Paul Krugman and other economists were stunned by by Hollande's recent endorsement of supply-side economics, the magic mantra of the Republicans since St. Reagan's Presidency. In France by the Numbers 01/16/2014, he writes:
“You shall not crucify mankind upon a croissant d’or.” That was Alan Taylor’s response (in correspondence) to François Hollande’s embrace of Say’s law — he literally said that “supply actually creates demand” — together with a shift to, again in his own words, supply-side policies. Kevin O’Rourke also weighs in, as did Ambrose Evans-Pritchard. Mark Thoma is your go-to site for the rapidly growing avalanche of horrified snark.The link Krugman gives as Alan Taylor is to a post by Francesco Saraceno, Jean-Baptiste Hollande Sparse Thoughts 01/15/2014. Hollande's supply-side statement from 01/14/2014 in French is, "L’offre crée même la demande." Hollande is using this canard, which was mistaken even in the 1920s when it was still widely used in economics textbooks, to promote an intensified pursuit of the neoliberal austerity agenda, as Saraceno explains:
In the third press conference since he became President, he outlined the main lines of intervention to revive the French economy, most notably a sharp reduction of social contributions for French firms (around € 30bn before 2017), financed by yet unspecified reductions in public spending. During the press conference, he justified this decision on the ground that growth will resume once firms start producing more.Citing a survey of French firms that has been taken since 1991, Saraceno observes, "French firms seem to agree with me that the top priority today is to restart demand, and that doing this 'will create its own supply'. Otherwise, more competitive French firms in a context of stagnating aggregate demand will only be able to export." Saraceno also describes the results, which he illustrates with a chart, this way:
A number of interesting facts emerges in my opinion: First, the blue line, the number of firms facing demand problems, closely tracks the developments of the crisis: a peak in 2008-2009 along he global financial crisis, a strong improvement in 2010, and then a double-dip coinciding with the sovereign debt eurozone woes. The message seems to be clear: since the beginning of the crisis the trouble for French firms came from insufficient demand. Keynes: right; Say (and François Hollande, and the Commission, and Angela Merkel): wrong. The second interesting fact is that the ratio of firms claiming they have only supply problems (yellow) or both (purple), remains broadly unchanged along these cyclical movements. Firms move from demand difficulties to no difficulties and back, but in the past six years they did not substantially change opinion on red tape, regulation, labour costs.This is really appalling. As Krugman puts it:
The amazing thing to me, aside from Hollande’s haplessness, is the extreme pessimism that has evidently enveloped French elite opinion. You’d think that France was a disaster area. Yet the numbers, while not good, just aren’t that dramatic. ...For conservatives like Merkel who are happy to help the One Percent pursue policies that enrich themselves at the expense of everyone else, austerity policies and supply-side justifications tacked on as a sales pitch at least make some kind of rational sense, reactionary and destructive as it may be. But for everyone else, the benefits of austerity are difficult to discern. And for a Socialist President who got elected on a very different program a year and a half ago? No wonder his popularity has reached unprecedented depths for a French President.
France, like much of Europe, seems to be flirting with deflation and very much at risk of a Japan scenario. Oh, and the IMF’s most recent Article IV consultation, while it tries to place some weight on “uncertainty” — zombies at the Fund! — still concludes that austerity policies are a large part of the story.
Again, things aren’t good. But you do have to wonder why the French elite is so easily intimidated into making a hard right turn while the elites of much worse cases like Finland and the Netherlands remain steadfast in their notion that the worse things get, the more committed they have to be to inflicting further pain.
Krugman also discusses Hollande's supply-side madness in his latest column, Scandal in France New York Times 01/16/2014:
... 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 moderate left.Heckuva job, Angie, heckuva job!
Right 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.
Doing 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.
And European social democrats have irresponsibly signed on to these Herbert Hoover/Heinrich Brüning policies. Krumgan:
... 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.He doesn't mention the German SPD, now the loyal junior partner in Merkel's latest Grand Coalition government and loyally backing Merkel Hoover/Brüning austerity policies for the eurozone. Heiner Flassbeck writes in Wirtschaftspolitisches Vakuum Blätter 1/2014, "Ich fürchte daher, mit dieser Koalition wird nicht nur die deutsche Sozialdemokratie, sondern ganz Europa Schiffbruch erleiden, weil auf dieser Fahrt in heftigem Sturm der wirtschaftspolitische Kompass fehlt." ("I fear that with this [Grand] Coalition not only German social democracy but all of Europe endure a shipwreck, because on this journey the economic-political compass is missing.")
When 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. [my emphasis]
Tags: angela merkel, austerity economics, eu, euro, european union, france, françois hollande, neoliberalism, spd