El sector financiero listo para otra crisis

Financial Sector Thinks It’s About Ready To Ruin World Again

The Onion

NEW YORK—Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again.

Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide.

“It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein. “We gave it some time and let everyone get a little comfortable, and now we’re looking to get back on the old horse, shatter some consumer confidence, and flat-out kill any optimism for a stable global economy for years to come.”

“People are beginning to feel at ease spending money and investing in their futures again,” Blankfein continued. “That’s the perfect time to step in and do what we do best: rip the heart right out of the world’s economy.”

According to sources, the overwhelming majority of investment bankers are “ready to get the ball rolling” by approving a host of complex and poorly understood debt-backed securities that are doomed to quickly default, as well as issuing startlingly high-risk loans certain to drive thousands of companies into insolvency.

Top-level executives also told reporters that when it comes to depleting the life savings of millions of people and sending every major national economy into a tailspin, they feel “refreshed and raring to go.”

“The other day I actually overheard someone on the sidewalk utter the words ‘I’m saving up for retirement,’ and right away I thought to myself, ‘Well, time to get down to work,’” said Morgan Stanley chairman James P. Gorman, adding that the increasing number of individuals entertaining ideas of starting their own businesses or buying houses was the financial sector’s cue to set off another devastating global recession. “We’re definitely thinking on a huge scale again, because we all really enjoy toying with the livelihoods of millions of people overseas and forcing them to wonder why reckless, split-second decisions made thousands of miles away dictate their whole country’s socioeconomic future.”

“Plus, it’ll be nice to finally wipe out the Euro once and for all this time,” Gorman added.

While most private equity firms, investment banks, and hedge funds are reportedly still undecided on the precise route to take in order to torpedo the job market and crash all international stock exchanges, sources confirmed they are nearly in position to resume gambling away trillions of dollars belonging to the American populace.

“We’ve got a lot of options on the table; it’s just a matter of picking which one we want to use to paralyze every single sector of the world economy,” said Capital One executive vice president Peter Schnall. “We already burst the dot-com and housing bubbles, so this time we can maybe mix it up by popping the education bubble and shattering the lives of everyone with outstanding student loans. Or maybe we’ll artificially inflate prices of stocks in social media companies and then pull the rug out, bankrupting every investor tied to companies like Facebook and Twitter. Or do both.”

“On second thought, maybe we’ll wipe out the housing market again too, just for the hell of it,” Schnall quickly added. “Might as well, right?”

According to a recent survey of Wall Street officials, 82 percent said they were “excited to shake off the rust” and send the Dow and NASDAQ into another freefall. Additionally, 75 percent of respondents admitted they have been “champing at the bit” for months to wholly undermine the nation’s local banks and money market accounts, leaving Americans too terrified to leave their savings anywhere.

Moreover, the chief financial officers from Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo unanimously told reporters that it has been “way too long” since they last saw the utterly dejected faces of American families whose homes had just been foreclosed on due to circumstances totally beyond their control.

“Now that the public’s efforts to curtail questionable Wall Street trading practices have all but ceased, it’s time for us to bring the world to its knees again,” said AIG CEO Robert Benmosche. “There are still plenty of opaque financial derivatives, high-frequency trading operations, and off-balance sheet transactions out there, all with virtually no federal regulation. Trust me, we can definitely work with that. And if anything, we can always just lobby for further concessions and deregulation in Washington—which, by the way, is so, so easy to do—and then we can cause as much damage as we want.”

Added Benmosche, “And while we’re at it, we’ll make sure we once again come away from this whole thing scot-free and far wealthier.”

¿Qué es la economía neoclásica anyway?

What is "neoclassical" economics?

New rule: the term "neo-" shall never be applied to anything other than Keanu Reeves' character in The Matrix.

OK, just kidding. But it's time to talk about one of my pet reeves...er, peeves - the use of the term "neoclassical economists".

If you read econ blogs, especially blogs by "heterodox" bloggers (Austrians, Post-Keynesians, MMTers, etc.), then you know that the term "neoclassical" gets slung around quite a lot, usually as a perjorative. See here, here, here, and here for just a few examples. The idea is that "neoclassical" econ is the dominant paradigm, and that the "heterodox" schools are competing paradigms that lost out, and were, to use Kuhn's terminology, "simply read out of the profession...and subsequently ignored."

Well and good, but I have two problems with the way the term is used. First, I don't like the sloppiness of the way it's defined, and second, I don't like its application to people as opposed to ideas.

What kind of economics counts as "neoclassical"? Wikipedia defines it thus:

Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory.

OK, makes sense. Assumption of individual rationality, utility maximization, and supply/demand. One or more of things terms probably describes most of mainstream economics theory.

But does it describe most of maintstream economics research? Theory papers have declined from over half of top-journal econ papers in 1963 to less than 28% in 2011. Empirical papers make up most of the rest, with experimental economics growing to just over 8%.

How many of those empirical papers should be described as "neoclassical"? Some of them, no doubt. Some of them explicitly include neoclassical models; others test neoclassical theories developed in other papers. But many mainstream empirical papers contain no reference whatsoever to individual rationality, utility maximization, and supply/demand.

For example, take this famous paper by Acemoglu, Johnson, and Robinson, entitled "The Colonial Origins of Comparative Development: An Empirical Investigation" (American Economic Review, 2001). This paper measures the effect of institutions on growth. It does not make use of a neoclassical model. It does not test a neoclassical model. It does not include any assumption of rationality (or indeed, any model of individual behavior at all!). It does not include utility or supply/demand.

For an example from experimental econ, take "Bubbles and Experience: An Experiment", by Dufwenberg, Lindqvist, and Moore (American Economic Review, 2005). This experiment establishes conditions under which financial markets in a laboratory will result in asset price bubbles and crashes. No assumption of rationality is made, no model is referenced or tested, and no ideas of supply/demand or utility make an appearance.

These are mainstream papers, published in the most mainstream of econ journals. And there are many others like them. Does their very mainstream-ness automatically make them "neoclassical", even though they have zero of the elements that are commonly held to define neoclassical economics? If so, then I contend that the word "neoclassical" has lost all useful meaning.

"Neoclassical" should not be synonymous with "mainstream". "Neoclassical" should be used to describe a certain set of economic methods and/or ideas. Instead, "neoclassical" seems often to be used to describe anything that does not fall within a small well-known set of "heterodox" paradigms. I think that is wrong. The net effect of that type of thinking will be to block people from thinking of new ideas, because it defines any really new approach as "neoclassical". So people who want to subvert or replace econ's dominant paradigm will be shepherded toward old alternatives such as Austrianism, Post-Keynesianism, etc.

My second objection is related to the first. People who sling around the word "neoclassical" often apply it to people rather than ideas. "Oh, he's a neoclassical economist." Etc. Does that make sense? Take Daron Acemoglu for example. He writes papers that are clearly neoclassical. But he writes others that have none of the neoclassical elements. Should he be pigeonholed as a "neoclassical"? It seems obvious to me that he should not, but he probably is.

Or take me. I've never written a paper with individual optimization or supply/demand in it (though I'm working on some now). I've just done experiments and empirical stuff that didn't rely on any neoclassical idea. But people in the blogosphere have no qualms labeling me a "neoclassical", apparently because I've discussed neoclassical ideas on my blog. Not that I am mad, but it seems silly.

Shouldn't a researcher be free to work with a number of different types of analysis, and draw on a number of intellectual traditions, without getting pigeonholed? Isn't it counterproductive to scientific progress to enforce a "one-drop rule" for paradigms, so that any researcher who ever writes "max u(x)" on a legal pad is forever labeled a "neoclassical", and every paper (s)he ever writes as a "neoclassical" paper?

To reiterate, I suspect that the net effect of all this "neoclassical"-slinging is to discourage revolutions in econ. There are probably lots of revolutionary-minded young economists out there who would love to subvert the neoclassical paradigm. But when they try to find compatriots outside of the mainstream, they are told that if they don't join one of the pre-existing revolutionary groups, then they're a "neoclassical" and should go play with their fellow "neoclassicals". Which may have the effect of pushing them back into the arms of the actual neoclassicals, who of course are happy to welcome them into the fold...while the ancient "heterodox" movements retain their claim to be the only "real" revolutionaries out there...

A stable equilibrium, if you will.

Noah's Opinion

Sobre el mejor sistema educativo del mundo...

El secreto de uno de los mejores sistemas educativos del mundo

El sentido de la responsabilidad está arraigado en la cultura finlandesa.

No son los que más invierten en educación (menos del 7% del PIB), ni los que imponen la mayor carga horaria a los niños en las escuelas. Tampoco se inclinan por dar cantidades excesivas de tarea para la casa; y, a la hora de evaluar formalmente el éxito del proceso de aprendizaje, un par de exámenes nacionales cuando los jóvenes dejan la escuela, a los 18 años, les basta.

Entonces, ¿cómo es posible que los alumnos finlandeses siempre ocupen los primeros puestos en las listas internacionales que evalúan los niveles educativos?

En el informe más reciente de PISA -siglas en inglés del Programa Internacional para la Evaluación de Estudiantes de la OCDE (Organización para la Cooperación y el Desarrollo Económicos)- de 2009, Finlandia ocupa el puesto número dos en ciencia, el número tres en lectura y el número seis en matemáticas.

Esta evaluación se realiza cada tres años (los resultados de los exámenes de 2012 se publicarán en diciembre de 2013). En 2006, por ejemplo, Finlandia se estableció en los primeros dos puestos en las tres áreas.

Mientras en América Latina las protestas estudiantiles -más recientemente las de Chile y Colombia- ocurren con frecuencia, Finlandia parece haber encontrado un modelo -de educación gratuita de principio a fin y donde las escuelas privadas casi no existen- que tiene a los maestros y a los estudiantes contentos por igual.

La educación a grandes rasgos

Idea básica: igualdad de oportunidades.

Los niños empiezan la escuela a los 7 años.

Casi todas las escuelas son públicas (el número de escuelas privadas es ínfimo).

Toda la educación es gratuita (desde el preescolar hasta la universidad)

La comida y los materiales de estudio también son gratuitos.

Durante los primeros seis años de primaria es el mismo maestro para casi todas las asignaturas.

Jornada escolar: de 8.30 - 9 a 15 hs., con media hora de almuerzo.

Exámenes nacionales cuando los alumnos tienen 18 años

Promedio de alumnos por clase: 23.

Clases mixtas (mujeres y varones, y diferentes grados de capacidad).

Maestros debe tener una maestría para ejercer la docencia.

El orgullo de ser maestro

Son muchos los factores que hacen que la educación en Finlandia sea una de las mejores del mundo, pero uno de los temas clave, según varios expertos consultados por BBC Mundo, es la calidad de los profesores.

"El profesorado tiene un nivel de formación extraordinaria, con una selección previa tan exigente que no se compara con ninguna otra en el mundo", le explica a BBC Mundo Xavier Melgarejo, un psicólogo y psicopedagogo español que empezó a estudiar el sistema educativo en Finlandia hace más de una década.

"Sólo entra en las facultades de educación gente con notas por encima de nueve, nueve y medio sobre diez. Son muy exigentes. Se les hacen pruebas de lectura, sensibilidad artística, de dominio de algún instrumento, de comunicación... Como resultado, las universidades sólo reclutan a un 10% de los estudiantes que se presentan.

Y para ejercer la docencia todos los maestros necesitan hacer una maestría.

La contraparte de esta exigencia es el reconocimiento. No necesariamente en términos económicos, ya que los sueldos de los educadores no presentan grandes diferencias con el resto de Europa (según la Organización para la Cooperación y el Desarrollo Económico, OCDE, el salario básico de una maestro de primaria es de entre US$29.000 y US$39.000 anuales), sino sociales.

"Los maestros son considerados profesionales académicos y tienen la responsabilidad de desarrollar su trabajo, por eso no se ejerce sobre ellos un control excesivo", le explica a BBC Mundo Anita Lehikoinen, Secretaria Permanente del Ministerio de Educación y Cultura de Finlandia.
Nurmi

"Aquí no es como en otros sitios, no tenemos tantas normas", dice Hilkka-Roosa Nurmi, profesora de idiomas.

"Esta profesión atrae a tanta gente porque ser maestro es un honor en Finlandia. Probablemente sea la profesión más valorada", acota Melgarejo.

"Yo no soñaba con ser profesora, pero ahora me dedico a esta profesión y me gusta mucho", explica Hilkka-Roosa Nurmi, una profesora de español e inglés que tiene experiencia como docente de estas lenguas en su país y en España.

"Aquí no es como en otros sitios, no tenemos tantas normas. Podemos elegir cómo enseñamos. Tenemos más libertad. Pero esto significa también más responsabilidad", dice.

Tú vales lo que sabes

Otra de las razones por las que el sistema finlandés funciona es, en gran medida, porque la escuela es sólo uno de los engranajes del proceso educativo. Las otras variables de peso son la familia y la sociedad -de tradición luterana- donde hay un elevado sentido de la responsabilidad y donde se valora a las personas "por su formación y no por su situación socioeconómica", dice Melgarejo.

Para darnos una idea, "en la cultura luterana uno se salva cuando lee la Biblia, se llega a Dios a través de la palabra escrita". Y aunque hoy día las iglesias no estén muy llenas, el valor de aprender a leer y escribir ha quedado profundamente arraigado en la cultura finlandesa, agrega Melgarejo.

En esto coincide Lehikoinen: "la mayoría de los hogares están suscritos a uno o varios periódicos y ésta es una tradición que luego se pasa a los niños", señala.

El sentido de la responsabilidad está arraigado en la cultura finlandesa.

Los medios indirectamente también ayudan al aprendizaje de la lectura. "Todos los programas de televisión en lengua original, la mayoría en inglés, están subtitulados y eso impulsa a los niños a aprender a leer y a aumentar la velocidad lectora", señala Melgarejo.

Pero también los finlandeses apuestan por la educación porque saben que como país pequeño, rodeado de vecinos poderosos como Rusia o Suecia y sin un arsenal de recursos naturales a su disposición, la cultura -su dominio en el ámbito del conocimiento- es lo que lo que les da la posibilidad de competir en una economía global.

Y puertas adentro, la excelencia en el nivel educativo se traduce "en un grado importante de cohesión social, que les permite a los finlandeses sentir que son parte de la sociedad, incluso en tiempos de crisis", explica Lehikoinen.

Gasto público en educación, total (% del PIB)

Finlandia: 6,8%
Suecia: 7,3%
Dinamarca: 8,7%
Argentina: 6%
Cuba: 13,1%
Chile: 4,2%
México: 5,3%
Estados Unidos: 5,4%

Fuente: Banco Mundial 2009

Lecciones para América Latina

Cuando se dieron a conocer los resultados de la primera evaluación PISA en el año 2000, el gobierno se vio inundado de visitas de delegaciones extranjeras que acudían a Finlandia para descubrir los secretos de la maravilla nórdica e implementarlos en sus propios países.

Alemania por ejemplo, azorada por sus resultados mediocres en la prueba, tomó nota del programa finlandés e introdujo reformas en su sistema.

¿Pero qué posibilidad tienen los países de América Latina, donde la educación pública está lejos de ser un orgullo, donde el sueldo de los maestros no está a la altura de sus responsabilidades y donde no existe un estado de bienestar como en algunos países europeos, de implementar un sistema educativo como el de Finlandia?

"No puedes copiar y pegar el sistema entero", le dice a BBC Mundo Andreas Schleicher, responsable de las evaluaciones PISA, "pero puedes ver cómo los finlandeses saben quién es un buen maestro, cómo los reclutan, cómo les asignan las clases o cómo se aseguran de que cada niño se beneficie de lo que le enseñan".

Melgarejo también cree que se pueden importar ciertos elementos, como mejorar la selección de buenos maestros, fomentar las bibliotecas públicas -ampliamente concurridas en Finlandia- y hacer que las familias contribuyan al proceso de escolarización.

Y quizá una lección útil para América Latina sea aprender cómo Finlandia afronta los cambios en el ámbito de la educación.

"Todo se basa en la confianza mutua y en la construcción de un consenso. Cuando planteamos grandes reformas educativas, por ejemplo, siempre involucramos a los maestros y a los alumnos, no se trata de órdenes del gobierno que los educadores tienen que acatar, son reformas que hemos preparado juntos", afirma Lehikoinen.

Después esta descripción de Lehikoinen, Melgarejo y Schleicher, uno podría tender a imaginarse una clase en Finlandia como una situación idílica: un grupo de niños obedientes escuchando embelesados una clase magistral que interrumpen de tanto en tanto con una pregunta inteligente.

Nada más lejos de la realidad. Los niños hacen las mismas travesuras que en cualquier parte del mundo. Incluso, a veces, "cuando hacen las mediciones de educación es una paradoja porque aunque les va muy bien, cuando les preguntan si les gusta la escuela, siempre dicen que no. Quizá eso se deba al espíritu independiente de nuestros niños", concluye Lehikoinen.

Noticias Ventania

Videos: Cómo funciona el blanqueo de divisas

Krugman: La mecanización disruptiva llega a los trabajadores del conocimiento

Sympathy for the Luddites

By PAUL KRUGMAN  

NYT

In 1786, the cloth workers of Leeds, a wool-industry center in northern England, issued a protest against the growing use of “scribbling” machines, which were taking over a task formerly performed by skilled labor. “How are those men, thus thrown out of employ to provide for their families?” asked the petitioners. “And what are they to put their children apprentice to?”

Those weren’t foolish questions. Mechanization eventually — that is, after a couple of generations — led to a broad rise in British living standards. But it’s far from clear whether typical workers reaped any benefits during the early stages of the Industrial Revolution; many workers were clearly hurt. And often the workers hurt most were those who had, with effort, acquired valuable skills — only to find those skills suddenly devalued.

So are we living in another such era? And, if we are, what are we going to do about it?

Until recently, the conventional wisdom about the effects of technology on workers was, in a way, comforting. Clearly, many workers weren’t sharing fully — or, in many cases, at all — in the benefits of rising productivity; instead, the bulk of the gains were going to a minority of the work force. But this, the story went, was because modern technology was raising the demand for highly educated workers while reducing the demand for less educated workers. And the solution was more education.

Now, there were always problems with this story. Notably, while it could account for a rising gap in wages between those with college degrees and those without, it couldn’t explain why a small group — the famous “one percent” — was experiencing much bigger gains than highly educated workers in general. Still, there may have been something to this story a decade ago.

Today, however, a much darker picture of the effects of technology on labor is emerging. In this picture, highly educated workers are as likely as less educated workers to find themselves displaced and devalued, and pushing for more education may create as many problems as it solves.

I’ve noted before that the nature of rising inequality in America changed around 2000. Until then, it was all about worker versus worker; the distribution of income between labor and capital — between wages and profits, if you like — had been stable for decades. Since then, however, labor’s share of the pie has fallen sharply. As it turns out, this is not a uniquely American phenomenon. A new report from the International Labor Organization points out that the same thing has been happening in many other countries, which is what you’d expect to see if global technological trends were turning against workers.

And some of those turns may well be sudden. The McKinsey Global Institute recently released a report on a dozen major new technologies that it considers likely to be “disruptive,” upsetting existing market and social arrangements. Even a quick scan of the report’s list suggests that some of the victims of disruption will be workers who are currently considered highly skilled, and who invested a lot of time and money in acquiring those skills. For example, the report suggests that we’re going to be seeing a lot of “automation of knowledge work,” with software doing things that used to require college graduates. Advanced robotics could further diminish employment in manufacturing, but it could also replace some medical professionals.

So should workers simply be prepared to acquire new skills? The woolworkers of 18th-century Leeds addressed this issue back in 1786: “Who will maintain our families, whilst we undertake the arduous task” of learning a new trade? Also, they asked, what will happen if the new trade, in turn, gets devalued by further technological advance?

And the modern counterparts of those woolworkers might well ask further, what will happen to us if, like so many students, we go deep into debt to acquire the skills we’re told we need, only to learn that the economy no longer wants those skills?

Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).

So what is the answer? If the picture I’ve drawn is at all right, the only way we could have anything resembling a middle-class society — a society in which ordinary citizens have a reasonable assurance of maintaining a decent life as long as they work hard and play by the rules — would be by having a strong social safety net, one that guarantees not just health care but a minimum income, too. And with an ever-rising share of income going to capital rather than labor, that safety net would have to be paid for to an important extent via taxes on profits and/or investment income.

I can already hear conservatives shouting about the evils of “redistribution.” But what, exactly, would they propose instead?

Dos diagramas para toda la historia económica mundial

World economic history in two diagrams

12 JUNE 2013 BY JASON COLLINS. Evolving economics

Gregory Clark opens A Farewell to Alms with a strong claim:

The basic outline of world economic history is surprisingly simple. Indeed it can be summarized in one diagram: figure 1.1.

I like Clark’s claim, but I’m now convinced that we need a second. From Michael Kremer’s Population Growth and Technological Change: One Million B.C. to 1990:

Figure I plots the growth rate of population against its level from prehistoric times to the present.

Even though there was negligible per person income growth through the Malthusian era, technological change was accelerating. As more people leads to more ideas (as there are more people to come up with them), a larger population leads to faster technological progress. Technological progress in turn allows for further population growth. The resulting pattern is faster than exponential growth in technology and population – a dynamic that does not show up in Clark’s chart.

If I were to stretch it to a third diagram I would want something that captures the dynamism of the Malthusian era – population bottlenecks, different rates of growth across different populations and the like – but I’m not sure what that chart would look like yet.

Economía + Redes sociales: Del Homo Economicus al Homo Sociabilis

Helbing - "Del Homo Economicus al Homo Socialis"

Publish at Calameo or read more publications.

Racionados con VISA

Racionamiento con VISA en Venezuela

Una pantalla de un cajero desautoriza la compra para un cliente en un supermercado bolivariano al haber superado la cuota de racionamiento diario. Paradójicamente el supermercado ofrece pagarlo con una tarjeta de crédito que es una herramienta de financiamiento del consumo. Y todo esto en un país con altísimas rentas petroleras. Es todo un símbolo de la capacidad de gestión estatal.

Definiendo "reservas"

Defining “Reserves”

Steve Roth | June 12, 2013 7:33 pm

US/GLOBAL ECONOMICS

Angry Bear

I’ve run into quite a bit of confusion in conversations discussing bank reserves, and found occasion to get precise on the usage in recent comments. I thought I’d share it with others. This has been vetted by several who are more worthy than I, so I feel quite confident in offering it up.
1. “Reserve balances.” These are banks’ deposits at the Fed. Similar to your credit balance in your checking account (except in “bank money”). They’re liabilities of the Fed, assets of the banks. They appear and are identified as such on banks’ (and the Fed’s) balance sheets.
2. “Required reserves.” A regulatory amount (percentage of deposits) that banks are required to hold in specified “safe” assets — significant examples being treasuries, vault cash, gold (in their vaults or the Fed’s), and…reserve balances. The term “required reserves” does not appear on banks’ balance sheets.
3. “Excess reserve( balance)s.” I add “balances” because this explicitly refers to that particular type of holdings — deposits at the Fed. A bank could (in theory) have sufficient required reserves held in treasuries and vault cash, so all of its reserve balances could be “excess reserves.” (Depending on which of the bank’s assets you might want to point to and arbitrarily call its “required reserves.” That thing is a regulatory (pro)portion, not a specific set of financial assets, or a balance-sheet entry.)
What’s funny here: Excess Reserves are explicitly not reserves in the sense of “funds that are required to be ring-fenced under law so depositors can withdraw their money or transactions can clear.” By definition, they’re the banks’ deposits at the Fed that are not ring-fenced.
So excess reserves are not actually “reserves.” No wonder people get confused.
Takeaway:

Required reserves aren’t necessarily held in the form of reserve balances.

Reserve balances are not necessarily required reserves.

(Which is why I would prefer a better term than “reserve balances.” Fed deposits?)

El declive económico francés

Bonjour Tristesse: The Economic and Political Decline of France

By Mathieu von Rohr

REUTERS

France is in the grip of a crisis. As both its economy and European influence weaken, scandal has hobbled its political elite. The country needs drastic overhaul, but President Hollande does nothing but waver and 

Der Spiegel

Judging by the imperial magnificence of the Elysee Palace, France has never ceased to be a world power. Rooms with five-meter (16-foot) ceilings, gilded chandeliers, candelabras and elaborate stucco work are guarded by members of the Republican Guard, who parade in front of the palace gates with their plumes of feathers and bayonets.

François Hollande never intended to become a king, but rather a "normal president," as he put it, and now he has to play one nonetheless. He occasionally seems like an actor who has somehow ended up in the wrong play.The man in charge, on the other hand, seems lonely and small in his palace. He is surrounded by court ushers who make sure that glasses and writing sets are perfectly arranged, and when he enters a conference room, they call out grandly "Monsieur le Président de la République!", to give his attendants time to stand up for him.

Outside, throughout the country, unemployment reaches new highs each month, factories are shut down daily, hundreds of thousands take to the streets to protest gay marriage, and the French are increasingly outraged over a barrage of new political scandals as the country hovers on the cusp of waning global relevance. Yet this roar of dissatisfaction doesn't permeate the walls of Hollande's world. Here, it is quiet, very quiet.

Shortly after moving into his new official residence, Hollande warned his staff that in a palace it is easy to feel protected, and he insisted that he did not want to be "locked in." But that is precisely what is happening, as evidenced by the documentary film "Le Pouvoir" (The Power), which recently debuted in French theaters and whose creators accompanied Hollande during the brutal first eight months of his presidency.

Elite in a Bubble

They paint an image of a likeable man who seems to spend a lot of time rewriting speeches prepared by his staff. As you watch him in the movie, you start to wonder: Does he do all the important things when no one's watching or does he really spends most of his time on the unimportant? However, the main subject of the film is not the president, but rather the reality bubble in the country's top echelons. Not just Hollande, but also most of his cabinet ministers, still reside in Parisian city palaces that predate the French Revolution, and perhaps that's a problem.

A justice minister who spends her days in the Hôtel de Bourvallais on Place Vendôme, next door to the Hotel Ritz, a culture minister who goes to work at the magnificent Palais Royal, a prime minister whose offices are in the grand Hôtel Matignon and a president who resides at the Elysee Palace, they all need a great deal of inner strength to avoid losing their connection to reality. It's a difficult proposition, because Paris's settings of power convey the message that France is big, rich and beautiful.

But the mood hanging over the country is depressed. France is in the midst of the biggest crisis of the Fifth Republic. It feels as if the French model had reached an end stage, not just in terms of the economy, but also in politics and society. A country that long dismissed its problems is going through a painful process of adjustment to reality and, as was the case last week, can now expect to be issued warnings by the European Commission and prompted to implement reforms.

France's plight was initially apparent in the economy, which has been stagnating for five years, because French state capitalism no longer works. But the crisis reaches deeper than that. At issue is a political class that more than three quarters of the population considers corrupt, and a president who, this early in his term, is already more unpopular than any of his predecessors. At issue is a society that is more irreconcilably divided into left and right than in almost any other part of Europe. And, finally, at issue is the identity crisis of a historically dominant nation that struggles with the fact that its neighbor, Germany, now sets the tone on the continent.

The French economy has been in gradual decline for years, without any president or administration having done anything decisive about it. But now, ignoring the problems is no longer an option. The economy hasn't grown in five years and will even contract slightly this year. A record 3.26 million Frenchmen are unemployed, youth unemployment is at 26.5 percent, consumer purchasing power has declined, and consumption, which drives the French economy, is beginning to slow down, as well.

There is a more positive side of the story, which sometimes pales in the face of all the bad news. France is the world's fifth-largest economy, and interest rates for government bonds have been at historic lows for months. The country is far from being on the verge of bankruptcy and cannot be compared with Italy or Spain, and certainly not with Greece. Nevertheless, France is ailing. And looking weak is something the French themselves hate more than anything else.

Consequences of French Decline

This mixture of factors could jeopardize the entire European structure. For one thing, if France continues to decline, more and more responsibility will be shifted to Germany. "Germany cannot carry the euro on its shoulders alone indefinitely," writes Harvard University economist Kenneth Rogoff. "France needs to become a second anchor of growth and stability."

Another problem is that the European Union is losing its standing in France at a more dramatic pace than in any other EU member state. According to a study by the Pew Research Center, the public approval of the EU in France has declined from 60 to 41 percent in only a year. This might be owed to the uncomfortable fact that Brussels is increasingly treating France as a problem and not as one of Europe's supporting columns, and many French citizens have started to see the terms 'Brussels' and (German Chancellor) 'Angela Merkel' as synonymous.

But is the EU to blame for the France's crisis? Can Europe truly be held responsible for the fact that the government is behind 57 percent of total economic output in France? That government debt has risen to more than 90 percent of the gross domestic product? Is it Germany's fault that, for decades, French administrations have failed to make the country's business environment more competitive? And has anyone in Brussels demanded that a fifth of all workers in France be employed by the government?

France may be ailing, but it still has a lot going for it. It is home to successful major corporations, such as the luxury brand group LVMH, tire manufacturer Michelin and many pharmaceutical companies. The country has an efficient healthcare system, the highest birthrate in Europe and healthier demographics than Germany, fostered by tax breaks for families, the acceptance of working mothers as a fact of life and a corresponding system of full-day childcare.

But the French welfare state costs money, a lot of money. The country has neglected to make decisions on how much its individual achievements are worth, and how certain luxurious aspects of life it has come to appreciate could be modified to conform to not-so-luxurious realities, including the 35-hour workweek, a retirement age of 60 for some workers and unemployment benefits of up to €6,200 ($8,122) a month. As a result, there is a sense of gridlock, and a sour public mood is following on the heels of bad economic news.

Stuck in Past Grandeur?

France has an illustrious past, of which it is justifiably proud, but its historic success also prevents it from clearly recognizing the need for reforms. The omnipotent, bloated central government, which also controls the economy, should have been reformed long ago. The privileges of the Paris political elite are so outdated that they have become intolerable, and many bribery and corruption scandals are undermining an already fragile political legitimacy.

It cannot be accidental that France's leading politicians increasingly refer to their country as the "grande nation." Since the election campaign, President Hollande has hardly missed an opportunity to invoke the nation's greatness. With some dialectical malice, one could see this as evidence that France's greatness is now becoming a relic, but it certainly reflects the self-hypnosis of a nation whose stature is in the process of shrinking.

"Our soldiers demonstrated our role," Hollande said recently in a major press conference at the Elysée Palace, as he praised one of his rare successes, the military operation in Mali. "Namely that of a great nation that can influence the balance of power in the world."

There is an increasingly stark contrast between the feigned grandiosity of the president's appearances and the faintheartedness of his daily actions. The obstructionism and inflexibility that prevail throughout the entire country can only be eliminated through deep-seated renewal. But so far Hollande, who promised "change" in his campaign, has been more conspicuous for his hesitation than his courage.

Since this spring, Hollande has been viewed by most commentators as the nice "Grandpa" in the Elysee Palace, who lacks the gumption to address the country's serious structural problems. The French constitution grants the office of the president more power than is allotted any other leader of the Western world. Besides, his Socialist Party holds significant majorities in the National Assembly, the Senate and even in regional governments.

In other words, Hollande could get down to business on any day he chooses. He could reform the country as he wished, if only that were his objective. But no one -- not citizens, not journalists and possibly not even his cabinet ministers -- knows what he wants and if indeed he wants anything at all.

Does he aim to be France's great reformer but lacks the courage to defy the left wing of his party, as a member of the German government believes? Or is it that he clings to his party's old formulas, wants to change as little as possible and is waiting for the day when the recovery happens on its own?