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Saturday, January 18, 2014
For my French friends and relatives: Nobel Prize winning economist Paul Krugman hadn't "...paid much attention to François Hollande, the president of France, since it became clear that he wasn’t going to break with Europe’s destructive, austerity-minded policy orthodoxy. But now he has done something truly scandalous."
The Opinion Pages | OP-ED COLUMNIST
Scandal in France
haven’t paid much attention to François Hollande, the president of
France, since it became clear that he wasn’t going to break with
Europe’s destructive, austerity-minded policy orthodoxy. But now he has
done something truly scandalous.
am not, of course, talking about his alleged affair with an actress,
which, even if true, is neither surprising (hey, it’s France) nor
disturbing. No, what’s shocking is his embrace of discredited right-wing
economic doctrines. It’s a reminder that Europe’s ongoing economic woes
can’t be attributed solely to the bad ideas of the right. Yes, callous,
wrongheaded conservatives have been driving policy, but they have been
abetted and enabled by spineless, muddleheaded politicians on the
now, Europe seems to be emerging from its double-dip recession and
growing a bit. But this slight uptick follows years of disastrous
performance. How disastrous? Consider: By 1936, seven years into the
Great Depression, much of Europe was growing rapidly, with real G.D.P.
per capita steadily reaching new highs. By contrast, European real G.D.P. per capita today is still well below its 2007 peak — and rising slowly at best.
worse than you did in the Great Depression is, one might say, a
remarkable achievement. How did the Europeans pull it off? Well, in the 1930s most European countries eventually abandoned economic orthodoxy:
They went off the gold standard; they stopped trying to balance their
budgets; and some of them began large military buildups that had the
side effect of providing economic stimulus. The result was a strong
recovery from 1933 onward.
Europe is a much better place, morally, politically, and in human
terms. A shared commitment to democracy has brought durable peace;
social safety nets have limited the suffering from high unemployment;
coordinated action has contained the threat of financial collapse.
Unfortunately, the Continent’s success in avoiding disaster has had the
side effect of letting governments cling to orthodox policies. Nobody
has left the euro, even though it’s a monetary straitjacket. With no
need to boost military spending, nobody has broken with fiscal
austerity. Everyone is doing the safe, supposedly responsible thing —
and the slump persists.
this depressed and depressing landscape, France isn’t an especially bad
performer. Obviously it has lagged behind Germany, which has been
buoyed by its formidable export sector. But French performance has been
better than that of most other European nations. And I’m not just
talking about the debt-crisis countries. French growth has outpaced that of such pillars of orthodoxy as Finland and the Netherlands.
true that the latest data show France failing to share in Europe’s
general uptick. Most observers, including the International Monetary
Fund, attribute this recent weakness largely to austerity policies. But
now Mr. Hollande has spoken up about his plans to change France’s course
— and it’s hard not to feel a sense of despair.
Mr. Hollande, in announcing his intention to reduce taxes on businesses
while cutting (unspecified) spending to offset the cost, declared, “It
is upon supply that we need to act,” and he further declared that
“supply actually creates demand.”
Oh, boy. That echoes, almost verbatim, the long-debunked fallacy known as Say’s Law
— the claim that overall shortfalls in demand can’t happen, because
people have to spend their income on something. This just isn’t true,
and it’s very much not true as a practical matter at the beginning of
2014. All the evidence says that France is awash in productive
resources, both labor and capital, that are sitting idle because demand
is inadequate. For proof, one need only look at inflation, which is
sliding fast. Indeed, both France and Europe as a whole are getting
dangerously close to Japan-style deflation.
So what’s the significance of the fact that, at this of all times, Mr. Hollande has adopted this discredited doctrine?
I said, it’s a sign of the haplessness of the European center-left. For
four years, Europe has been in the grip of austerity fever, with mostly
disastrous results; it’s telling that the current slight upturn is
being hailed as if it were a policy triumph. Given the hardship these
policies have inflicted, you might have expected left-of-center
politicians to argue strenuously for a change in course. Yet everywhere
in Europe, the center-left has at best (for example, in Britain) offered
weak, halfhearted criticism, and often simply cringed in submission.
Mr. Hollande became leader of the second-ranked euro economy, some of
us hoped that he might take a stand. Instead, he fell into the usual
cringe — a cringe that has now turned into intellectual collapse. And
Europe’s second depression goes on and on.