The source of the crisis is stagnation in domestic demand.

    Conventional wisdom today ascribes the 2008 crisis to a financial crisis caused, on the one hand, by the crisis in the American real estate market, especially that of the least-solvent households ("subprime"), and, on the other hand, by the excesses of eager and greedy financiers against a background of populist slogans such as "everyone a homeowner!" As for the crisis' aggravation in 2009, that's supposedly due to the diffusion of the financial crisis into the "real economy," a truly odd expression if you think about it.

    This interpretation is not wrong, but it is partial. It misreads the true source of the crisis: the indebtedness of American - and more generally, Western - households. How did this indebtedness come about even as people celebrated astounding American growth over the preceding fifteen years? Through Americans' measureless optimism, their credit tradition, through the sophistication of the financial products offered to households, the risk of which was subsequently infinitely divided and then spread via securitization, but, also and above all, because middle- and lower-class Americans' salaries didn't increase fast enough to satisfy their consumption needs. And what is true for the United States was also true in Great Britain, in Spain, in Germany - where real salaries dropped between 2000 and 2005 - and to a certain extent in France. When one compares the graph of American household debt to that of American GNP's current account balance, one realizes that "the trade im balance grows to the extent household debt swells." (Jean-Luc Gréau, L'Avenir du capitalisme, ["The Future of Capitalism"] Gallimard, Le Débat, 2005).

    The economic growth rate depends on two factors: the technological ability to increase the supply of goods and services and the sociological ability to enlarge demand for those goods and services. It's that sociological ability that failed. In a narrowly identified, especially national, framework, a company does not make the reduction of its total salary expenses a priority (the "Fordist compromise": I increase my workers' salaries so that they can buy my cars). However, with globalization, salaries are perceived solely as a cost, and, as soon as that happens, they stagnate. Ford's heir today could say, "I don't increase my workers' salaries because otherwise they'll buy foreign cars that cost less because salaries are lower there." But this stagnation weighs down demand, compresses domestic demand, and consequently global demand and economic growth: so then unemployment grows.

    That's where the key to the problem is to be found: foreign demand is not always higher relative to domestic demand. A salary and consumption increase made possible by a certain shutting-out of foreign products may more than compensate for the losses consequent to closing certain foreign markets.

    This text was Hakim El Karaoui's lecture to the Res Publica Foundation colloquium in Paris at the Maison de la Chimie, Monday, April 28.

    Hakim El Karaoui, essayist, French banker and author of "L'Avenir d'une exception' ["Future of an Exception"] (éditions Flammarion), considered the crisis, its origins, and the ways by which we may emerge therefrom, during the Res Publica Foundation colloquium.

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    Translation: Truthout French language editor Leslie Thatcher.