Economic change depends on culture and society

By Anne Applebaum, Thursday, January 10, 6:31 PM

Washington Post 

PARIS — For a brief moment before Christmas, self-doubt gripped France. The beloved French actor Gerard Depardieu — who recently played Obelix, an even more beloved French comic book character — announced he was moving to Belgium because President Francois Hollande had threatened to tax millionaires at 75 percent of their income.

The nation plunged into depression. Opponents of the wealth tax geared up to attack the president. Pictures of Depardieu in his new “home” in Nechin, a Belgian town just across the French border, appeared in Paris-Match alongside an article titled “France, which is a haven for rich Qataris, is a hell for its own inhabitants.”

Soon after, Depardieu made another announcement. He wasn’t moving to Belgium. He was moving to Russia! Off he flew to Sochi, where President Vladimir Putin, vacationing at his private seaside cottage (construction cost: $1 billion), personally arranged for him to receive a passport. The French rolled their eyes, forgot about national decline and instead remembered Depardieu’s limitless ego and his fondness for drink.

They were also, at least temporarily, diverted from the subject of taxation, which makes me wonder: How much of any nation’s conversation about economics is ever really about economics, and how much of it is emotion, or perhaps national psychology? Sometimes, we write as if economics were a science similar to chemistry or physics: Raise taxes and achieve result X, cut budgets and achieve result Y. But if a French tax policy can succeed or fail and be accepted or be rejected thanks to a mercurial, attention-seeking actor, what factors shape the conversations elsewhere?

Even within Europe, after all, perceptions of economic policy can vary a great deal, as a quick comparison of Latvia and Greece reveals. Recently, the former has received some well-earned attention for its successful pursuit of economic austerity. In the wake of the 2008 crash, the Latvian government slashed public spending, fired a third of its civil servants and reduced salaries of those remaining while refusing to inflate the currency. Gross domestic product declined dramatically, falling 24 percent in two years. And then the recovery began. The Latvian GDP is now growing at more than 5 percent, and the budget deficit has been dramatically reduced.

And the Latvians? As their economy plunged in 2010 and 2011, there were no strikes, no protests, no fury. Not only did the nation accept austerity, it reelected the prime minister who imposed it. In Greece, by contrast, smaller budget cuts (relatively) have led to a smaller GDP decline (18 percent since the crisis began) but also to strikes and riots. The Greeks have voted their politicians out of office more than once, formed a new fascist party and thrown petrol bombs at banks. Meanwhile, their economy has not recovered.

There are some good technical explanations for the differences. Anders Aslund of the Peterson Institute notes rightly that austerity in Greece and Latvia was applied differently. The Latvians hit bureaucrats hard, but pensioners less so. They also made the biggest cuts right away. Aslund argues that drawing out a crisis creates more pain over time: The Greeks have protected their state sector, made cuts slowly, and never convinced either their public or their creditors of their commitment. Uncertainty therefore persists; people and capital continue to flee the country.

But the differences between Latvia and Greece also lie in history, in culture and, again, in emotion and national psychology. Latvia is small, homogenous, accustomed to hardship — it endured half a century of Soviet occupation — and fiercely dedicated to its independence. It’s also in the North. As one Riga trade unionist explained, “What can you achieve in the street? It is cold and snowing.”

Greece is bigger, less cohesive and politically divided. It has also been bailed out by the rest of Europe, politically and economically, multiple times in the past half-century. And, of course, it’s in the South. You might be cold if you can’t pay your heating bill in Athens, but you won’t freeze to death. Maybe this diminishes the sense of urgency.

All of which proves nothing — except that economics isn’t a science like chemistry or physics. The French might consider a tax policy to be a failure because of an actor’s defection, but the Germans might not care. The Latvians might be persuaded to hunker down and wait for better times by the prime minister’s commitment to austerity, but the Greeks might just think he’s irresponsible.

Anyone making economic recommendations, whether in the pages of a newspaper or directly into President Obama’s ear, should remember this: The viability of an austerity policy — or a fiscal stimulus — in the United States might also depend on the political climate in which it is introduced, the mood of the nation at the time and — who knows! — maybe the behavior of our celebrities too.

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