The election of Emmanuel Macron as President of France in May 2017 was a novel development in French political history that revolutionized the status quo. The young president’s promises to fundamentally transform France had many feeling hopeful and optimistic about the future. France’s economy was sluggish in 2016, with a high unemployment rate of 10.1 percent, with many hoping that a departure from the status quo might be France’s best chance at galvanizing its economy.

 

A year and a half later, it is safe to say that Macron has not disappointed. Macron’s unprecedented reforms, which his predecessors would likely have never dared to try and implement, are exactly what a struggling French economy needed.

 

There were two main problems with the French economy that Macron sought to address. The first is extremely high public spending. In 2016, government spending represented 56.57 percent of GDP. As a comparison, this number was just 35.42 percent in the United States and 38.99 percent in the United Kingdom. The French government dramatically overspending compared to other developed nations. Moreover, the French state was spending money it simply did not have, worsening the budget deficit.

 

The second problem is a very high unemployment rate, which stems from a stagnant labor market with extremely strict rules on working hours, hiring and firing workers. Luckily, Macron understands these two critical problems and is taking important steps to solve them.

 

Macron acted soon into its first term to address the first problem, that of overspending. In his first budget, Macron took steps to reduce the budget deficit to below 3 percent of GDP, the EU limit. For example, in a risky political move, despite having promised to increase military spending Macron cut military spending by €850 million. It was recently revealed that France’s budget deficit had fallen to 2.6 percent of GDP, the first time since 2007 that the deficit was under the EU’s limit.

 

Across the board, Macron’s government is reducing public spending through seemingly ubiquitous budget cuts. As an example, to great protest, Macron ended a program of state-assisted jobs. Then, in an address to both houses of parliament this past summer, Macron reaffirmed his plans to cut public spending. And, in August, French Prime Minister Edouard Philippe said that the Macron government would now target French welfare spending to combat the deficit problem.

 

Macron’s government has also effectively targeted the second major problem of the French economy, namely the high unemployment rate which exists as a result of a stagnant labor market. In sweeping reforms in the summer of 2017, Macron took many steps to loosen the labor market. He put more emphasis on in-house labor negotiations, meaning that workers and employers would now be able to negotiate labor agreements within their own firms instead of at a sector-level discussion. Moreover, he slashed red tape for firms with more than 50 employees. It used to be that once a firm reached its 50th employee, it would have to nominate workers’ representatives, and set up a works council and a health and safety committee. Macron’s plan combined these three groups into one, drastically lowering costs to firms. He also decided that a firm’s economic health can no longer be used as a reason to oppose the firing of workers, which it previously could. Macron even introduced a set scale for wrongful termination situations, meaning that the old process that could result in monumental payments is now gone.

 

These reforms have loosened the rules around hiring and firing, which was the main reason for the stagnant labor market. Of course, if a firm knows that should it hire someone, it will be extremely difficult to fire that person should they do a bad job, that firm will be much less likely to hire the person in the first place. By loosening the rules around hiring and firing, Macron is helping to galvanize the French economy by creating the conditions that will allow unemployment to decrease.

 

Macron’s reforms are paying off. French public spending has decreased. Business circles are happy with the multitude of reforms around the labor market. In the words of French telecoms billionaire Xavier Niel, Macron has “completely changed” France’s image. Macron’s reforms are undoubtedly addressing the problems at the core of the French economy.

 

The positive results of his pro-business actions are countless. German software company SAP has pledged to spend €2.5 billion in France over the next five years. Google will create 1,000 new jobs. Toyota will invest €300 million on a factory in France, adding 700 jobs along the way. A recent survey by Bain & Company and the US Chamber of Commerce found that 72 percent of US investors were optimistic about the prospects of the French economy, an increase from only 30 percent in 2016.

 

While protests against him are becoming commonplace and his approval ratings seem to be falling dramatically due to a perception in France by many that he is a ‘President of the Rich’, his reforms are clearly having positive effects for the French economy, from increased confidence to higher levels of investment. Macron will continue on this course, continuing to influence the French economy through a series of important reforms.

Out of the frying pan and into the fire.  Last month Russell Wasendorf, Sr. attempted to commit suicide via asphyxiation by using a hose to funnel the exhaust from his Chevy into the car. A Good Samaritan thwarted his attempt and saved his life.  He is currently in jail awaiting trail where he will be charged with stealing around $200 million dollars from his own clients for the past twenty years.

Within the financial world $200 million is not a particularly large amount of money.  A scandal of this magnitude, although terrible, would not normally ring many alarms, but following the Madoff Ponzi scheme and the collapse of MF Global, it has done so, and with good reason.  This outright theft, along with the more recent LIBOR fixing scandal, has, to a certain extent, confirmed the public fear that the financial industry cannot always be trusted to keep investors’ money safe. This fear is helping to fuel the current economic downturn as investors continue to lose faith and withdraw money from financial markets.  Although this doubt in the system is certainly justified and is clearly an important issue, these recent scandals also beg a more fundamental question:  Can regulators be trusted to regulate?

It is almost laughable how simply Wasendorf was able to fool U.S. regulators as he stole hundreds of millions of dollars through his futures firm Peregrine Financial Group.  The ultimate authority for regulating firms such as Peregrine resides with the U.S. Commodity Futures Trading Commission (CFTC), which, because of its limited resources, delegates most of the oversight, such as regular auditing, to the National Futures Association (NFA).  The NFA, an internal self-regulatory organization, had audited Peregrine three times since 2010 and failed to pick up on the fraud.  Even more shocking is the fact that Wasendorf was able to frustrate the NFA’s attempts to verify Peregrine’s bank statements simply by sending them forgeries.  Instead of picking up the phone or contacting the bank electronically, the NFA relied on written mail to reach Peregrine’s bank.  The only problem was that Wasendorf had provided his own P.O. box as the bank’s address.  Receiving these letters himself, Wasendorf was easily able to falsify records.  He wrote, “Using a combination of Photoshop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of nearly every document that came from the Bank.”  When the NFA finally gained enough sense to contact the bank for electronic records, they stumbled upon nearly twenty years of fraud.

Although it is clear that regulators at the CFTC and NFA cannot be blamed for this scandal, it is rather astounding just how incompetent they were at detecting it.  When this failure is seen in aggregate with the several other scandals around the financial world, doubts quickly begin to arise about nearly all regulators’ abilities to provide oversight.  They are clearly struggling to do their jobs effectively.  Blame, however, should not fall solely on their shoulders, for they are playing at a natural disadvantage, which can be seen if we consider the massive disparity in resources between the financial services industry and those organizations that regulate them.  The CFTC for example, which is one of the largest regulatory agencies in the United States, employs roughly 700 people and has a budget of about $200 million.  Goldman Sachs, on the other hand—a single bank that participates in the futures trading regulated by the CFTC—employs about 47 times as many people and has about 22 times as much spending money, with 33,000 workers and $ 4.4 billion in net income for 2011.  With this absurd discrepancy of resources in mind, it should come as no shock that regulators struggle to keep up with financial firms’ attempts to skirt regulations (both legally and illegally).

The problem is exacerbated by the fact that there is no clear solution.   Adding more resources does not seem to be a possible remedy, because of the government’s limited funds.  The U.S. cannot afford to simply throw money at this problem. Attempts to find and incentivize better regulators also run into problems because of the nature of the job.  In addition to being understaffed, regulators are also underpaid compared to those working in the financial sector. Considering this, it is not surprising that the financial industry attracts a much larger array of talented people who can do their work at a much higher level.  Even when people are at their jobs on these opposite sides of the industry, their incentives are vastly different.  A banker who exploits some sort of regulatory loophole or flat-out breaks the law stands to make millions of dollars, while a regulator who manages to do his or her work exceptionally well and stops the banker merely gets a “job well done.”

It seems obvious that regulators are struggling to do their job and provide the policing that the financial industry needs, even if it is not entirely their fault.  Although this may not be the main problem behind financial scandals, it is certainly present and fueling the flames of fraud.  If we wish to change the industry that has caused so much grief though its greed, changing the organizations that are meant to prevent this fraud may be a good place to start.

Zimbabwe 100 Trillion

The International Monetary Fund estimated that by January, Zimbabwe’s inflation rate had escalated to 150,000%. The Zimbabwean government has refused to release inflation figures in an effort to keep prices down since last June. That plan has failed as businesses have used inflation estimates to set prices.

The Zimbabwe Reserve Bank decided to increase the money supply to ease the cash crisis. Yet this will only worsen the problem. The Reserve Bank is considering issuing a new currency of a lower denomination. However, if Zimbabwe is unable to implement monetary reform along with the new currency, inflation will continue to spiral out of control.

Zimbabwe’s raging hyperinflation is a result
of a lack of revenue to cover expenditures.
The Zimbabwean government has been
unable to reduce spending, subsequently
racking up a very large fiscal deficit. A
government can finance its spending in three ways: by taxing the public, selling government bonds, or printing money.

Due to existing economic woes in Zimbabwe, it is not feasible for the government to raise more revenue by increasing taxes. Zimbabwe already has one of the highest tax rates in the world, as the average citizen is subjected to a 35% income tax. However, despite these high taxes, the Zimbabwean government provides very few social benefits for its people. Many people in Zimbabwe barely have enough money to afford basic necessities like transportation, food and rent, let alone fund their government’s fiscal expansionary policies.

Zimbabwe is unable to raise revenue through the sale of government bonds because there is no public demand for them, stemming from a lack of faith in the Zimbabwean government.

Contrarily, every year the U.S. government raises billions of dollars of revenue by selling bonds and securities to the public. The U.S. has established a reputation as a creditworthy institution, and has never defaulted on its debt obligations. Zimbabwe on the other hand, has been plagued with political unrest and financial insecurity. Investors are unwilling to risk their money in a precarious political environment in order to finance a government with questionable credit history. The Zimbabwean government is handicapped by their inability to raise revenue by issuing debt.

Unable to levy taxes or sell bonds, the Reserve Bank has resorted to printing money as a solution to their fiscal woes. The inflation rate has drastically increased from 3,700% in April of 2007 to 66,000% in December of 2007 to 150,000% in January of 2008. Zimbabwe used to be one of Africa’s most prosperous nations, however, poor monetary policy has destroyed the economy and unleashed hyperinflation.

The central bank’s loosening of monetary policy not only finances the fiscal and trade deficits, but also targets Zimbabwe’s past decade of negative GDP growth. In 2000, Zimbabwe’s president, Robert Mugabe, enacted land reform that severely hurt the country’s maize productions. The production of this staple crop, dropped by as much as 75% as a result of the reforms. This had a strong negative impact on rural incomes, exports, and food securities. Unemployment reached 80%, manufacturing fell 51% from 1997 to 2005, and exports declined by a half from 2001 to 2005. As a result, aggregate demand and the economy’s total output decreased significantly. The Reserve Bank’s policy theoretically could shift aggregate demand back to long run output. However, increasing money supply has only resulted in hyperinflation and an exacerbation of the Zimbabwe’s economic recession.

Historically, countries that have suffered from hyperinflation have resolved the problem by restoring faith in their currency and by enacting strict monetary reform. Zimbabwe must end its economic misrule by beginning to deal with its hyperinflation.