Tuesday, November 12, 2013

the plot against france...,


NYTimes | 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: France was being downgraded because “the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services and labor markets, is unlikely to substantially raise France’s medium-term growth prospects.” 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 that spending cuts are in fact better for the economy than tax increases. But they weren’t. In fact, 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, and 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. Remember, Ireland received high praise for its structural reforms in the 1990s and 2000s; in 2006 George Osborne, now Britain’s chancellor of the Exchequer, called it a “shining example.” How did that turn out? 

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. Fist tap Arnach.