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In France President Nicholas Sarkozy says he will press ahead with planned pension reforms. More than a million people took to the streets Tuesday to protest his plans which include raising the retirement age from 60 to 62. In addition, blockades at French refineries are causing widespread fuel shortages and about 400 schools are closed. The reforms aim to boost France’s longer term economic prospects, but protesters and others in contend the concessions are being unfairly foisted on French workers: understanding the pension reform crisis in France and its relevance to austerity efforts elsewhere.
- Justin Vaisse senior fellow, The Brookings Institution
- Ron Blackwell chief economist, AFL-CIO
- Ulysse Gosset anchor at French Television
- Simon Johnson professor of entrepreneurship at MIT's Sloan School of Management, a senior fellow of the Peterson Institute for International Economics and author of the book "13 Bankers."
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. A political battle is playing out in France. The French Senate is poised to vote on an economic reform plan that includes raising the retirement age from 60 to 62. Strikes staged by public sector unions have led to gasoline shortages and reduced public transportation. Joining me to talk about what this strike is all about and its implications for economic reform efforts in Europe and elsewhere, Justin Vaisse of The Brookings Institution, Simon Johnson of the Peterson Institute for International Economics, and Ron Blackwell. He's chief economist at AFL-CIO. I hope you'll join us, 800-433-8850. Send us your e-mail to firstname.lastname@example.org. Feel free to join us on Facebook or Twitter. Before we begin our conversation here in the studio, joining us by phone from Paris is Ulysse Gosset. He's anchor for French television. Good morning to you.
MR. ULYSSE GOSSETGood morning. Bonjour from Paris.
REHMBonjour to you. There are no major protests today, I gather, but the gas shortages remain a problem. Is that correct?
GOSSETAbsolutely. This is the main problem. More than 3,000 gas station are empty, according to the authorities, and Nicolas Sarkozy, just this morning, order to really crack down on the unions who are blocking the oil depot. And he said that all the oil depot which are blocked should unblocked, so that the people could get gas to go to work and the trucks to do their jobs. So that's the main problem. But still there are some demonstration here and there, a small one in Paris in front of the Senate with the few hundred people, mostly young people, one in Lyon, one in Nantes, one in Marseilles. And there are still some incidents between the young people, some high school young people or some unemployed, who are fighting with the police. But nothing really big...
GOSSET...as yesterday when around 3 million people -- according to the union -- and 1 million -- according to the police -- gathered in the streets of France.
REHMAnd what about schools? I gather some 5 to 10 percent of schools of schools are closed?
GOSSETWell, there are probably, you know, 100 high schools, which are having trouble to be open and a few universities. But it's not a general movement, nothing really big. In fact, everybody is waiting for two things. One is a meeting from the unions tomorrow who will decide when will be the next big demonstration, the seventh one? And second, what will and when will the senate vote the reform? So in fact, to date, they're in between, you know, expectation to know what will everybody do. One thing is certain. Sarkozy won't absolutely -- no back down but...
REHMOh, dear, we have lost our guest. We'll try to get him back very, very quickly. Let me, if I may, turn to you, Justin Vaisse. When is the Senate likely to vote on this issue?
MR. JUSTIN VAISSEThe Senate was supposed to vote today. But because of parliamentary tactics used by the socialist opposition, it's likely that it will be later in the week, probably on Friday.
REHMWhy was that vote postponed, Ulysse?
GOSSETPostponed because there are a lot of a member of the parliaments from the left -- from the socialist party -- were, you know, asking questions, several hundreds of questions, to delay the vote. And it takes time. In fact, yes, the votes should have been today. And it's not going to be...
GOSSET...before probably the end of the week. And you have to remember that the senate is only one-fifth. But in fact, the final vote will be only next week, probably during the middle of the week -- Wednesday or Thursday -- when both the Senate and the Chambre Assemblee Nationale will decide together to finally vote this reform.
REHMI gather that a majority of people in France actually understand the need for reform but think that there should have been more negotiations going on between the government and the workers?
GOSSETAbsolutely. I think there's a consensus in the country that there is a need, an absolute need, to reform the retirement system. But what the people are saying to the government and to the president, Nicolas Sarkozy, is maybe you didn't choose the right way to do it. And there would be a need for more talks, more dialogue. And in fact, today, again, even if the France is not on the general strike mood, and if the country is not on fire, but there are still a majority of French people who support the movement. They don't go on strike. For example, today, there is no big strike in the trains, the metro or anywhere. There are small movements. But basically, the whole country seems to be in favor of negotiation to find a solution. And the government said, we have been negotiating for several months now. It's time to decide. It's time to vote. And Sarkozy is very firm on that.
REHMI gather this carries a great deal of risk for Sarkozy. And some are actually comparing this to President Obama's efforts to get a healthcare plan through?
GOSSETWell, the truth is that the popularity -- the level of popularity for Nicholas Sarkozy has never been so low. Less than 30 percent are really having a good opinion on the president. It's one of the lowest rate, according to the poll, ever for a French president. So, yes, it's a very difficult time for Nicholas Sarkozy. You have to know that also we are waiting for a reshuffle in the government, which has been announced for three months, and that probably will happen at the beginning of November. And in less than two year, we have presidential election, and at the moment Sarkozy has been weakened. And that's probably one of the main reason why this movement is going on. It's because of the weakness of the government and of its president.
REHMThe weakness of the government and of the president despite the fact that they understand that if these reforms do not take place, dire consequences could result?
GOSSETAbsolutely. I think everybody is aware of that. The situation of France is not that good. I mean, we have a very big deficit, as many countries in Europe, and we need to find solution. And one of the reason why Nicholas Sarkozy is so determined to get this reform through is because he knows that agency rating are waiting to see if he's going to reduce or not the French deficit. And then they will decide if they -- what note they give us. So Nicholas Sarkozy has to, you know, to think about the internal situation, his own political future and also how the world and the markets see Europe and is -- see France, and how France is ready to get reform and to reduce its deficit and to be in the world competition. So it's a global question. It's -- really, what is at stake is not only the situation of the retirement system or the role of Nicholas Sarkozy. It's really what is going to happen to France in the next 10 or 15 years. How are we going to fight the deficit and try to recover some growth? And just like the United States, how are we going to diminish the number of unemployment and of unemployed people in France?
REHMIf President Sarkozy has said that these conversations have continued between the government and the workers, is there kind of a game going on between the two sides?
GOSSETWell, it's -- yes, definitely. But there is something very interesting there. Most of the leaders of the union are not in favor of a general strike or a very strong movement. They just want to negotiate. But they are in favor of the reform of the system, and Nicholas Sarkozy knows it. The problem today is that the base -- I mean, the union members are more radical than their leaders, and so the -- it's very difficult for the union leaders to make this situation go slowly and peacefully because there is a protestation, a contestation inside the unions.
GOSSETAnd it's very difficult to deal with for these leaders, who for some of them are really calling for dialogue so that they can get an agreement and calm the situation that, at this moment, is not happening.
REHMBut it's not just raising the retirement age? Sarkozy says he has even more reforms to come after this.
GOSSETWell, in fact, you know, Nicholas Sarkozy was elected to reform France. And when he was elected, there was definitely a mood for reform in France. The question now is, is he going to do it or not before the end of his mandate? Or is he going to fail? And, really, some people say he's failing unless he succeeds on the retirement system. And probably the law will be voted, but will it be really in reality going to happen or not? Because many people think that there is a need for a bigger reform. This one is a modest reform. And so Nicholas Sarkozy, who knows that history is there waiting for -- to see if he has delivered or not, would like to go on with the reform.
GOSSETAnd he's preparing a new reform on taxation, which is very important in France. So, in fact, there's a big question mark here about the whole presidency. Did he succeed to reform France or not? And when you see the demonstration, the opposition and the general public opinion saying that they are in favor of the movement against this reform, you can see that it is very difficult. And France is really a country that has a lot -- a long way to go to reform itself.
REHMUlysse Gosset, he is anchor for French Television. Thank you so much for joining us.
REHMAnd when we come back, we'll continue our conversation, take your calls. Stay with us.
REHMAnd we're back, talking about what's happening right now in France. Though the protests seem to have diminished substantially today, yesterday, there were some 3 million people said to be in the streets, protesting President Sarkozy's aims to reform the economic system. Justin Vaisse is a senior fellow at The Brookings Institution. Justin, we hear that the French are, for the most part, arguing over this increase in the retirement age from 60 to 62. But what else is the fight about?
VAISSEYes. The -- I guess the first thing to say is that, currently, the legal retirement age is 60. And the proposed reform is 62. But the number of annuities you need to get full retirement is around 42 years. So that means that if you -- for example, if you started working at 25 after college, you would want to retire at 67 today already. So it's not like all French workers are going in retirement with full pensions at 60. And, yes, it's true that the argument is more about the specifics of the reform rather than the need to do something. Most people in France do realize that demographic changes and globalization make it necessary to do something.
VAISSEAnd the question, of course, is on the specifics. And the plan proposed by the government does not meet -- I mean, you know, as we say, 71 percent of the population supports the movement, which is more than a majority, which is very -- so it's a very broad-based movement. So the questions are, you know, when you -- people who started at age 16 or 17, should they also retire only at 62, as opposed to those who started late, and what about the different kinds of jobs? Should workers in factories or, you know, gardeners, miners, retire at the same age are -- as those working in banks? These are the kind -- oh, women, when they have their careers interrupted, so they don't have the full number of annuities when they reach 60 or 62. Shouldn't they be given some kind of compensation, et cetera? And, you know, more generally, what the left is arguing is that they should be more -- sort of better share of the burden between taxing workers and taxing capitals -- revenues from the capital. So that's what the discussion is about.
REHMAnd, Simon Johnson, President Sarkozy has the international bond market to contend with. Explain how that's involved here.
MR. SIMON JOHNSONWell, Diane, as you know, the international bond market -- lots of investors around the world have become much more skeptical about public finances in Europe and European Union. Greece has had a massive crisis. Ireland is on the brink of a serious crisis. Portugal has problems. And I think what France wants to do is differentiate itself very clearly from those so-called peripheral nations and to say, we're actually more like Germany than you might think. And as a result, we should get the ability to borrow at low-interest rates. That current deficit is around 8 percent of GDP. That's big, not as big as ours, but it's big. However, their overall public debt is only around 80 percent of GDP. The IMF forecast that'll rise to about 95 percent in a couple of years. That's not Greek levels. But if Mr. Sarkozy loses this battle, if the government has to back down, if it looks like they can't do any reform on any basis, even under these conditions, that will definitely hurt their ability to borrow going forward.
REHMRon Blackwell, talk about the workers in this situation and what they think they need from the government.
MR. RON BLACKWELLWell, yes. I think the context of this strike isn't in the demonstrations or as important as the issues involved themselves. You have to understand this is taking place in the middle of the most serious economic crisis in our lifetimes. The ILO is reporting that there are over 220 million unemployed people in the world today. This is the highest number of unemployed ever recorded. And they're also reporting that 50 percent of all the workers in the world who are employed are working under, one degree or another of, contingency -- insecure work, involuntary part-time work, et cetera. So the level of pain and anxiety and anger throughout the world -- and especially the developed world where this crisis is centered -- is very acute. And here, their struggle is very similar to ours in the United States and throughout Europe.
REHMHere's a first message on Facebook from Anna, who says, "I can't really blame the protesters. Any time a financial crisis hits, the top tier -- whose irresponsibility is often to blame -- continues to live in luxury while the rest are asked to make sacrifices." Do you agree with that comment?
BLACKWELLYeah, I think the justice of this is what's in stake. Everybody in France on both sides agrees that retirement is a very important thing, a right of everyone who works. The question is about the terms of that and how this change that is expected to take place, how the burden of that is to be borne. Justin may know more about this -- I'm sure he does -- than I do. But President Sarkozy has put a maximum, had a major tax cut analogous to the George Bush tax cuts. And he's put a maximum amount that the rich people can pay, 50 percent, I believe it is. And yet workers are being expected to work longer and pay for this crisis that has resulted from no fault of their own, which is the sovereign risk crisis in Europe, which is the direct result of the financial crisis and the recession that has followed.
JOHNSONI agree. It's all about the distributional consequences of the crisis. And this is the common element in France, in the U.K., similar today, and in the United States. Some rich and powerful people got, actually, bailed out by the taxpayer, by the government. Extraordinary, though that may seem, that's the reality. People get this. That's why the rank and file, I think, in France are more militant than their unions. That's why you see a lot of anti-incumbency angst in the United States right now. People at the lower end of the wage distribution are being asked to take substantial hits to what they care about -- Social Security, there and here, presumably in the future. Medical expenses in the future, absolutely in France and in the United States when you're retired. And the question is, why is this fair? Why is this reasonable? Why is this the way to do it? And people are upset, very legitimately upset about that.
REHMAnd, Justin, how does France's deficit compare with those of the European countries?
VAISSEWell, there's -- of course, there's always a plan to reduce it. And right now it stands at about 8 percent. And the budget that has been announced for 2011 and 2012, these budgets look very good and, of course, are partly intended to impress the market so that the rate of French debt is not going graded. Right now, the grade is the best you can get. The gold standard is AAA. But as Ulysse mentioned, there's a risk that if Sarkozy caves in, that could be one element leading notation agencies to reduce it, thereby compromising the grade. I would simply add that right now it's true that there's a very strong feeling of injustice. But the scope of the problem is such that, now, 10 percent of pensions are financed by debt, not paid for by current contributions. And so they're -- everybody knows that there needs to be a reform that ties in the larger issue of French competitiveness in the next 10 years.
REHMSo, Ron Blackwell, how does that compare with what's happening to the labor force here in this country?
BLACKWELLWell, we have the same kind of challenge with regard to joblessness. We've got 15 million people unemployed presently. And I think it's one out of every five working age men in the United States is currently not working. They're either unemployed, or they're out of labor for...
REHMOne out of five.
BLACKWELLEvery five. The more normal number is one out of 20.
REHMAnd in France?
VAISSEIn France, unemployment is actually lower right now, about 9.5 percent.
REHMSo in France, they're taking to the streets. In the United States, they're taking to the ballot boxes.
BLACKWELLOh, that's absolutely right. But, you know, we have very different traditions, politically and in terms of the way our politics work and the way our labor movements are institutionalized. You remember that President George Bush, before the recession, before the crisis, tried to privatize Social Security. He was stopped. He couldn't do it. And we know right now that our government is considering reforms to Social Security. The president's commission is considering these reforms to Social Security. Do you believe they're considering that in order to figure out the best way to raise the benefits of retirees? I don't, and therefore this has nothing to do with the deficit problem that we currently have in the United States. But it's on the agenda of how we're going to solve the real deficit problems that we have throughout the developed world.
REHMAnd, Simon, how does what's happening in France compare to what's going on in the U.K.? Are we likely to see a contagion of protests?
JOHNSONI don't think you'll see a contagion in part because the British voters are somewhat fed up with the attitude of the Labour Party, particularly under Gordon Brown in the past. And they're ready for some attempted reform as we heard from Paris. When Mr. Sarkozy first came in, there was a honeymoon period, and Mr. Cameron in the U.K. has this opportunity. Now, we'll see what happens when the cuts bite, and I can assure you that the British are just as upset about the distributional consequences of the crisis as everyone else. And, of course, the U.K. has a big financial sector.
JOHNSONAnd a lot of these problems, Diane, come back to reckless behavior by the banks, which has not substantially been addressed by the politicians. So we have this budget debate, which you may like or not like. The politicians in, and I'm afraid to say, France and the U.K. and the United States have not dealt with what really caused today's massive budget deficits and the increase in debt, which is the financial crisis and the continued ability of these global megabanks to take on reckless risk and to destroy themselves and public finances.
REHMSo, now, you hear Fed Chair Ben Bernanke talking about buying up more treasury bonds in order to shore up the U.S. economy. Is there a comparable move going on elsewhere?
JOHNSONNo. The Europeans are very much on a model or mode of austerity and that's -- comes from what's happened to these peripheral countries. It comes from the fact that the European Central Bank is still much more worried about inflation than is the Federal Reserve. And as a result, you're not going to see an aggressive expansion of ownership policy. In fact, the German -- the most powerful German Central Bank (word?) is going very strongly the other way, saying the European Central Bank should reign in what it's already doing. So I don't think you're going to see an attempt to bring down unemployment through the macroeconomic policy measures in Europe. We'll see an attempt in the United States. Whether or not the Federal Reserve can make a difference remains to be seen.
BLACKWELLWell, I think, it's -- and we don't want to carry this into an economics discussion. But I very much think what Simon is saying here is very important because what has happened here is we've had this deep recession. In 2009, the governments, in a coordinated fashion, had these fiscal stimulus programs, about 2 percent of GDP. This stabilized, but it didn't cure, the recession. Then, all of a sudden, in the middle of last year -- I'm sorry, middle of this year, there was a sovereign debt crisis in Europe, and all the European governments swung into austerity programs -- very unfortunate, in my view, because we need more stimulus now, not less.
BLACKWELLAnd much of the criticism that's coming to our President Obama is because this hasn't been solved. So what's going on now, since you can't get anything through our Congress, is the Federal Reserve is stepping in and trying to compensate with what stimulant mechanisms it has, which is the money supply. It's not likely to be enough, but this -- and then that has produced this world economy that's basically stuck at a very high level of unemployment.
REHMRon Blackwell, he's chief economist for the AFL-CIO. And you're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850. First to Huntsville, Ala. Good morning, Jim. You're on the air.
JIMHow are you doing? As somebody that retired from the French Foreign Legion, I know a little bit about France. And I think a lot of times in the United States we think that Frenchmen are -- especially when we see labor stuff, we think they're a lot more liberal than they necessarily are. I think President Sarkozy could just fire these people, and he would have support from the people in the southern part of the country. And I think it would set a good precedent. Unions are troublemakers. And if they don't like their jobs, there's people that can fill them. We -- one of the greatest leaders in this country of recent memory, Ronald Reagan, did that with Pepco. And he was admired for it. I think that's what President Sarkozy needs to do and (speaks foreign language)
REHMJustin, how likely is Sarkozy to follow Ronald Reagan's lead?
VAISSEWell, thanks to Jim for his question and salute for his service in the Foreign Legion. But, no, Sarkozy is very unlikely to do anything like that for a couple of reasons. The first one is that the movement, once again, is popular. It's -- polls after polls have shown that it's about 70, 71 percent of support. That could change over time if troubles continue. But right now, there's a consensus in favor of negotiation. And the second reason is that the situation itself on the ground has become very volatile, meaning that they are a very ordered street protests with a lot of people that are going well.
VAISSEBut also on the fringe of these protests, you have a number of troublemakers who have been sort of steering trouble. Also, the high school students have entered the fight, and so the situation is sort of very tense. And so everything that would be seen as a provocation is very, very cautiously avoided by the government.
REHMAll right. To Sue in Indianapolis. Good morning to you. You're on the air.
SUEThank you for taking my call.
SUEI have a question about the -- if you have high unemployment, isn't it better to let older workers retire because they're earning higher salaries? And so you -- the government doesn't have to pay them as much, and yet you bring on younger workers.
BLACKWELLI absolutely agree with that. But I think you raised another point, which is very important for the French situation, which Justin can comment on, I think. One of the things that -- where the French labor market really stands out is the low level of labor force participation, particularly in over 55 to 65 or something like that. So that the proposal that these people are going to have to be working longer, meanwhile the business community is offering no jobs for these people, they'll go on unemployment, which completely clogs up the lines of opportunity for younger workers. And youth unemployment is one of the most dangerous phenomena that you can have economically and socially and also for the future of the country.
JOHNSONSue's idea, Diane, is a good one if you have fiscal space for it. The problem is, we've had irresponsible fiscal policy in this country for a decade and a massive financial crisis that further damaged public finances. It would be nice to support this, but the question of what you can afford -- and that's a problem not just in the United States, also in France, also in the U.K. Irresponsible fiscal policy over a decade, mostly -- and I have to say during the Bush administration -- is what has brought us to this point in the United States.
VAISSEYes. And, you know, that's why the reform from 60 to 62 is gradual. It's precisely -- if you suddenly raise the retirement age from 60 to 62 or 65 to 67 more or less concretely, then, of course, suddenly hundreds of thousands of people that would retire do not do so. And so the young, at the beginning of the lane, don't get any jobs, and that's a real worry. That's why this is sort of phased until 2018 in order to avoid a big unemployment shock in the beginning. But it's true -- it remains true that beyond the problem of pensions, as Ron was mentioning, we have a problem of the 55 to 65 workforce. These people in France, the senior people, are less employed, and that's, of course, a drag on production, et cetera. But that's for reasons of salaries and costs, et cetera.
REHMJustin Vaisse, he's senior fellow at the Brookings Institution. We'll take just a short break and take more of your calls when we come back. Stay with us.
REHMAnd as we talk about what's happening in France, let's take a call from Miami, Fla. Leonardo, you're on the air.
LEONARDOHi, Diane. Thank you for taking my call.
LEONARDOI really enjoy your show.
LEONARDOMy questions are very simple perhaps for the panelists. But I wonder if what we contribute to retirement and what our benefits are going to be proportional to our contributions, what is the benefit of getting retired early? It doesn't matter if what you have put in is what we're going to get out. And I have a second question, if I may. Why is it always that in order to balance the budget, we pick on social programs like education or retirement?
BLACKWELLWell, I'm glad you raised this question. I mean -- and Justin can straighten this out. I think it's important for the audience to understand what's being -- the retirement age in France, normally, is 65. And the proposal is to raise that to 67. It's the early retirement age that is now 60 and that was proposed to move to 62. But the difference is, as Justin was pointing out, you can't really afford to retire at 62 because there's so much money involved -- you lose so much money. So I think it's very important for workers, at some point, to be able to retire. And I think the only question is the distribution of the burden of adjusting this system so it is sustainable in the long run.
REHMExactly. And with people living to longer ages, isn't that going to place that much greater burden on the government after retirement?
VAISSEYes, yes. To some extent, it's true. But, of course, if you add two years, or if you increase the number of annuities, then you expect people to keep their jobs, and so to be -- for two years, to not be a burden for the government for two extra years, and so that saves you quite a lot of money.
REHMAll right. Go ahead, Simon.
JOHNSONLeonardo may have missed an important point here. What you get out is not what you put in...
JOHNSON...in any of these systems. These are defined benefits systems, not defined contribution systems. And as Ron said, the question is then what's the equitable fair way to deal with such issues as people are living longer? And people are living much longer than when all these programs were first put in place.
REHMMuch longer, yeah.
JOHNSONYou can have -- you -- we -- you obviously have to use some taxation to address that. But how do you address the issue more broadly?
REHMHere is an e-mail from Dominique in Cornelius, N.C. who says, "I'm a French citizen living in the U.S. 18 years, but I keep in touch. I have no sympathy for the strikers. They have this sense of entitlement, six weeks paid vacation, universal healthcare, monetary help to raise children, free college. The list is long. When one sees how hard people work here in the U.S., how can one sympathize with them?" Justin.
VAISSEWell, yeah, obviously. But there are two ways to see that. You can consider that it's sort of a mark of laziness or character, or it's just a social system that is fairer than here. And I -- you know, I, myself, don't want to retire early. I've got a great job. It's not very tiring. I hope I'll still be working at 65 and 70, frankly, given the way things are going. But the thing is, I'm not a miner. I'm not a factory worker. I'm not a, you know, say, a piano mover, if you'd like, who started at 17 or 18 and who we're saying, when they're already in their 50s, for example, and they're already sort of broken, if you'd like, physically, that they're going to have to wait two years longer in order to get their full pension. So yes, on the one hand, I share this sort of work ethic. But then on the other hand, I completely understand why people who have fought to get these social benefits that Dominique mentioned are not happy to see them cut.
BLACKWELLYes. I always remember a French (word?) and his colleague when we were meeting with G7 labor ministers in 2005, long before this crisis or this strike. And he was maintaining -- it was on active aging, which I didn't know what that meant, but it means work until you die, basically. And he made the point that retirement is a fundamental right of working people and a measure of our social progress as a nation. And he was trying to get the employers to acknowledge that and the labor ministers, and he failed. And we sat there in a palatial London estate among people who had comfortably prepared for their own retirement -- we were sure -- but who had decided that there was no other room for everyone to retire.
JOHNSONJust to put the French-U.S. comparison in some context. The French tax themselves much more than we do. It's close to 15 percentage points higher in terms of general government taxation. That means all levels of government, and as a result -- and they use that to (sounds like) redispute in the ways we're talking about. And that's their deal, the deal they've had for quite a long time. And obviously, changing deal upsets people. The advantage we have in the United States is we have an antiquated, insufficient, very bad tax system. We could actually raise more revenue quite easily. The French do not have that option. The French are pushing up against where you really don't want to go down much further in terms of high taxes. They have a pretty well run of tax system, for example.
JOHNSONSo they have actually, in some sense, much more of an issue, a pointed issue, than we have on the benefit side.
REHMTo Arlington, Va. Good morning, Susan.
SUSANGood morning. I just got back from Brussels and Paris. And what really struck me about it was that the difference between the people in the streets in Europe and the people in the streets in United States, I think we're -- in both groupings of countries, we're all responding to (unintelligible) but long-term economic change. Now, what will our children achieve the American dream and the French dream and the Belgian dream, given the fact that jobs can -- highly, you know, highly educated people's jobs and the most -- professors, physicists, doctors can be done for much less in India, China, et cetera? So I think there's a lot of that. And what struck me is you have a huge anti-immigrant rallies in Europe and the last is in the street, whereas in the United States, the people in the streets tend to be the Tea Party. So I was just wondering if Ron and others can comment on that.
REHMAll right. Ron.
BLACKWELLWell, I think we don't have the same social tradition that they have in Europe, in general, in France in particular. But we have a long line of populist sentiment in the United States. And it's made very much -- big improvements in our society as a result and helped the middle class grow in this country. That's very much being threatened right now. But populism comes in all ideological stripes, and people are active. They're active in their communities in the United States, and they're in the streets. And they're on the mall in Washington, but they're on the right-wing side of things in the United States.
JOHNSONAnd there's plenty of anti-immigrant feeling here as well, unfortunately.
JOHNSONSo we have populists on the left. We have a long tradition. As Ron said, they were rebuffed by the Obama administration. Their anger with regard to the financial crisis was really turned away. And they are disappointed and, I think, staying home. It's the other people from the right who are out on the streets. And with regards to this question of, you know, longer term. What happens, the U.S. has some big advantages. We have a lot of immigrants coming in. We have population growth. We have a much more dynamic demographic. We're not aging as a society in the way that European societies are, but we're becoming much more unequal in a way that European isn't. And if you think that inequality feeds into these kinds of fears -- lack of mobility, loss of status, and when the cuts come, they'll cut disproportionately benefits for poorer people -- then the U.S. is not in such a great place, maybe it's even in a worse place than some European countries.
VAISSEYes. I think there's one common point between these populism is that it's the sort of (sounds like) procurization -- I don't know if the word exists in English -- but the procurization of the middle class, where, basically, the median in income has been stagnating in this country. And in France it has also been growing very, very slowly. And so there's an -- sort of anxious state of anxiousness that is palpable and that produces -- especially in times of crisis -- that produces all this scapegoating, whether towards immigrants or, you know, other scapegoats you can think of. And so, yes, they manifest themselves differently depending on the political tradition, the political culture of each country. But, yes, we do have a large, you know, larger problem in the developed world for the middle class and its future.
BLACKWELLYes. I think Justin raises an -- very important point. You know, the U.S. median wage really hasn't risen in 35 years in the United States despite the enormous increase in productivity. The way of expressing that as it comes is the wage share, the share of a national income. And wages has been falling in the United States for a generation. So -- but the wage share right now is falling faster in Europe, since 1990, than it is in the United States, and it's falling faster in Japan even than it is in Europe. In fact, across the world, the wage share is falling. All of the benefits of increasing productivity and economic growth in our countries are going to our wealthiest families. They're doing very well indeed, and they're -- and in different ways, they're challenging the ability of the middle class to protect itself and to build a future for their children.
REHMRon Blackwell, he's chief economist for the AFL-CIO. And you're listening to "The Diane Rehm Show." We'll go back to the phones. To Harold in Dallas, Texas. Good morning. You're on the air.
HAROLDHello, Diane. I tried to reach you before but never did. I'm an engineer, and I deal with numbers. And I'm calling about the Social Security withholding schedule. A working man pays almost all his salary usually because the cap is 102.8. Somebody that makes $200,000 pays Social Security withholding on only half his income. And somebody that makes $500,000 pays only a quarter of his income of -- rated at Social Security. The millionaire pays 10 percent on his Social Security for income, only 10 percent of his income. The bottom line, Diane, I think the cap should be raised. That would solve the problem. I'm not saying where the cap should be, but it should be at least $500,000.
REHMWhat do you think, Ron?
HAROLDI'll take my answer off the air.
REHMOkay, sir. Thanks for calling.
BLACKWELLThanks very much for that, Harold. I absolutely agree with you. The Social Security system is not the challenge for retirement in the United States, not a big problem. The only discrepancy in our system, from what -- when it was last reformed in 1983, is growing inequality in the United States, and the fact that our richest families escape sharing their burden of Social Security provision. If we -- it used to be 90 percent of all wage income was taxed. Now, it's fallen down to about 83. If you were to raise it to 90, you would solve much of the problem in our Social Security system. And I personally would take it off. I would say there should be no cap. Everybody is in. Everybody should pay for their participation in the plan, and everybody should pay proportionately for that (unintelligible).
JOHNSONI agree with that the cap will be raised, and I think that makes sense. But the bigger issue in the United States is Medicare. And to be clear, the Europeans have exactly the same problem -- aging population, increasing healthcare costs. They are less honest about it in their accounting. The Congressional Budget Office keeps us very honest, and it's scary. The European Commission, I'm afraid, fudges the numbers on that. So if you look at that going forward, Diane, the key issue is, how do you control those healthcare costs, particularly in the United States where we spend 15, 16 percent of GDP on healthcare for the same outcomes as some other countries would spend, say, 8 percent of GDP? And that's -- the special interest around that spending are not getting any weaker over time. They're getting stronger.
REHMNow, let me just give you a sense of how people in this country are reacting. Here's a message on Facebook from Christina who says, "I think the French protesters need to get a life, retiring at 62 instead of 60? So they need to wait two more years for that pension? If they don't, the French pension system will collapse, and they get nothing." So what happens if this does not go through?
VAISSEWell, what happens is that the current pension system will have to either be financed by debt -- which we discussed is not a very good option given the international constraints -- or by raising taxes -- which is not a good idea either, given the need to stimulate demand and the fact that the tax rate is already very, very important -- or to find money elsewhere, but -- or by lowering the pensions, right, which is something that no one in the French political spectrum proposes. The phenomenon of the poor, impoverished seniors has sort of disappeared in the 1970s or '80s precisely because pensions were raised. And so as a result, we don't have, in France, many impoverished seniors. There are some, but not that many. If we were to lower the pensions, that would be the exact result and something that no one in the French political class wants to avoid. So, yes, there is an inevitability of raising the age.
REHMCan we say how many or what percentage of the elderly in this country happens to be impoverished?
BLACKWELLI don't know the number, but I can tell you this. Before we had Social Security, the oldest, most impoverished segment of our population were people over 65, and it was because Social Security that that is now the least impoverished segment of our population. And a very large proportion of the people who are retired live on Social Security alone -- it's their only source of income. So this is an extremely -- as modest as our program is in relationship to that of France -- is an absolutely essential and extremely popular thing. If it were threatened, we would have the same kind of popular support for that -- for the protest against that, and we have seen that before as they're seeing in France now, expressed in a very different way.
REHMAnd, of course, the second year in a row without a COLA -- cost of living increase -- for Social Security, Simon.
JOHNSONAbsolutely, Diane. Look, these problems are coming to our future. This debate is coming to us.
JOHNSONWhat's going to happen in France? I think Mr. Sarkozy is going to lose quite badly in 2012, the presidential election. A pretty left-wing socialist will most likely get elected, and they'll still have to confront this legacy of fiscal irresponsibility and a financial sector gone mad around the world. Now, France, I have to say, in its fundamentals, is not as bad as some other places. Their banks are little bit better shaped. They didn't have a crazy housing bubble like we did. They actually have a -- they're actually better at controlling their financial sector historically than we are. So they will have to confront this. All of these issues are coming to us too, Diane. Will it be easier or harder here? I'm not sure. When the bond market turns against us, when people get skeptical about our government debt and our ability to sell our debt to China -- foreigners now hold half of our outstanding treasury obligations, by the way. When that moment comes, it's going to be very tough here too.
REHMJustin, do you agree that Sarkozy is going to gain what he's after here but lose the election?
VAISSENo. I think the election is two years away. And Sarkozy doesn't care if he's unpopular now. Actually, there would be a reshuffle of Cabinet, et cetera. And probably it's very hard to say. Probably there'd be a negotiation and some small concessions, but my bet would be that the reform goes through because too much is riding on this -- as we say politically, internationally, financially -- for Sarkozy. So I don't think he'll cave in. But then the elections are two years from now, and two years from now, people will have partially forgotten this. And I think it'll be much better shape and have a socialist opponent that may be too extreme in the eyes of French voters.
REHMJustin Vaisse of The Brookings Institution, Simon Johnson, he's at the Peterson Institute for International Economics, and Ron Blackwell, chief economist for the AFL-CIO. Thank you all so much. Thanks for listening. I'm Diane Rehm.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Tobey Schreiner. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our e-mail address is email@example.com, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.
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