
The plot against France - galactus
http://www.nytimes.com/2013/11/11/opinion/krugman-the-plot-against-france.html
======
balabaster
I don't understand why anyone gives a shit about S&Ps ratings... they're the
charlatans (along with Moody's and Fitch) who gave fuel to the whole economic
crisis in the first place. They continually endorse toxic financial
instruments that make the fat cats in the banks some of the richest people in
the world in return for what? Well, the rating agencies are paid by the very
companies they rate - anyone see a conflict of interest here? If they'd done
their jobs properly in the first place and given an objective rating to
collateralized debt, then it's entirely possible a large portion of the
collapse could have been avoided.

Not that I'm at all cynical (okay, you got me, I'm entirely cynical)... but
really:

1). You run a company whose ratings are provided for profit - paid for by the
companies that you rate, and you expect me to believe it's completely fair and
unbiased? Do you think I'm that naive or stupid?

2). You can't knowingly endorse toxic financial instruments in one breath
causing huge financial instability in financial markets all around the world
and expect me to believe anything you have to say after that. Are you stupid?

You might as well be saying:

"You should invest all your money in This Guy, Inc., he's a fantastic risk!
You shouldn't invest your money in the French, they're a terrible risk"

Small Print:

\- "This Guy, Inc." is a known thief, embezzler and money launderer, but he
pays us a tidy sum of a couple of billion dollars a year to look the other
way, so we give him a good rating.

\- We haven't found a nice way of making tidy profit off the French, so we'll
steer people towards other financial instruments that do bolster our profits.

(The characters in this story are purely fictitious. Any resemblance between
known thieves, embezzlers and money launderers and actual bankers is entirely
coincidental.)

~~~
smoorman1024
Although I do not disagree with the perverse incentives of ratings agencies,
you have to consider that certain funds are required to hold certain levels of
investment grade products. Ignoring the reason why they have to do this, if
the rating changes they might be required to invest elsewhere. This is why
people DO care about S&P ratings.

~~~
nhaehnle
Right.

The question is, where do we get reliable ratings of the "safety" of
investment products without the conflict of interest and the political biases
of rating companies? It seems very difficult to impossible.

An even more out-of-the-box way to approach the problem is to ask why funds
with such investment grade requirements are so important in the first place.
In part it is because the rich park their money there, and public discourse is
overwhelmingly determined by what the rich (edit: make it the top quintile in
terms of income or wealth, perhaps) care about.

The other part is that retirement is largely organized privately via funds. I
am increasingly of the opinion that that is a horrible idea.

Note that it is still a somewhat nuanced position. Of course, everybody should
have the right to invest their savings into whatever they like. However, the
normative default ought to be that a comfortable retirement can come out of a
direct distribution system financed by taxes.

In the end, the real resources consumed by retirees come from the currently
working population anyway. On that level, it does not matter _how_ the
necessary funds flow to the retirees.

However, there is a big difference in stability between an intransparent
system of privately run funds based on volatile financial markets vs. a stable
and transparent system of direct, tax-funded distribution.

~~~
smoorman1024
"However, the normative default ought to be that a comfortable retirement can
come out of a direct distribution system financed by taxes."

There's two problems with this idea.

First, you can only get returns for this direct distribution if wages increase
or population increases. If I expect my retirement savings to grow by X% in
order to finance my retirement and everyone is always paying the same
percentage of their wages into the retirement account my retirement is only
feasible if there are more workers that pay the same fixed percent or if the
wages of the workers increase. Neither are a guarantee.

Second, if my savings (or capital) are not being allocated in the market to
efficient uses (through picking stocks or funds that I think will grow) then
the market loses some of its predictive power. This process is partially
responsible for what enables good companies to grow and bad companies to fail.
In effect, we trust the managers at the big mutual funds to allocate our
capital to the good companies (and sovereign debt) and away from the bad
companies (and bad sovereign debt).

The second point just goes full circle as to why Mutual Funds are required to
hold investment grade products rated by the big Credit Rating Agencies.

One related point as to why the incentives of the big credit ratings agencies
are the way they are. Clearly, if the investor, and not the issuer, was the
one paying the rating agency then the rating agency would have an incentive to
give the best possible ratings. Its a matter of only releasing your ratings
information to investors that have paid for it. This is currently impossible
because there are millions of investors and only a handful of issuers. How are
you suppose to stop investors that already know the rating from giving it to
other investors who have not paid.

Perhaps one possible solution is to have the investor be able select a ratings
agency to use along with a fund when allocating savings. In this scenario you
know that a percentage of your savings are going to be used to pay a ratings
agency for their information, but the investor got a chance to chose who that
ratings agency is possibly decreasing the revenue of the bad agencies and
increasing revenue of the trusted agencies.

In my opinion the solution is almost always more consumer choice.

~~~
nhaehnle
It is doubtful that your second point really stands against what I wrote.
After all, retirement funds add at least one layer of indirection between the
person who ultimately owns something (in this case, the person saving for
retirement) and the economic decisions being made.

That is, retirement funds dilute responsibility.

If you wanted to analyse this whole issue seriously, you'd have to consider
two separate effects: (a) private retirement funds as the normative default
creates a glut of capital and (b) private retirement funds allocate their
money with rather little personal involvement and responsibility. [1]

As to the first point, things are more clear-cut. Yes, in a direct
distribution system your pension depends on the future state of the economy.
But so does your pension if you have retirement savings! After all, where does
the growth of X% that you speak of come from?

Ultimately, no matter what the system, your pension has to come from
_somewhere_. The fact that this somewhere is obscured by a retirement funds
system is not a point in its favour - quite the opposite, actually.
Transparent systems are always preferable.

[1] Yes, fund managers often are paid somewhat in relation to the success of
the fund. Two problems with this: This incentive tends to focus on the short
term, which is opposed to the interests of the future pensioners, and fund
managers have more of an incentive to increase their volume rather than
increase the quality with which they manage that volume (just like real estate
brokers, with a nod to Freakonomics).

------
beedogs
If these tax-less spend-less austerity morons were right about their ideology,
you'd think it might have worked once in a while. But it never has, nor will
it ever. Instead they've taken to punishing the nations that prove them wrong.
Same thing is going on now in Australia.

~~~
noonespecial
I suspect austerity does work but has an inflection point. It can
(theoretically) be used to cut outright government waste.

On a personal level, you might stop paying for your cable TV when money gets
tight and have it make you better off. Not paying for your car and finding
yourself unable to get to work would make you worse off despite the "savings".

The trouble with politics and austerity is they always seem to end up missing
the car payments and keeping the cable on.

~~~
api
If Austerity cut _waste_ , it would probably work. The problem is that in
government waste usually stems from bureaucratic calcification and corruption.
Calcified and corrupt bureaucracies are highly resistant to change and have
the system "wired" to defeat it, so they don't generally get hit much.
Austerity's cuts fall disproportionately upon social safety nets and
productive activities, hence the result.

I've been of the impression for a while that government waste and corruption
grows without bound until it destroys the host, resulting in a revolution or
some other kind of "reboot," and then repeat. There appears to be no way of
actually cutting it without setting fire to the entire thing. Few things in
nature are as tenacious as a parasite.

~~~
rhizome
See:
[http://en.wikipedia.org/wiki/Iron_law_of_oligarchy](http://en.wikipedia.org/wiki/Iron_law_of_oligarchy)

------
smoorman1024
Although sovereign credit ratings by the big Credit Rating Agencies do have a
small impact on borrowing cost, their ratings should still be taken with a
grain of salt.

Take a look at this study by the New York Fed.

[http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf](http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf)

In particular on page 10 table 8 you can see the additional impact that a
credit rating upgrade or downgrade has on borrowing cost. You could also read
throughout the paper and in the conclusion that a lot of what determines a
sovereign credit rating is correlated with publicly available macro indicators
(i.e. the market was already moving in that direction anyways). Take a look at
page 9 chart 2 to see the direction that spreads are moving before an after a
ratings announcement.

My point is that Ratings agencies don't swing a huge sledgehammer; its more
like a small mallet. The author of the article is right you should be
skeptical of the incentives behind these ratings decisions but you also
shouldn't fear them.

------
humanrebar
Leave this kind of political rant for /r/politics please.

If someone wants to say something interesting about the downgrade of France,
some actual analysis combined with numbers and graphs would be much more
welcome than a linkbait title based on a column full of caricatures of
political opponents.

~~~
biehl
Did you not read the article? It has plenty of relevant numbers and relevant
comparisons.

~~~
humanrebar
I read the column (it's not factual enough to be an article). It has numbers,
but it reads like the numbers follow the conclusion, not the other way around.
Krugman ignores some very sophisticated discussions to be had on many issues.

For example, will the aging population in developed countries affect their
medium-term ability to repay their debts? Krugman doesn't say anything on this
topic other than to say the problem isn't unique to France. Graphs and numbers
on how aging affects productivity is very germane but absent in his analysis.

I actually don't blame Krugman here. Let's be honest, in this article, Krugman
is a political columnist. He basically admits that this is a political rant in
his second paragraph. And the thesis of the column is that some people did
something he disagrees with so they must be bad people with bad motives.

I just don't like that this was posted and upvoted here. I like when
HackerNews has better content than this. I can read this sort of thing in
/r/politics, The Huffington Post, or The New York Times. I come to HackerNews
for tech, startup, futurism, science news, etc. Any political posts should at
least have a tech or entrepreneurship bent and be based in rational argument,
not political one-upsmanship.

~~~
biehl
Sorry to be pedantic, but your example doesn't support your claim (of not
actual analysis, too little numbers and graphs, not rational).

The relevant point of bringing up ageing is that this is an area that is often
brought up as a medium/long term financial sustainability problem, but one for
which France has better stats (b/c of birthrate) than most countries of
relevant comparison - however Krugman feels that this point is ignored by
"fiscal scolds" (certainly true for the two articles he mentions).

~~~
humanrebar
To be even more pedantic, saying France is not as bad as other countries is
hardly a point in favor of France's medium-term growth prospects.

I don't want to give a point-by-point rebuttal. I just find the whole column
facile, argumentative, and not befitting HackerNews. I'd rather not be facile
and argumentative in expressing that opinion.

The responses I've been getting here have been arguing or reiterating
Krugman's points, not convincing me that it's good content for HackerNews.

Again, there are many other aggregators more suitable for this sort of column.

~~~
biehl
It is. It is a point in favor - relative to countries of relevant comparison.
Which is relevant since credit ratings and investment advice is always
relative.

And why do I think that the original post is relevant to HN - besides being
interesting, well argued and factual? Because of this:
[http://mjg59.dreamwidth.org/28232.html](http://mjg59.dreamwidth.org/28232.html)

------
mathieuh
Austerity: when the state breaks your legs and gets really stingy with the
crutches.

------
BenderV
The article just say that S&P punish France rating for their political choice
without proof of it's economic impact.

But, for what is worth : richs are leaving the country, young educated dream
to leave, less educated want to work for the gouvernement, tv, radio,
newspapers talk about gouvernement. And gouvernement only create new taxes and
stupid debate (See leonarda...)

People are all about gouvernement spending, without a care for the debt.

It's not signs of a bright future...

[disclaimer : I'm French]

------
jypepin
Disclaimer: I am French, live now in SF because the rent price and everything
else, life is better here. I wish I could say this post is 100% true, but here
my thoughts about some invalid points;

France is not only "experiencing economic difficulties". France has never
experienced such difficulties. I'm not talking numbers, S&P ratings, or else,
but as the population's feeling, buying power and general happiness.

I think that something was forgotten here, and it's the environment in which
you cut spendings/raise taxes. Cutting spendings in the USA, where the
policies are already ultra-capitalistic and spendings and small, it might be
bad - In a country like France, with a left tendency (even when right is
governing, it's way more socialist than the USA), cutting spendings sometimes
doesn't hurt - and it's hard to justify more spendings.

When Sarkozy (right) was governing and the crisis started, he adopted a "cut
spendings" policy, as criticized so much in this article, and well, it was
obviously not welcomed by the people, but it allowed the country to get
through the crises better than most other european countries. A lot of things
seemed really bad and implemented, mostly because of the newspapers being
biased and wanting to sell. e.g. a big scandal when he raised the age limit
for retirement. It was only for one or two years on average, and a lot of
"dangerous" and "hard" jobs categories were not touched. There were simply no
more money in the bank, and paying was just impossible unless raising debt and
printing money. No thanks. And when you compare, the retirement system in
France was the more generous in Europe, with average retirement age often
lower of 5+ years. This is just an example amongst others.

Now Hollande is governing (left). For the quick background, he is the complete
opposite of Sarkozy. Sarkozy was the "bling bling" president, loving America
and capitalism, etc. Hollande said on television he hates rich people, and
does everything to be the poor class, normal, president. Robin Hood in a
sense. Higher taxes (75% for one million revenue), more taxes if your net
worth is high (even if no income), to the point that every rich known
personality from France (actors, businessmen, etc.) are leaving and getting
other nationalities, to not have to pay those taxes, because too high.

When you are in your 20s, and get out of school a Master, or 2, which is the
norm now if you want to be able to hope to find a job, there is an all-time
high unemployment rate. Opportunities are rare, etc.

And now, Hollande is the less-appreciated president of all time for France.
His popularity was the lowest a president ever had after only a few months of
presidency.

So, I am no politics analyst, or whatever, but this is a feeling as a person
from France, seeing my country getting worse and worse because everything done
is against entrepreneurship and lowering workers motivations. Seeing all my
fellow french moving to the US, Canada, Argentina, Asia, and after only a few
weeks, being so glad to call those places home, and saying they would never go
back to France, because anywhere they are, it's so much better.

I'm not saying we should always cut taxes and never spend more, but this
article misses a lot of point and is not really objective - "France’s
remarkable health care system, which delivers high quality at low cost"\- Yes
it's remarkable, but it costs A LOT.

Just my 2cents :)

~~~
grey-area
Completely agree with your other points, but on healthcare I would note:

 _Yes it 's remarkable, but it costs A LOT._

It still costs far less than the equivalent expenditure per capita in the US
on healthcare. [1]

[1]
[https://en.wikipedia.org/wiki/List_of_countries_by_total_hea...](https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_\(PPP\)_per_capita)

~~~
jypepin
Oh, that's an interesting point!

Does this number includes public AND private? How is it calculated?

In France there is basic healthcare, which is really good and free for
everyone (free as in taxes!) and then a lot of people have additional private
healthcare -

I wonder if this number is included, because for what I remember, additional
healthcare in France is about the same price as healthcare in the USA. Add to
it the price of the public healthcare, which I assume is higher than USA,
simply because more services, and the logic is, the overall is more expensive?

~~~
scarmig
It does include both private and public. You'd have to dig into the different
reports to figure out exact methodologies (which I'm too lazy to do right
now), but most reports converge on the USA being the country that spends the
most on healthcare, both on a per capita basis (which is less interesting,
we're richer than most other countries so we should spend more) but also on a
% GDP basis. And we win by a large margin on that metric, despite getting
pretty mediocre bang for buck.

Various theories explain this: inefficiencies, the USA subsidizing research
for the rest of the world, etc. Really they're two sides of the same coin--
those inefficiencies line the pockets of various medical-related corporations,
some of which ends up going into research.

~~~
jypepin
Oh I see, thanks for the details!

------
copx
If S&P had an agenda against high taxes and extensive welfare states they
would downgrade the Scandinavians first. The vikings easily beat France in
those categories yet they all have triple-A ratings.

These ratings are supposed to indicate "the capacity to meet financial
commitments". I have read articles fearing a French collapse even in left-
liberal newspapers here in Germany. Meanwhile nobody worries about Sweden or
Denmark not being able to pay their bills.

------
TsiCClawOfLight
Americans should read this.

------
mgleason_3
Anecdotes, anecdotes, anecdotes - they don't prove anything (remember
statistics 101?). It's a sleazy political tactic, a cheap plot twist, a joke.
The whole article is one poorly supported anecdote: France.

These articles and comments are like watching a Monte Python Witch lynching.
The mob agrees - tax and spends the way to go. "Ooh, no it's the rich they're
the ones." Mob: "Yea, it's the richies fault. Burn them!". "Wait, wait, it's
the poor - they're not working." Mob: "Burn them!"

If we're just going to support "our guys" "Democrats" or the "Republicans". Or
are we going to have some actual discourse?

If it's just "our guys" then "Hey if a little's good, a lot is better!" So,
let's take these good ideas to the limit!!! Why not cut government completely?
Ooh, that might be dangerous - imagine mayhem as we start fighting amongst
ourselves to protect our property or as our defenseless borders are attached.
We might end up being run by a repressive communist regime.

OK, forget that. Let's go the other way - let's tax income at 100% and let the
government spend it all! Hmm, it's hard to imagine why anyone would bother to
work in that situation, could millions end up desperately poor like in Russia?
But OK, let's keep going... Do we like the way the government spends money?
That's an awful lot of power in very few hands. Some of it will go for good
(programs for the poor). But some of it's going to end up in places where it
harms the poor - i.e. the war on Drugs where police in Texas are using
forfeiture laws to take property (like cars) from the poor. And, if you clench
your butt at a traffic stop, O_O, yikes, well...

Hmm, not good - course both are pure anecdotes. In reality, we're gonna be
somewhere in between. And that's the rub isn't it? Because I suspect it
actually depends. There are times when either can help and times when either
can hurt. Right now, we're running up an ungodly deficit, which might be OK,
if it seemed like all that spending was actually helping. But it doesn't feel
like it is.

Personally, I don't like where the country is today. We work way to hard,
there are too few jobs and I'm so disappointed in Obama. I truly believed he
was going to try to make things better, more transparent more fair. Instead,
it feels like he's laying the foundation of a massive federal spy state. Where
the only good job will government ones and you'll only get those by owing
someone a huge favor. It all feels very sleazy to me.

