I'm glad we have people like Sarkozy who can help us distinguish between good and bad wealth creation. Mere mortals may consider all wealth creation to be good.

I am extremely troubled by speculative movements

I am "extremely troubled" by someone who is so blind to the fact that evil speculators make it possible for people to enjoy things like fixed-rate mortgages, up-front payments for wheat that has not been harvested yet, etc. In a world of uncertainty, we need speculators to shoulder risk, since who else will?

I find the basic ignorance of such economic concepts truly terrifying. It goes back to this notion that wealth is material, like something that you can hit with a hammer. Such folk haven't a clue about markets or prices at all.

Interesting, I'd like to hear more.

No reason why speculators should suffer less tax than anyone else. That amounts to a perverse incentive for speculation.

Yep, terrifying indeed, Johnathan. And makes those who actually believe or hope Sarkozy will change anything for the better look rather foolish.

samson, no, the obvious solution is to lower tax rates across the board, so as not to discriminate for or against "good" or "bad" behaviours, as defined by economic ignoramuses like your typical French politician.

While Sarko is on his yacht sailing around Malta, he could have improved his mental state by reading the complete works of that great French writer, Frederic Bastiat.

What unbelievable stupidity. The man being feted as 'The French Thatcher' by many commentators is an economic ignoramus.

..up-front payments for wheat that has not been harvested yet..

..I find the basic ignorance of such economic concepts truly terrifying..

That's an interesting couplet. I'm amazed you believe that crap. I wonder how many farmers use forward-contracts. Care to speculate how close to zero, Jonathan ?

Samson, what planet do you live on..

commodity trading anyone?

Wake up folks, it's France. While Sarkozy wants (in his speech at least) to emphasize on personal responsibilty and value efforts and work, he's still somewhat a protectionist. For instance, he made some declarations against outsourcing as well (for companies that make profits).

So no, Sarkozy is not France's Reagan or Thatcher. He's depicted as a liberal (even ultra-liberal (sic) ) in France because he openly praises capitalism, which says a lot about France's state of mind and political bias.

So don't get your hopes too high. He was the lesser of two evil, I'd say and at least puts work, effort and personal responsibility back in the political debate in a nation where all revolves around social help and having your hand held by the state all your life.

samson, what makes you think that places like the Chicago Board of Trade (CBOT) exist? It exists because farmers, who don't know what their harvest will be like, will willingly accept a set rate per bushel for their crop. The speculators obviously take on the risk that the spot price of wheat will turn out higher than what the farmers get, but at the same time shoulder the risk if their bets go wrong. That is why there are futures and options markets around the world. They are not based on magic.

As a farmer's son by the way, I know a thing or two about this.

People buy things speculatively all the time. However, people prefer those speculators who get rich from betting on the success of others to those who get rich from betting on the failures of others. Debt recovery agencies are no doubt a valuable part of the economy, but I'm hardly surprised people don't like them.

The problem is not the public perception, but that politicians pander to it so easily and obviously.

One always lives in hope that this kind of statement from Sarko falls into the 50% of everything he'll say that he has no intention of doing. But who knows?

Debt recovery agencies are no doubt a valuable part of the economy, but I'm hardly surprised people don't like them.

A fair point. The contradictory nature of political wisdom on this never fails to amaze. In the US, there has been a collapse in the price of bonds tied to the value of what are called "sub-prime" mortgages (loans to high-risk people). Politicians moan that it is irresponsible for banks to lend money to risky people. But at other times, these same folk bleat that is wrong not to lend money to risky people as this is "unfair" or whatever.

Adriana - Terra Firma.

Johnathan - Interesting. so does your dad go to the futures market to guarantee his prices - or does he put his hand into the public purse and avail himself of the EU price support mechanism ?

samson, doubt it... otherwise you would have heard of commodity trading (as Johnathan explained in later comment) and not ask questions about "up-front payments for wheat that has not been harvested yet"...

Care to speculate how close to zero, Jonathan ?

As a former commodity broker, I do not need to speculate... when I was dealing in London about 30% of our clients were agricultural producers of various kinds using futures to hedge... when I was working in New York, about 60% of our (much larger) number of clients were actual producers... so I would have to say a great deal larger than zero.

But the fact is 'speculation' is not as bad thing. In fact it is a good thing.

Oh yes, and samson, as your last comment contained a gratuitous insult to Johnathan and his father, who farmed within a legislative and regulatory framework he cannot control, either phrase your remarks differently or fuck off. Not a request.

samson, a farmer can go to the local elevator and arrange a contract.. he doesn't have to drive to Chicago and sell it on the CBT. Two types come to mind..

A Forward Contract, where a farmer makes a contract to sell a specific quantity and a certain time at a price fixed by the contract. Let's say my dad contracts to sell "Troy Elevator" 10,000 bushels of corn for $2.70 per bushel in the month of November. His risk is in that he won't meet the quantity.. another is that the price is higher than when the real price is at the time of the contract.

A Basis contract is where a farmer sets a basis price and NOT a futures price. This is for the quantity that a field will produce rather than a fixed quantity. The elevator, or whoever engages in the contract, owns.. has title on the field production. My dad can sell corn at planting for $0.40 under a November contract with the speculation that the basis (or real price) will go down at the actual harvest time than what the futures price will bring in.

Adriana - you're quoting me quoting Johnathan.

Perry. That's a bit touchy. It's not an insult and is in fact a fair question, given Johnathan offered the information as support for his point of view.

The leveraged take overs Sarkozy is railing against is a perfect example of the market allocating resources efficiently. Buying underperforming assets and restructuring them is a necessary function for the market to improve its efficiency.

That he appears clueless as to the functional benefits of speculation is not suprising - politicians are generally clueless. It's his idea that a bunch of politicians could 'reinforce the morality' of anything I find truly gobsmacking! A mob of used car salesmen would do a better job...

Johnathan - Interesting. so does your dad go to the futures market to guarantee his prices - or does he put his hand into the public purse and avail himself of the EU price support mechanism ?

No, he used a corn dealer, who takes care of that. He also used co-operative buyers of wheat, etc. It is called the division of labour, old chap. As for EU subsidies, if we got rid of them, as we should, then the prices of agricultural products would fluctuate even more, making the need for futures and other financial derivatives more, not less necessary.

Sarkozy is ignorant in other areas as well. When he came to the US, he said he admired the US system, but he thought some provision should be made for those who suffer poverty through no fault of their own. Apparently he hadn't any idea that the US government steals hundreds of billions of dollars from productive citizens every year and shovels them into the maws of looters and moochers and, oh, probably, a few deserving poor. I'm afraid, though, he's the best that's going to come out of France.

Robert: I doubt he's that ignorant.I rather suspect that the remark was meant for French ears.

One of the aspects of economic activity I find fascinating because I am involved in it and because it is so rarely factored into economic discussion is an element best described as intellectual capital. As a textbook author I've used the contents of my intellectual reservoir to generate a whole string of economic activity on the part of third parties. On a much vaster scale J.K. Rowling has done the same. So where exactly do we the generators of this activity fit into the economic picture? BTW my publications are not under my married surname, Woods.

J said - "people prefer those speculators who get rich from betting on the success of others to those who get rich from betting on the failures of others. Debt recovery agencies are no doubt a valuable part of the economy, but I'm hardly surprised people don't like them."

I understand what you're saying, but why are undertakers and doctors not similarly reviled? They make a living from human misery and suffering just as much as - if not more than - debt collectors or "downside speculators".

Obviously because doctors are making those miserable people better (at least that is their goal), while the others don't. And, are you saying that traditionally undertakers are liked?

Undertakers provide a valuable service, and they have to make a living. When my Gran died I was extremely dismayed at the industrial way in which she was disposed of, I expressed this to one of the undertakers and he sympathised completely, I felt better. That is what undertakers are paid to do, to make people feel better at a time when there's not really much that can be done to make people feel better. They don't make a living off the backs of people's misery, they are paid to make the passing of a dear friend or relative no more painful than it is already. If they were really in the business of feeding on people's misery then they'd simply have a roll of bin liners and a pit. Undertakers get a bum rap in my opinion, purely derived from our deeply ingrained superstition about the dead.

I don't know if it's a translation problem. What he's complaining about is not "speculators" but "asset strippers".

That's essentially what happens when a company's market value is (temporarily?) less than the value of its assets/components, so buying it at that price and destroying it to make a very quick profit is possible.

It can happen when people start dumping stock because they see the price dropping and get carried away with themselves. Everybody is selling because everybody else is selling, and the price drops below the actual value of the company's assets.

When they get hold of such a company, the strippers could hang on to it for the sake of the dividends and the possibility that it will rise in price again. Sometimes I think they do. But if they strip it, it is presumably because they've decided that it gives the better return, or less risk, or whatever. The company may well be productive and profitable still, but it is more profitable to them dead.

The problem Sarkozy has in Socialist France is that people don't like it when they're chucked out on the dole and their life's work smashed up for no apparent reason. They don't understand that even a profitable company is still not as good as the even more profitable company that the owner can build with the money he's just got from selling it. Sarkozy is a politician and has to live with the voters he's got. I don't know whether Sarkozy understands but is going along with it, or whether he's missed it too, but I'd be pretty sure most Frenchmen wouldn't.

Even most capitalists might have to think for a moment to be able to explain it. If you'd been brought up in a Socialist education system, what chance would you have?

It's not an insult and is in fact a fair question, given Johnathan offered the information as support for his point of view.

Samson, I did not take your views as an insult, although some of your earlier remarks suggested a degree of glib sarcasm that make Perry understanderbly pissed off. For what it is worth, my father, along with 99% of all farmers operating in the UK since WW2, received, however indirectly, forms of state subsidy, just as you have probably driven on state-funded roads and received other benefits produced by tax-funded spending. I would rather the whole edifice of agricultural support was destroyed, since it has been damaging to the independence of farming and property rights in the long run.

However, your comment that "zero" farmers take advantage of fixed prices for goods as a result of the deals struck in a market with speculators was incorrect and Perry pointed that fact out. You could at least have the good grace either to respond to that point or be rather more civil in the future.

According to Oliver Letwin, Cameron conservativism 'all goes back to Marx,' so let's all just give up now, eh?

They are not called the Stupid Party for nothing, Ham.

It's hard for me to believe Sarkozy really is that clueless. I suspect he knows his audience, and I further suspect French people are terrified of being made redundant. French labor policy supports the idea of a job as a lifetime sinecure, but at the cost of high unemployment.

Sarkozy is a politician and has to live with the voters he's got.

Inspired politicians stick to what they believe is true, and try to convince the public.
Second class politicians have no beliefs or opinions of their own, and pronounce ideas that are fashionable at the moment.
If we assume that Sarko usually knows what he is talking about, we must also conclude that he is clueless on this particular issue.

Jacob,

Maybe so, but there are limits to what even the most inspired politician can get away with. And there's a word for politicians who insist that what they believe is true, and try to persuade everybody else that they're wrong.

Politicians have to build political capital by first doing what other people want, so they can expend it on the things that matter most to them but that others don't believe in. And they need to make those things visibly succeed to rebuild that capital before moving on to the next item.

You can't make asset strippers look good, and allowing it is probably a lot less important than other reforms that are needed. If he can, for example, exchange a ban on asset stripping for a lengthening of the working week, that would on balance be a success. It's not clear he can do even that, but if he goes in from the start supporting the rights of asset strippers to chuck people out of work, they'll fight him every step of the way.

Politicians are liars because voters and necessary alliances demand it. I don't know if Sarkozy understands. I suspect he probably doesn't; it's not at all an obvious aspect of capitalism. But it's no surprise him saying what he did even if he did understand it.

price drops below the actual value of the company's assets.

This happens when the market believes management is so bad it will fritter that value away before it can be stopped from doing so, or the sector's business opportunity in general is collapsing and there really is no future.

I remember when (I believe it was) Penn Central was selling below the steel scrap value of the railroad track they owned.

Genuinely viable businesses have their assets in things like IP, service contracts, production machinery, engineers/scientists, etc.

The first company I worked for out of college was Rockwell International. (sadly) Rockwell doesn't exist anymore as the amazing conglomerate it was, but Boeing is still servicing the space shuttle, someone else is servicing the B1B's, someone is making and servicing GPS sats, someone is still making the truck axles, etc. All of those who bought the pieces took a good chunk of the Rockwell engineers and managers because you don't just pick up engineering projects like those cold. The institutional knowledge" of long time employees has a lot of value.

Less technical thing like insurance and banking where a customer base is the asset probably work differently.

Sarkozy is many things, but he is nobody's fool--not even ours. He went to Science Po, which is the top undergraduate grande ecole for politics--which is why it offers joint programs with Columbia, Harvard, and U Chicago.

I doubt he does not know about asset-stripping's positive points.

He probably just knows better than we do that France does a crap job creating new companies. If Air France, for instance, gets split up by some corporate raider, there is not enough dynamism in France's society/economy to build another quickly. They would lose jobs in the transaction but would gain little from the new circumstances that would be created. What is creative destruction in the US is plain old destruction in France.

And looking for a Thatcher in France is like looking for Gaullists in the Conservative Party. Aside from the fact that Thatcher is admired tremendously, can you tell us why her thoughts would get traction in France? After all these years, why has not anybody in France run and won on her platform of smaller government?

Again, I doubt it is because of their ignorance. It is because they know the voters do not want it or would not swallow it.