Friday, March 18, 2016

A tale of two French economists

Two French economists have become enormously famous and influetial in the recent past, Thomas Piketty and Jean Tirole. Piketty is the author of "Capital in the XXI Century", a best seller book explaining the empirical realities of huge inequalities, the trends that push them, and the policy proposals that could reverse them. Piketty is outspoken and has not been shy to make clear his political left-wing positions, for example first endorsing the current president François Hollande, and then criticizing him for not fulfilling his promises. It seems that now Piketty is busy promoting the idea of a primary election in the left to choose a common leftist candidate. Jean Tirole, the Nobel Prize in economics winner of last year, is very different from Piketty. Tirole does not intervene in party politics and is less prone to participate in the media, although the Nobel prize has made media participation more difficult to avoid for him. I have been told by a French colleague that Tirole, who was very well known and respected by academic economists but unknown by everybody else before the Nobel prize, is now quite unpopular in France, were he is criticized by the extreme left for promoting pro-market solutions. The fact is that I doubt that the right loves him much, because he is also in favour of curbing market power and the capture potential of large corporations. Piketty and Tirole agree on many things. For example, both are big federalists, being in favour of a truly integrated and democratic Europe. But recently they have taken different positions on occasion of the proposal of the French government to reform the labour market. This proposal has triggered street protests and huge divisions in the left. It tries to liberalize the labour market, making it more flexible with the objective of reducing unemployment. Piketty has opposed the reform and Tirole has endorsed it. The differences reflect a typical controversy when center-left governments face situations of high unemployment. We have experienced that in Spain in the past. In a way, both parts are right. Introducing flexibility in the labour market may reduce the bargaining power of workers and make many of them more vulnerable. But not reforming rigid labour markets in contexts of large unemployment does little to reduce it. Without being a specialist, I have the intuition that the solution must be to offer something for workers in exchange for accepting more flexibility: participation in the firms' boards, tax reforms, unemployment benefits reform...

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