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During the crisis, bonuses continue

While Western economies experiencing its worst recession in 70 years and the States indebted to the tune of billions of euros to ensure the recovery, the banking sector, which is the cause of this disaster, has again become profitable in part.

More surprisingly, the banks pay bonuses to their employees the best paid, usually working in high risk activities at the origin of the crisis are poised to exceed record levels yet in 2007: they will be approximately 140 billion dollars U.S..

The economic crisis has nothing changed in a fundamental trend: the explosion of salaries in the financial sector, partly due to the bonuses.

A study showed that this tendency was a product of financial liberalization, and could not be fully explained by a change in the characteristics objective of workers in the financial sector, particularly by increasing their relative qualifications. A significant proportion (30 to 50%) of the explosion corresponds to a pure rent that these employees receive the rest of the economy. But

bonuses this year occur in such shock they to The Economist : even banks that are losing money paying them. The U.S. banking sector is, in fact, far from being out of the crisis: Many major players are still in deficit. In particular, 4 of 10 merchant banks of Wall Street bonuses have distributed the more important will not be profitable this year, including Citigroup and Bank of America.

And this is shocking The Economist: while shareholders are losing money, the best-paid employees receive bonuses, expected to reward their performance. In other words, whatever happens, there is or not performance bonuses are there.

Everything happens as if capitalism was walking on its head: the shareholders are losing money, partly because their companies pay substantial bonuses to employees not fully effective. And that is what The Economist is unbearable, raising the good question: why shareholders do not say anything?

This crazy situation where shareholders divest themselves to secure the lifestyle of traders, calls for responses "sociological" to this question. In this type of explanation, which gives Godechot Olivier version more sophisticated, there is simply a hold-up. Traders ownership of the assets of their bank (mathematical models, collaborative teams, etc..) And are able to create a favorable balance of power by threatening to leave with these assets.

This reminds us that the issue of economic inequality does not arise longer exclusively or even primarily, in terms of share of value added between capital and labor, but even within the work. Here, the huge economic inequalities that are created by opposing end them employees: employees with very high fees and others who can not make that kind of "hold up". This brings us back

mostly obvious: nothing fundamental has changed in the world of financial activities. It must indeed be naive to believe that we can stop a "hold-up with codes of good conduct and other proclamations solemn. In economics, ethics exists only when embodied in incentive structures, which are still completely lacking here.

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Sociological Reflections on the "Nobel Prize" of Economy

The "Nobel Prize" economy this year is an excellent vintage . It rewards the institutionalist school, which was dominant United States before the war, and who found, from the 1980s, a vibrant, thanks to the work of Williamson. Williamson's ideas, which are a development from those of Coase are the kind that are at once simple, obvious once that someone has written, but that better think a large part of reality.

They allowed the economy to truly open the "black box" of the company, giving a response to the question: why are there companies if the market is a place for optimal coordination? The answer is that getting to the market is sometimes more expensive than producing in a hierarchical organization, but the result of "transaction costs" involved the use of a contract with another player in a market . These costs include for example the risk that the contract is not executed, or that it is evil. If you produce yourself, these risks continue to exist. But then there are new costs associated with managing the organization's hierarchy. In the end, neither the firm nor the market is, in itself, to produce the optimal solution: it depends on what is to happen, and the situation, since this is what will determine what is the least expensive. Williamson's work was to clarify what kept the costs of appeal to the market, and therefore under what circumstances firms prefer to produce in-house.

But rather than pursuing, developing works of the winners, what of other have already fact, I develop some thoughts of a sociological nature, what it means to win a Nobel Prize. The "raw" This year has, indeed, as we shall see, a rich sociological significance.

Prices honorary citizen of a particular rite of passage. Their peculiarity is the sociologically limited number of people accessing it: it is this rarity which base their symbolic value.

Contrary to what some may believe, characteristic of a ceremonial rite, like any rite of passage, is not, essentially, to separate an "elite" of the mass of a population by the "leading economists" of all, numerous economists. Of course, this is an honorary award, and that's how we think. But sociologically, it does more: it tie members of a group that can potentially reach this price, even if it is very unlikely to succeed, those who do will never, under any circumstances. By doing this, it gives a greater symbolic value, not just those who win the prize, but to all those who do not win, but could in principle do so. It also gives them, in turn, an "essence" higher social, since it is their rite potentially accessible. Instead, what can not access are, simply because the price is, symbolically devalued. A rite honorary enhances not only the few individuals who access, but the entire group as these individuals belong, and devalues the individual sub-groups to which they do not belong.

Here, the reference group is that of scientific researchers, especially those working on human societies and their operation. The Nobel Prize in this group, is shared between a subpopulation "economists", because all members can potentially win, and, secondly, all other social scientists, who may never be. Some are "real" scientists, as their discipline is one of those who come with a Nobel Prize. The others are not entirely scientific, since they can not win the Nobel.

That's how we should understand the importance for economists that price: it allowed them to pass on the good side, symbolically valued, the rite of passage. We know, of course, that the "Nobel Prize" of economics is not a Nobel Prize, since it does not appear in the will of Alfred Nobel founder and is not awarded by the Academy Science of Sweden. But everyone forgets the delight of economists who do not like to be reminded, as it is in their social value. Instead, sociologists devote collectively, a true hatred for this award: the fact that they can not access it prohibits any recovery symbolic worst, it devalues them, since it emphasizes that they are not really of science-otherwise they would have a Nobel.

Here is the sociological significance of this year's award for the first time he has been awarded to a woman (another group previously excluded from the rite) and a political scientist. This raises the reflection, which is a form of sociology wild, Steven Levitt . Commenting on the fact that it is a political scientist who has obtained, he wrote:

The Short answer So Is That The Economics Profession IS going to hate the prize going to Ostrom Even More Than Republicans Hated the Peace prize going to Obama . Economists want this year To Be economists' prize (after all, economists are self-intéressée). This award Demonstrates, in a Way That No previous prize has, thats the prize Is Moving Toward a Nobel Prize in Social Science, Not A Nobel in economics.

The winner of this year changes, in fact, sociological significance of the prize: a political scientist has won, so it is that political science is as much a science as economics-and, therefore, this means that the economy has no higher value in social sciences. Things are of course more complex: a winner is not enough to change the nature of a rite of passage. Only can a lasting change in the population that accesses it. Moreover, any rite has a normative dimension: it forces to meet the requisites prescribed for the pass. Here are those of the economics mainstream, which Ostrom is indeed very close. Rather than introducing other social sciences in the fields of economic thinking, the Nobel can instead "economization" these social sciences, including enhancing the assumptions, methods and problems of the economy.

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France will she fail?

Yesterday, looking in my mailbox, and finding there for the first time, a promotional copy of Current Values , I told myself that I had committed a serious error in my life, to be included in the listing and potential clients of this magazine.

But my meditation on my life was brutally interrupted by reading the title of the cover (" government deficits: explosion ") and this assertion :

The warning is clear: without a drastic austerity budget, there is now a real risk of state failure.

I am immediately reassured: Since we've announced, the Apocalypse did not happen and I no doubt politically motivated inherent in this kind of talk.

But, on the other hand, is correct that the current crisis leads to a sharp increase in public debt. In only two quarters of 2009, public debt has increased 6 points of GDP, reaching 74%. It will probably be 77% at the end of the year, against 67% a year earlier. If one follows the latest IMF forecasts, the debt will reach the same 92.6% of GDP in 2014. Under these conditions, the French state will he go bankrupt?

The answer is: there is not any risk of this happening. With any luck, this increase in debt will occur even without pain.

A borrower goes bankrupt when no longer able to meet its commitments. However, the state has an important property as borrower, which distinguishes it from private borrowers: it can simply do not repay the interest on its debt and never the principal. It is indeed eternal, and nobody asked him to repay at some point all of its debt, lest he die without having paid. In fact, the French state has not repaid the principal for over 30 years. The true measure of the ability of the French state to meet its deadlines is constituted by the high interest payments as a proportion of revenue: there will bankrupt the day when the state can no longer finance its expenditure because part too important (but difficult to determine precisely) its revenue will rise in interest payments due.

It was very far at that time (2006-2008) of hysterical debate on public debt. At that time, the proportion of interest payments relative to government revenue was even lower in 20 years, just over 5% in 2006. Representing 2.6% of GDP.

The French government was far from bankruptcy, since it uses only 5.3% of its revenues to pay its creditors, or 2.6% of GDP. It is true that 2.6% of GDP were not allocated to build schools or hospitals, but we see immediately the weight certainly not negligible but in the end that these payments were limited influence on policy.

But what will he in 2014 when the debt will represent 92.6% of GDP? The answer is that we can not know exactly, since this will depend on the evolution of interest rate refinancing the state, which depends on the average interest rate it pays on its debt. The average interest rate on government debt in 2008 was 4.15%. Since interest rates on government securities have fallen sharply : they are the same well below 4% if the government borrows less than 20 years.

It is therefore reasonable to hypothesize that the state will pay on average about 4% interest on its debt. With this assumption, an immediate calculation shows that a 25 point increase in GDP of public debt will result in an increase of 1 percentage point of GDP in interest payments of debt (25 x 0.04).

In the end, the French state will not fit into the unknown prior to bankruptcy: the interest payments will be in proportion to GDP, only slightly higher its historical peak of the postwar period: 3.7% in 2014 against 3.6% in 1996. At the time, this represented 7.1% of revenue: not exactly the situation of a borrower about to go bankrupt, or even an unbearable burden for the prosecution.

Bankruptcy seems even less likely that since 1996, government revenue, in proportion to GDP, fell.

Between 2006 and 2008 alone, revenues fell by 1 percentage point of GDP: exactly what it will find in addition to paying interest in 2014.

But should the government increase the levies mandatory. Gordon Brown has done in the United Kingdom, by passing the top of the income tax from 40% to 50%. Obama is about to make the United States. For France, this increase is moderate after all: it would suffice to find the level prior to the election of N. Sarkozy. It is in this sense that the increase in public debt can be done with a bit of luck, without pain: as far as N. Sarkozy to reverse his tax shield, and as long as interest rates do not increase. First

fragility of the scenario: the evolution of rates. If they rise, the interest payments can become really important. If we assume a slightly less optimistic average rate of 4.5% instead of 4%, interest payments represent a much more significant revenue-although we are still far from bankruptcy.

But the real danger lies elsewhere: if N Sarkozy increases the tax burden, he will finish the TEPA, and the fundamental objective of most of the French right: tax cuts. Plus: this would be a serious political defeat for Sarkozy, who has identified his share to this decline. Yet it is exactly what the economic logic application that has always led to tax increases after an increase in debt due to exceptional circumstances.

It is therefore expected that any other route is chosen: the reduction of public spending, excluding interest payments. In calling for "drastic policy of fiscal austerity" is exactly what demand Current , whose readers are not ready to agree to pass the tax shield, even as it denies them havens. In the meantime, I'm left to hope that the magazine conducts a "drastic austerity policy its advertising budget "and I shall remove from its listings.