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Monday, November 11, 2013

When Paul Krugman agrees with me, it proves what a genius I am


The Krugginator has been rapping on France a fair bit recently. You should go over and read the actual articles because he includes lots of charts to make his point patently obvious to even the most ignorant fucktard, but I'll give you some nice long teaser quotes here:

NYT - ideological ratings. Quote:
I’m sorry, but I think that when S&P complains about lack of reform, it’s actually complaining that Hollande is raising, not cutting taxes on the wealthy, and in general isn’t free-market enough to satisfy the Davos set. Remember that a couple of months ago Olli Rehn dismissed France’s fiscal restraint — which has actually been exemplary — because the French, unacceptably, are raising taxes rather than slashing the safety net.

So just as the austerity drive isn’t really about fiscal responsibility, the push for “structural reform” isn’t really about growth; in both cases, it’s mainly about dismantling the welfare state.

S&P may not be participating in this game in a fully conscious way; when you move in those circles, things that in fact nobody knows become part of what everyone knows. But don’t take this downgrade as a demonstration that something is really rotten in the state of France. It’s much more about ideology than about defensible economic analysis.

NYT - non-crisis France. Quote:
The first decade of the euro left Spain very overvalued, Germany very undervalued. France was in between, so there was no big news either way.

To use the jargon, the euro area suffered from very large asymmetric shocks — but France, which roughly tracked the euro average, wasn’t subject to these shocks.

So again, why the downgrade?

In 2011-2012 markets turned on France, for a while. But this was a liquidity issue, not a real concern about solvency, and it went away when the ECB signaled that it was willing to do its job as lender of last resort[.]

Oh, and here was the massive action after S&P’s announcement: [...] Seven whole basis points!

So I stand by my assessment: S&P wasn’t really assessing French default risk, it was slapping the French on the wrist for not being sufficiently committed to dismantling the welfare state.

NYT - more notes on France-bashing. Quote:
By just about any measure I can find, however, France looks not too bad by European standards. GDP has recovered roughly to pre-crisis levels; the budget deficit is fairly small and the medium-term debt outlook not at all scary; the long-term budget outlook is actually pretty good compared with its neighbors, thanks to a higher birth rate.

Yet the country is the subject of vituperative, over-the-top commentary. Here’s The Economist, a year ago, declaring France “The time bomb at the heart of Europe”. Here’s CNN declaring that France is in “free fall”.

[...]

CNN also declares,

France’s decline is best illustrated by the rapid deterioration in its foreign trade. In 1999, France sold around 7% of the world’s exports. Today, the figure is just over 3%, and falling fast.

Hmm. Just about every advanced country, the United States very much included, has a declining share of world exports (Germany is an exception); this New York Fed research paper notes that this decline is more or less in line with the declining share of advanced economies in world GDP as emerging nations rise, and it portrays France as more or less typical.

Again, the point is not that France is problem-free; the question is why this only moderately troubled nation attracts rating downgrades and so much apocalyptic rhetoric.

And the answer just has to be politics. France’s sin isn’t excessive debt, especially poor growth, lousy productivity (it has more or less matched Germany since 2000), poor job growth (ditto), or anything like that. Its sin is that of balancing its budget by raising taxes instead of slashing benefits. There’s no evidence that this is a disastrous policy — and in fact bond markets don’t seem concerned — but who needs evidence?

Now, Krugger is a perfesser, so despite the legendary "toss the grenade thru the doorway and move on" succinctness of his posts at NYT he's still given to using far too many words to make his point. Still, it's nice to see that he's in complete agreement with my far, far more to-the-point analysis of France, which is:

IF FRANCE IS SO BAD WHY IS ITS 10Y YIELD LOWER THAN THAT OF THE US, UK, CANADA, OR SWEDEN?

I await my honourary Ph.D. in Economics.


1 comment:

  1. It is possible to have a large and generous welfare system funded by high taxes while maintaining a competitive low debt economy, just look at the Nordic countries.

    Here in Sweden most people don't want any more tax cuts despite the heavy tax burden, they would rather spend the money on schools and health care. Our national debt is around 40% of GDP but our housing market is a bit over bought, maybe a bit like the Canadian one, so things might change in a couple of years' time.

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