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Monday, November 11, 2013

Paul Krugman: The Plot Against France

Fiscal scolds -- the same people who have been wrong about the virtues of austerity -- have made France their next target:

The Plot Against France, by Paul Krugman, Commentary, NY Times: On Friday Standard & Poor’s ... downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned...
So what’s going on here? The answer is that  ... there really are a lot of people trying to bad-mouth the place —... one clear demonstration that ... fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. ...
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbors...
Meanwhile, French fiscal prospects look distinctly nonalarming. The budget deficit has fallen sharply since 2010... By the numbers, then, it’s hard to see why France deserves any particular opprobrium. So again, what’s going on?
Here’s a clue: Two months ago Olli Rehn, Europe’s commissioner for economic and monetary affairs — and one of the prime movers behind harsh austerity policies — dismissed France’s seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts — and tax hikes, he declared, would “destroy growth and handicap the creation of jobs.”
In other words, never mind what I said about fiscal discipline, you’re supposed to be dismantling the safety net. S.& P.’s explanation of its downgrade, though less clearly stated, amounted to the same thing... Again, never mind the budget numbers, where are the tax cuts and deregulation?
You might think that Mr. Rehn and S.& P. were basing their demands on solid evidence... But they weren’t..., research at the I.M.F. suggests that when you’re trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.
Oh,... when people start talking about the wonders of “structural reform,” take it with a large heaping of salt. It’s mainly a code phrase for deregulation — and the evidence on the virtues of deregulation is decidedly mixed. ...
If all this sounds familiar to American readers, it should. U.S. fiscal scolds turn out, almost invariably, to be much more interested in slashing Medicare and Social Security than they are in actually cutting deficits. Europe’s austerians are now revealing themselves to be pretty much the same. France has committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky. And it must be punished.

    Posted by on Monday, November 11, 2013 at 12:24 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (140)



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