Unfortunately for Europe, France in particular, "the long-debunked fallacy known as Say’s Law" lives on:
Scandal in France, by Paul Krugman, Commentary, NY Times: ...François Hollande, the president of France,... has done something truly scandalous.
I am not, of course, talking about his alleged affair... 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 moderate left.
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. ...
In this depressed and depressing landscape, France isn’t an especially bad performer. ... It’s true that the latest data show France failing to share in Europe’s general uptick. Most observers ... 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.
For 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... All the evidence says that France is awash in productive resources, both labor and capital, that are sitting idle because demand is inadequate. ...
So what’s the significance of the fact that, at this of all times, Mr. Hollande has adopted this discredited doctrine?
As 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... 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.
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.