Breaking With “Trickle Down”

The message was clear: the point was to foreground competence and play up the campaign’s financial seriousness. The term “prudence” was repeatedly mentioned, including when the “costs spared” by the proposed policies were not factored into the final calculations.

The purpose of such an exercise is understandable: to draw on your opponents’ weapons to emphasize your own program’s “credibility” and foil the habitual accusations of unrealism and utopianism. Doubtless, the projections themselves can always be challenged, but this does allow for a contest on an equal footing with other programs, notably the neoliberals’ own. This changes the nature of economic-policy disputes, which become mainly about the philosophy behind the policy rather than the credibility of the program.

Such a costing exercise is not new to Mélenchon; there was a previous one in 2017. But the rationale behind it was quite different, this time around. After Emmanuel Macron’s first term saw an economic rescue plan amounting to €240 billion (much more if we also include social security spending) in two years, added to a €100 billion “recovery plan” and massive central bank buyback policies, the traditional argument against left-wing programs — the famous accusation of relying on a “magic money tree” — no longer holds water.

As Aurélie Trouvé, an economist who joined Mélenchon’s campaign, pointed out during the presentation, the scale of additional public spending — €250 billion annually — represents an overall increase of 18 percent over the next president’s five-year term compared to 2019. This is in between what Nicolas Sarkozy achieved (+15 percent) and what Joe Biden is committing to in the United States (+27 percent); what she called an “ambitious but reasonable” program.

Moreover, in terms of its historical rationality, we can say that this program takes note of the decay of neoliberal reality, which the various right-wing and far-right candidates refuse to accept, instead proposing a continuation of the methods of the past (tax cuts for capital or “reforms” to slash the pensions bill).

While market adjustments are showing their limits — and are only viable with massive state support — the Union Populaire program underpinning Mélenchon’s candidacy acknowledges this historical reversal — and sees it as a justification for stronger action by the state.

This is all the truer given that its proposals are based on the needs left unmet by the policy course pursued for several decades. This explains the relevance of the program’s slogan “governing according to need.” Identifying where public policies fall short of serving the general interest ensures that citizens really “feel” the effects of this policy. This would reduce the wastage repeatedly observed in so-called supply-side policies, such as the CICE (tax credits for employers) or even COVID aid.

In 2017, Macron could base his neoliberal reform agenda on a certain “world order” to which France had “too long” refused to submit. Five years later, this “order” has been shattered, and continues to fragment. The argument of neoliberal rationality can thus no longer be advanced. Mélenchon is trying to take advantage of this failure, presenting a program that is financially sustainable, but based on a demand-side policy. In other words, it seeks to break with the logic of “trickle down.”

“Demand Shock”

The logic upheld by this program is clearly post-Keynesian, or left-Keynesian. The prevailing idea is that the economy can only prosper based on what consumers and businesses spend. As Mélenchon pointed out, public spending is not “water absorbed by the sand,” for it feeds the economic circuit and creates economic activity. In this framing, it is spending that creates savings, not the other way round. As one of the greatest (and forgotten) representatives of the post-Keynesian school, Michał Kalecki argued, “capitalists earn what they spend.” This is the major difference with right-wing Keynesians (or “neo-Keynesians”) for whom supply creates demand and savings create investment. The state’s function is only to “facilitate” adjustments. The program’s intellectual approach is thus in direct opposition to neoliberal logic.

The cornerstone of this calculation is the “Keynesian multiplier,” meaning, the effect on GDP per euro invested in the economy. The Union Populaire team have estimated this multiplier at an average of 1.18: so, one euro invested will result in an additional eighteen cents of wealth created. By comparison, the multiplier for the government’s recovery package was less than one euro, i.e. it did not create additional wealth.

Obviously, any such calculation is uncertain and open to challenge, given its starting hypotheses. But here again, we must remember that this uncertainty weighs heavily on neoliberal promises, too. The results of the CICE tax credits and the reform of taxes on capital have been particularly lackluster. Moreover, despite particularly negative “evaluations,” these reforms have not been called into question. Here again, the neoliberals’ failure means that the post-Keynesian vision can no longer be presented as merely a nice dream — for their dreams have already dissipated.

In total, therefore, the additional €250 billion in annual public spending is said to be offset by an estimated €267 billion in additional revenue generated. The public deficit could thus be reduced by this expenditure.

This is the old, long-forgotten recipe of Madame Rabourdin in Balzac’s Les Employés: “the mission of a minister of finance is to fling gold out of the windows. It will come back to him through the cellars!” Such a recipe, it should be emphasized, is clearly more rational in a monetary economy of production that is now largely financialized, than a policy of protecting savings which will feed an evermore autonomized financial system.

Economic Circuit

How can we get to such a conclusion? First of all, contra Madame Rabourdin, the Union Populaire program does not intend to “fling gold out of the window,” but to concentrate spending on those who need it the most. Numerous studies have shown that the less wealthy people are, the more they use the money becoming available to them for expenditure that they would otherwise have to do without. The richest tend to save more, which limits the transmission to the rest of the economy of any spending that benefits them. This is another pillar of post-Keynesian thinking: inequality is harmful to economic activity, whereas redistribution supports it.

The Union Populaire program is strongly grounded in these two ideas of the multiplier and redistribution. Its first axis is thus public investment, planned at €50 billion annually over the five-year period and centered on two priorities: the “ecological alternative” and improving public services. In both cases, the unmet needs are obvious and thus the effect on employment and consumption should indeed be significant.

The program also provides for the recruitment of one million public employees over five years; their salary index point will be raised by 10 percent immediately and thereafter indexed to inflation. That costs €75 billion a year, though the key question is, what these people will do with the money.

The same applies to the vigorous redistribution measures envisages, firstly with the minimum wage hike to €1,400 net per month, but above all with the reform of the tax system. In line with the principles set out above, the program commits to a “fiscal revolution” aimed at halting the now-four-decade trend toward an anti-redistributive tax policy.

There are numerous reforms in this regard, on inheritance tax [taking everything over €12 million], but also with the greater progressivity of the CSG [social insurance contributions] and corporation tax, the VAT review, the end of various tax loopholes and especially the reform of income tax which will become universal, but much more progressive with fourteen different brackets. To this should be added the €1,063/month income guarantee for young people.

According to Union Populaire projections, the poorest tenth of the population will gain 14 percent in average living standards over five years. The gains gradually diminish and become losses from the richest 30 percent upward, but are concentrated on the very richest, who would see their standard of living fall by 6.3 percent. Here again, the coherence of the program is clear: redistributing wealth promotes “popular consumption” and employment, in turn ensures that this consumption level is maintained.

This circuit then ensures additional revenue for the state through employee contributions (€35 billion more annually, given the 2.8 million jobs created), VAT and income tax (€27 billion more annually), and above all tax revenue from the richest and corporations.

New inheritance taxes bring €17 billion, a new tax on assets nearly €30 billion, the elimination of polluting and inefficient tax loopholes €46.5 billion, while the new income tax scale will take in another €11 billion. Finally, a universal corporation tax, making it possible to calculate the real tax base and to fight tax evasion and optimization, should bring in €62 billion.

All this means a post-Keynesian virtuous circle. As demand creates supply and employment, growth could benefit. In the “macroeconomic loop,” the Union Populaire forecasts average growth of 2.7 percent, mainly concentrated in the first two years (5.5 percent in 2022 and 3.2 percent in 2023). This is the predicted effect of what Trouvé calls a “demand shock,” in sharp contrast with Macron’s famous “supply shock.”

In total, this policy, according to the Banque de France model, would lead to a 0.7 percent increase in private sector employment. Overall, the public deficit could fall by 2.6 GDP points — for Trouvé, a “guarantee of the seriousness” of the program.

The Battle for “Credibility”

Much could be said about the program’s details. One might consider the inflation forecasts highly optimistic, and that such a policy — and we’ll return to this — will invariably provoke a violent response from the capitalist camp. That’s not to mention the geopolitical situation. In truth, macroeconomic projections are only ever projections based on a priori hypotheses, set within models based on theoretical adjustments.

This “costing” is thus both a difficult exercise and somewhat in vain. Much the same applies to governments’ finance bills, which are often derailed by macroeconomic realities linked to external shocks or poor assessments of human behavior. What can be said is that, just as each government prepares a budget, this costing exercise is a necessary democratic step. But it is then a matter of defining the nature of the policy being pursued, rather than a real “costing” exercise.

What seems important, then, beyond the figures themselves, is to note that the post-Keynesian logic of this program is no more “unrealistic” than the policies usually considered “reasonable,” based on cutting deficits through support for (and spending on) business.

But this truth lies less in modeling exercises than in the concrete reality of neoliberal policy failure — forcing the ruling neoliberals to alter their policies, sometimes to the point of openly contradicting their own discourse. Neoliberal policies have produced widening public and trade deficits; they have thus proven ineffective, and this alone ought to discredit them. Doubtless, they can draw strength from one essential argument: i.e. precisely because they are dominant, they represent a point of reference for all other policies. The “realism” of these alternatives is therefore to be measured by the neoliberals’ own yardstick. And the Union Populaire program ultimately seems to be seeking this kind of validation.

This was particularly clear in the phraseology used in the March 12 exercise. The search for seriousness went so far as to seek the blessing of the Banque de France model and of neoliberal institutes such as the Institut Montaigne which, remarkably, would be “less prudent” than the figures presented by Mélenchon’s team.

This leads to the central question of what justification there is for “costing” a program which also seeks a radical transformation of the economy. It is a form of concession to the dominant “rationality,” albeit one that undoubtedly serves an electoral function. It consists in showing that, according to the usual economic reference points, this program is feasible and credible.

But what actually is a “feasible and credible” program? It is one supported by a political will based on a deep popular movement. It is not a program that reduces the deficit and supports growth (even if through new means). For if that were the case, the neoliberal programs would be neither feasible nor credible.

The Program’s Real Ambitions

This costing exercise is, without doubt, the best put together thus far by any candidate across the political spectrum. But this leads to a tension with the transformative character of Mélenchon’s project. This contradiction was palpable throughout the costing exercise.

The candidate spoke in terms of the will to transform. He criticized the logic of the commodity, and insisted that he would not govern with econometrics. But then, why submit to such an exercise in pure econometrics — and have it implicitly validated by advocates of econometrics? Why insist on the “reasonableness” of his policy? What is the point of saying that growth will be higher and the public deficit reduced?

In this exercise, conducted with great seriousness, there is a kind of fetishism — submitting to the measuring instruments preferred by your opponents, in order to show that you would do better than them even according to their own criteria. But if we remain within this logic, can we deeply transform society?

The heart of this tension lies in the starting point of this work: “governing according to need.” This simple phrase presupposes an entirely new economic logic in which needs are valued and central and economic policy is judged by its ability to satisfy a certain number of these needs. Such an approach strikes at the heart not only of “neoliberalism,” but moreover of capitalism itself. Economic organization is no longer intended to produce value but to fulfill social functions.

In this context, it is necessary to build the “infrastructures” necessary for this organization, in terms of public services, energy and ecology. But these investments are not intended to produce surplus value, and therefore growth, but rather to allow an escape from the need for growth. This is not just a rhetorical move; for by getting out of this necessity, we also get out of the need for “financing” through growth.

If we want to finance such a movement through the development of market activity via VAT, contributions, or other taxes, then this market activity must prosper. But with what will it prosper? What will it produce? Won’t this production be at odds with the objectives of public policies? We thus find ourselves in a new tension, in the need to develop market activity in general in order to “finance” a policy that tends precisely to free society from market domination.

Mélenchon tries to get out of this contradiction by identifying a “needs-led” policy with a “demand-led” policy. But the two terms are very different. “Demand” is one of the terms of the market. In the post-Keynesian logic, it is a condition of supply. Demand is thus embedded in the market, which determines it to a large extent.

Therefore, if a “needs-led” policy is to be able to transform society and the economy, it is necessarily different from a simple “demand-led” policy and from the post-Keynesian logic presented on Saturday. For then, needs must be defined democratically and collectively and not by the market. What is at stake here is the content of demand. The ecological and social transformation of the economy cannot let the logic of value determine demand. It must also question and determine the content of this demand.

This is not just a theoretical question. The tension raised by this “costing” exercise — conceived as the alpha and omega of credibility — would have concrete consequences if Mélenchon came to power. For the first threat to the Union Populaire program is that of the “capital strike,” in other words, capitalists’ refusal to invest and hire. This was the situation that Franklin Delano Roosevelt (FDR) had to face in the 1930s and which he circumvented by dividing the camp of capital to rely on the “winners” of the New Deal.

This is the strategy Mélenchon is also drawing on, as he tries to play on the internal struggle in the camp of capital between those dependent on the domestic market — the “small” capitalists — and the big corporations. For several weeks, he has insisted that he is the “candidate of the order book” and of small- and medium-sized enterprises (SMEs). The latter will benefit from the increase in domestic demand and from an advantageous tax system. But these “good capitalists” must also extract value and make increasing profits.

It was precisely because Roosevelt satisfied the accumulation capacity of many employers that he was able to build a coalition to save US capitalism from itself. But today’s situation is very different. For it is the tendency to accumulate, which is structural in capitalism, that is causing the rise in inequality and the climate disaster, via the structural fall in productivity and the race for growth. In other words, it is far from certain that such a compromise is possible, for it is far from certain that it is either possible or desirable to save capitalism from itself.

If this is not the case, it will be necessary to take up a frontal fight against capital or, on the contrary, to accept its conditions and thus to return to supply-side policies. This is, in another context, the problem that the French left faced when it came to power in 1981.

The only alternative, then, would be to act on the nature of demand and to completely reorganize the mode of production. The post-Keynesian logic will then no longer suffice. Mélenchon’s program has many tools to deal with this, notably planning, a reduction in working hours or a job guarantee (very limited, as it is reserved for the long-term unemployed). But, in this case, we must leave behind the fetishism of financing at the heart of this costing exercise.

Without doubt, the presidential campaign is not the right time to tackle these questions. The aim is to build a heterogeneous base of voters within a given framework. The costing of the program, which acknowledges the profound failure of neoliberalism, aims to build such a base. However, its political function should not obscure the future challenges that must somehow resolve this ambitious program’s contradictions.