As the FT noted in an editorial last night, when discussing the riots in France at the weekend:
One reason the [French] government has struggled to defuse the high school protests, which now threaten to swell into something more generalised, is they have no money to throw at the problem — the traditional response to social grievances.
Macron found some €11bn in giveaways to defuse the Yellow Vests protests of 2018-19. This time the coffers are truly empty. Bond markets are piling pressure on Paris as investors fret about the lack of an agreed path to debt stabilisation. The government intends to make €43bn in spending cuts and tax rises in next year's budget. Any attempt to spend its way out of trouble could rebound with a renewed debt sell-off and higher borrowing costs.
This analysis is framed in the way that almost everything I am reading about the crisis in France is. The suggestion almost universally made is that the people of France want a level of government services and activity that conflicts with the wishes of financial markets, which are withdrawing their funding of the French government as a consequence, leaving it with no choice but to impose the austerity that finance is demanding.
The conflict is, then, in the opinion of all such authors, very straightforward. It is between the interests of financial capital and those of people. Call it, in plain terms, class warfare as a result, because that is what it is. That the FT does not put it that way does not mean it is not. They just are not keen to be seen as the oppressor, although they very clearly are.
This does then require that I ask what the timeline and narrative of this conflict that is now being played out in plain sight is? I suggest, though I may refine this in due course, that it is as follows.
In 1947, Friedrich Hayek and Milton Friedman were terrified of the rise of social democracy and the threat it posed to returns on capital and the society they wished to preserve from the pre-war era, and they created the Mont Pelerin Society to promote neoliberalism.
From the 1950s onward, the society secured powerful backing, and the Atlas Network of linked think tanks was created to promote it. In the UK, the Institute of Economic Affairs led the charge, and still does.
Nobel Prizes for figures like Milton Friedman and James Buchanan lent respectability to this cause.
Margaret Thatcher and Ronald Reagan became the first leading political exponents of neoliberalism and secured power in 1979 and 1980 respectively. Their objective was quite simple. They sought to crush working-class power, expressed through the trade union movement, treating the consequent destruction of their countries' manufacturing capacity as collateral damage. Their aim was to increase the returns to capital, and they secured this by promoting deregulation to enhance the power of financial capital, giving it the right to roam freely across the planet in search of unearned income derived from the extraction of rewards earned by the effort of others.
The promotion of market supremacy led to the idea that markets priced accurately, ignoring, when suggesting this, the presence of market externalities such as pollution that leads to climate change, and the fact that not everyone participates in market exchanges on an equal footing, contrary to the assumptions of neoliberal theory. Mispricing and inequality were therefore baked into this theory despite its denial.
The demand that government get out of the way of markets became normalised, not least through the Washington Consensus promoted by the World Bank and the International Monetary Fund, which spread this idea around the world.
Everywhere, this led to demands for privatisation, reduced regulation, lower taxation, especially on the wealthy, and most particularly a smaller state, to be achieved by reductions in the size of the social safety net that had been created in the post-war era to reduce inequality, to protect the vulnerable, and to prevent harm created by market volatility.
The focus on short-term market returns reduced long-term investment. The focus was almost entirely on short-term financial returns, with speculative gains, or even anticipated accounting of those gains, given higher priority than the actual production of tangible products and services that met people's needs.
The result was reduced investment in tangible economic activity in many countries.
At the same time, a rapidly widening disconnect was created between savings and investment, with it becoming normal for savings to be used for entirely speculative activities, almost unrelated to any actual return generated by meeting genuine economic need amongst people, meaning that almost none of the financial wealth being created by the financial services industry was actually devoted to the creation of genuine economic activity.
The consequence has been states with very large amounts of supposed financial wealth, concentrated in the hands of ever fewer and ever-ageing people, with access to this supposed wealth being denied to all but those who might inherit it because the tangible property on which these claims rest, such as housing, has been priced as a consequence of speculation, beyond the reach of most people on wages now paid within neoliberal economies.
We have therefore reached a point where the social divide created by neoliberalism has become too stark to maintain, and the fractures it has created are too deep to gloss over any longer.
At the same time, continuing demands from supposedly rational financial markets for returns from economies they do not serve but seek to dominate have made these divisions so apparent that the only remaining option for many is to reject them.
This is the moment that we are living in. The stress we are experiencing is the direct and inevitable consequence of the divisions that neoliberal economic and political policy was intended to create by reconfiguring society around a division between those who had claims upon capital and those who had not, which created a simultaneous division between those who might enjoy economic security and those who would inevitably be vulnerable, or be in the precariat, as Guy Standing described it.
The precariat have now had enough. We are seeing the signs in France, Italy, Spain, Albania and elsewhere, and the stress will only spread.
What is the required response?
Courageous government standing up to markets is one of them, and in the UK that test is going to arrive very soon, over Thames Water and whether financiers, or the government, will decide whether millions of people, including the population of London, should have their right to access to water determined by government or the vulture creditors of a failed privatisation. Everywhere, the challenge will be between financial markets and people's real needs. Needs must win, and people will refuse any other outcome.
At the same time, the need to release capital to reprioritise the creation of sustainable wealth is the real issue of the moment. As the structures of neoliberalism begin to fail, which will inevitably happen with an AI crash, the consequent crash in secondary financial markets, including hedge funds and private equity, and the resulting failure of the banking system for the second time in less than two decades as a consequence of reckless lending, with the need for government bailouts, the question will this time arise as to what can replace this deeply corrupt political philosophy.
The answer lies in two places. One is the awakening to the state's capacity to create money to meet need. This reality, and the liberation from financial markets it provides, will transform the state's role in society.
At the same time, the creation of new forms of socially backed capital for investment in the infrastructure of society will create the work, the underpinnings of prosperity, and the dreamed-of future for people, which can be achieved when the savings of millions, and across the planet billions, of ordinary people are redirected from use by those whose sole goal has been financial speculation into the creation of economic infrastructure for the delivery of sustainable living that meets the needs of all people so that they might thrive. Simple changes to how tax relief on savings works, which directs most saved funds in most countries, can create this outcome.
We are at a pivotal moment. Neoliberalism is failing. But there is an alternative. If we truly understand money, the role of government, how inflation is actually controlled, how resources should really be managed and how savings and investment can be reconnected in a way that creates positive economic and social outcomes, we can build a new society out of the wreckage of neoliberalism which has the possibility of delivering well-being.
That is the timeline that I believe in and the end of the story that I think is possible.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
The French stock market reached its maximum value in August. So everything is fine according to market fundamentalism. All the contradictory data must be wrong! France has nuclear energy and is energy self sufficient. It should be immune to energy shocks. Or perhaps everything said by the people is completely wrong.
If only this was the government’s view.
Clear analysis and prescription.
[…] is, however, a bigger consideration to address as well. As I noted elsewhere this morning, protests in France and elsewhere show that people are running out of tolerance for financial […]
I am entirely with you in this aim but inevitably this will also require a reorganisation of the political structured that govern us. The problem is not just the prevailing economic thinking but the capture of government by those who benefit.
PR is certainly preferable to FPTP but is really a sticking plaster on a wound that needs surgery. Without being prescriptive we do need a way of making decisions that both adhere to agreed fundamental principles and have the backing of the people affected. The idea of the ‘Great Unwashed’ who are incapable of understanding the issues must be washed away.
Because France is a (founder-member) victim of the Euro and the ECB, I’m feeling ill equpped to understand the full argument here. I assume this is a post focusing (powerfully) on “gov’t v bond markets” rather than “household analogy/tax v spend” so the Euro/ECB are not crucial to the argument? But it seemed odd not to mention the Euro at all – if only to help the kindergarten students like me or to deflect potential critics.
This question arises mostly because of my ignorance!
You are right that the euro matters, and I should have made that clearer.
However, there is an important distinction to make. France, like every eurozone country, has its own central bank. When the French government spends, euros are created through the banking system. They do not have to be supplied by the ECB in advance. France also retains substantial control over its taxation.
The problem is that France does not control the rules governing these operations. Those rules are imposed through the eurozone’s institutional arrangements, including its fiscal rules and the ECB’s monetary policy framework.
That is what makes the euro so restrictive. France has the operational capacity to spend euros into existence, but its freedom to use that capacity is constrained by rules it cannot change unilaterally.
This is directly relevant to my argument about bond markets. The power those markets exercise over France is greatly increased by the institutional framework within which its government operates.
So the euro is not a separate issue. It is an important part of explaining why financial markets have acquired so much influence over French economic policy.
And your question is anything but ignorant. It identifies a distinction that is fundamental to understanding the problem.
Richard,
You’ve written a neoliberal obituary for the one country that never adopted neoliberalism. France is no small state. Public spending is set to fall only from 57.1% to 56.9% of GDP, among Europe’s highest. Its social security system outweighs that of other European countries. If Thatcher and Hayek won, nobody told Paris.
The bond market isn’t waging class war either. Even on your own MMT terms, France is the exception that proves the rule. Kelton and Mitchell are both clear that eurozone members are currency users, not issuers. Only the ECB can monetise, and it answers to Frankfurt, not the Élysée. With debt at 117.5% of GDP in the first quarter of 2026, Paris borrows in a currency it cannot print. That’s exactly where MMT says lenders decide.
Where a state can print, MMT says the real limit is inflation. Britain hit 11.1% in 2022, and that inflation hit hardest the very precariat you champion. Monetisation doesn’t end austerity. It moves the cost from the budget to the weekly shop.
Finally those “speculators” are, very largely, the pension and insurance savings of ordinary people. Pushing those savings into state-chosen projects through tax relief isn’t liberation. It’s financial repression, and the precariat would pay for it in their retirement.
You appear to have confused neoliberalism with the size of the state. They are not the same thing. Neoliberalism concerns who exercises economic power, whose interests governments prioritise, and the extent to which markets are allowed to dictate public policy. France’s level of public spending does not settle that question.
Your argument about the euro actually reinforces mine. France has surrendered monetary sovereignty to institutions that prioritise financial discipline over democratic economic choice. That is a political arrangement, not an unavoidable economic necessity.
Your claim about inflation is equally misleading. Britain’s inflation in 2022 was driven substantially by energy, food and other supply shocks. Suggesting that it demonstrates the dangers of government money creation is simply wrong.
And describing proposals to encourage pension savings to finance productive investment as financial repression ignores the fact that existing tax reliefs already influence where savings go.
You have assembled a collection of familiar neoliberal arguments, but you have not addressed the central issue: why should the demands of financial markets take precedence over the needs of people?
That is the question my argument raises. Your response avoids it.
How does being in the Euro affect France’s ability to create money?
Not as much as people think.
It has a central bank.
It creates euros – the ECB does not, because it cannot spend them into existence.
BUT the ECB tries to limit the rpocess. The fiscal rules are enforced.
Would that apply to Scotland if it were to join the euro on independence? Sorry to go off at a tangent.
Yes
Scotland must never join the euro
From Bill Blain this morning: –
“The potential British rioters will either be crazed, wild-eyed, flag waving supporters of Palestine – according to the Torygraph, or crazed, wild-eyed, balaclava wearing supporters of Tommy Robinson, according to the Gruniad. But neither the Guardian nor the Telegraph is talking about how Russia stands to benefit.
Folk will be looking for reasons and (inevitably) politicians to blame. They will jump towards whatever conclusions they feel most likely – which is why disruptive fake news and media operations out of Russia will be revelling in opportunities to sow further doubts and ferment disunity.
In coming days expect lots of stories about how its immigrants, Islamic revolutionaries, black-balaclava thugs, corrupt police, corrupt politicians… And it will all be very calculated and deliberate. The aim is to spread discord and instability by getting us to doubt everything about how stable we think our society is – and the message will be falling on very fertile ears.
The instability, doubts, mistrust and sense of betrayal across European cities is very real – the Russian fake news machine has been feeding it drip by drip for decades. Some of it is real – where a Reform local politician is caught spouting racist hatred, or a Palestinian activist justifies rape, or maybe just a foolish politician saying Zionism is a racist crime. The trick behind believable propaganda and Maskirovka (the Russian art of distraction and obscuration) is to make people see what you want to them to see and hide it all in plain sight. Lob in a story or two about Sharia Law in Inner Cities, how anti-immigrant thugs have been attacking lifeboat crews, how Palestinian activists planned to poison a synagogue…”
Hmm…a worrying autumn and the rain has now arrived, too.
2027 looks worse…
Brilliant synopsis of the history since 1945<p>
‘We are at a pivotal moment. Neoliberalism is failing. But there is an alternative.'<p>
But maybe you could have said more on not only the ideological capture of politics but also on the physical/monetary capture – where politics itself is embedded within and financed by private interests – so there is little left of participatory ‘member-association’ political parties, which might be open to pivot in the direction which might save us<p>
There is also the neoliberal capture of the BBC and other supposed independent public service broadcasters – so the understanding of what has been going on – such as Richard provides is supressed<p>
But Richard this ‘pivotal moment’ in France looks very like pivoting in the direction of the ultra right – Le Pen. The ‘centrists’ have accused the ‘ultra left’ of being behind the recent rioters and looters – even though it is Le Pen who benefits.<p>
It really is scary
Could we avoid using, or repeating the term “ultra left” when referring to the movement which is growing and opposing Le Pen and the RN? The reason I say this, is because it has this ‘media’ negative connotation and the fact that, effectively, not only are they “your friends”, but also currently your front line facing the wrath of a Neoliberal government’s repression. They are working on the humongous efford to lead people towards democratically and peacefully (!!) engaging with the process, supported by their programme: this includes the ‘reshaping’ of The State (as the 6th French Republic in this case) aiming to reverse the Neoliberal deliberate strategy of which deficits and debts are an inherent part. This is what La France Insoumise with their current Leader Melenchon are working on days in days out. They are working on a massive institutional project of change to dismantle, in the French context which has its particularities, the methodical impoverishment of the State, systematically followed by previous governments, driving it into deficit, and to leave it ‘prey’ deliberately to what they wanted to be an open door to a surge in “the market”. 166 Billions of debt, Mr Melenchon explained in a Press Conference has been “exclusively created by the way the concentrated capital of our country has escaped taxation, escaped all their obligations and has ultimately only served to replenish shareholders, speculation….”. Redirecting capital, the circulation of capital, writing off a large chunk of this debt, to support the pilars of the economy, investing in productive resources, people, labour / knowledge, environmental soundness etc. When I listen sometimes, I read the same here. I don’t think you are so far away from being “ultra-left” yourselves if we look at it this way. In which case, embrace it! (I am smiling)
I agree with you about the term ‘ultra\-left’\. It is frequently used to marginalise people whose proposals are actually about restoring democratic accountability, protecting public services and challenging the excessive power of wealth\. I am happy to avoid it\.
I also recognise that Mélenchon and La France Insoumise are attempting something much more substantial than simply opposing the far right\. They are challenging the economic and institutional arrangements that have allowed neoliberalism to dominate French politics\.
There are certainly significant similarities between their thinking and mine, particularly concerning taxation, investment, public services and democratic control of the economy\.
I would, however, prefer to describe these ideas by what they seek to achieve rather than by labels imposed upon them\.
My objective is a democratic economy organised around meeting people’s needs rather than maximising financial returns\. If others wish to call that radical, I have no objection\.
And I agree that those seeking peaceful, democratic change in France deserve to have their arguments taken seriously\.
I am currently reading “Everything was forever, Until it was no more” by Alexi Yurchak. The book was 1st published in 2006 and he coined the term “hypernormalisation”. It is about the late-SovU. I have the Princeton classics edition. The preface contains the core arguments (XV onwards). The point: neoliberalism suffers from the same problem: “discourse and ritual become formulaic, predicatable and self-referential”. The book sits with two other masterpieces, Inne’s “Late Soviet Britain” which shows why ALL political utopias fail and “The Closing of the Russian Mind” (Kolesnikov). When read together they form a perspective both on Russian and the trajectory that “the West” is following. Yurchak notes how in the west “sound-bite driven rhetoric and increasingly standardised language patterns marked a shift in which attention moves from substance to repetition & amplification of familiar forms”… e.g. make American great again or the assorted Brexit slogans (take back control). Functionally, Macaroon and the other political ciphers will respond in predictable ways – addressing symptoms not cause (because to ack’ the cause would destroy them – they are their belief – in this case neo-libtardism).
Much to agree with
Thatcher created the Neets 50 years ago. The fact that they are still with us is sad indictment of neoliberalism. Under Thatcher I believe they redefined unemployment criteria 30 times. Each time unsurprisingly the amount fell. 3 million was a roi e with paying. And comparably less sanctions on benefits at the.time. How many of the creatives of that era were on the dole? Tony Bliar sent millions to college and university which impacted unemployment figures. We also had Hamdsworth Brixton and Toxteth and Bridgewater farm rioting in scenes not dissimilar to those we are seeing in France.
Plus ca change plus ca.meme chose
If we were to rejoin the EU in whatever form but still kept the pound as our currency, would we also be subjected to ECB fiscal rules?
On debt ratios from the Maastricht Treaty, yes. I have reservations, but I expect the EU to have to change its rules before we could ever rejoin, or Europe will fall apart.
Regarding the protests in France and the rest of Europe, perhaps our neoliberal overlords would find the looting more palatable if the protesters started private equity firms first?
It occurs to me that the much-derided concept of “trickle-down-economics” actually does work rather well. But only if you invert the pyramid. Neoliberalism and the politics of austerity have ensured that money flows effortlessly away from those in need and down to the selfish and the greedy lurking in the sewers.
Richard, thank you for your comments on La France Insoumise and letting go of the ‘ultra-left’ label. The end goal is no different to yours, as I understand it. It is about the Common Good. The goal is equity and fairness and meeting people’s needs, sharing the Common Weal. They would also refer to having a ‘collectivist’ ethos. It is also an internationalist movement. I am looking forward to your book, because all contributions matter, what you see, that they might not quite see (??), this engagement in thinking through what effectively we are all facing, albeit in differing historical contexts of the socio-cultural development of our respective nation states but our common global exposure to neoliberalism, all of it is valuable.
Thank you.
I do think there are overlaps.