Krugman’ blog, 1/16/14

There was one post yesterday, “France by the Numbers:”

“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 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.

Start with growth since the crisis. How does France stack up in the European context? Not as good as Germany, obviously. But if you compare it with other European countries — even if you leave out the troubled debtors — it doesn’t stand out as a poor performer:


European Commission

What about declining competitiveness? It’s true that France has run consistent current account deficits in recent years, but they’re quite small:


International Monetary Fund

France’s fiscal outlook doesn’t look at all worrying, except to the extent that it has slashed its structural deficit too much in the face of economic weakness:


International Monetary Fund

Bond markets, which panicked during the worst of the euro crisis, don’t seem very worried at this point:

French-German yield differential
French-German yield differential

Now, French performance has definitely been weak in recent quarters. But why? Francesco Saraceno argues, using survey evidence, that it’s demand, not supply. Inflation data also support this view:

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.

 

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