The logic of these stimulus plans is Keynesian

With the digging of the recession, and the extent of the means implemented across the Atlantic to jump-start the economy, a consensus appears to form: it will need a second stimulus plan. The logic of these stimulus plans is Keynesian. When the State of revenue officers (companies, households), they spend, which creates in turn more revenue and of expenditure activity. It is the multiplier effect: in theory, every euro of public expenditure must lead to several euros extra activity. In practice, however, macroeconomists are far from unanimous on the existence of the Keynesian miracle. According to some estimates based on the past, history every euro of public expenditure creates GDP less than 1 euro. There is line losses.

The French response to this uncertainty is the stimulus investment. The idea is simple. Since it is not safe to restart the computer by directly stimulating the purchasing power, it might seem more sensible to support investment. Thus, publicly serve at least to increase long-term growth. France economic policy thus seeks to kill two birds with one stone: boost demand in the short term by investing for the future through the policy of major works (motorways), the protection of strategic industries (automotive), the grant of investment (extension of credit guarantees).

But, precisely because they are cut for this duplication, these devices may weigh lastingly on the ability of our country to find the path of growth. In a recession, some sectors suffer wave of bankruptcies and restructuring. In these cases, is a great temptation to seek to protect jobs and threatened businesses through subsidies to investment, employment, or even of tariff protection. But in addition to the necessary adjustments are sooner or later happen, public interventions in investment policy divert resources that companies could use to develop, to companies without a future, but high weight policy.

The "lost decade" of the Japanese economy provides a striking example of the perverse effects of this type of blindness. At the dawn of the 1990s, banks continued to lend to companies in bankruptcy, as this avoided them to recognize bad debts in their balance sheets. In doing so, the Japanese banking system, with the blessing of the authorities, has maintained an army of zombies, who mobilized capital and labour throughout the 1990s in sectors and companies without perspective. Private resources, healthy companies themselves are etiolated, perpetuating economic stagnation for almost ten years. The undead have therefore vampirisé the living by depriving them of resources (1). Closer to us, the experience of banking reforms of the 1980s in France shows that allowing banks to lend only to profitable businesses, rather than multiply the subsidized loans, has been a good way to promote employment and growth (2).

Of this analysis, we draw two lessons for the France of today. First, preserve our ability to grow in the medium term, to let the market operate painful restructuring. Stop maintaining a declining industry under infusion of public funds but rather speed up the transfer of capital and the men of our economy towards services: industrializing obsession of our politicians is harmful. Second, what ultimately the size of the Keynesian multiplier, direct public funds to households is very much preferable to boost investment. Indeed, the investment grant always leads to unprofitable businesses to invest more and to protect declining industries. Conversely, recovery by the consumer will help to limit the social case linked to the upcoming restructuring necessary. The Keynesian stimulus by consumption is probably not the miracle of the multiplication of the loaves but it will at least have the merit of avoid us the night of the living dead.