subsidized are valid, the lack of transparency and the fact that too much power lies in the hands of one lawmaker are troubling. Citizens Against Government Waste, a private, nonpartisan watchdog, estimated in its latest report that 2009 pork-barrel spending amounted to $19.6 billion, up from $17.2 billion the previous year.

Third, the government must invest in education, sciences, health, and recreation services to assure a productive labor force and educated populace. Every citizen appreciates a good local school system, an efficient police, and functional social services. Fourth, a gradual and well-balanced regulatory framework for critical sectors is needed to level the playing field for all economic agents and eschew the negative effects of systemic risks.

Finally, the tax code should be more efficient and easier to understand so more revenues are collected. Currently, it is estimated that it costs the IRS between 25 and 30 cents for every tax dollar collected, without counting the billions spent by citizens in tax compliance and planning. We have a simplified property tax code in our cities; why can’t we engineer a similar scheme at the federal level?