Flipping through the New York Times front section today, I
came across a story about the Maduro government in Venezuela sending the military
in to take over a five-store retail chain selling electronics goods because
they were purportedly selling at prices that were too high and Christmas is
coming (and some municipal elections). Inflation
is not the result of disastrous government policy, it's the retailers'
fault! Now the military has marked down
all the stock and is liquidating it at the marked-down prices. That's quite an approach to retail insolvency they have in Venezuela. Don't bother with that chapter 7 or 11 stuff or hire Gordon Brothers to run your liquidation, just have the military do it all!
I've written before about the use of this strategy by Argentina
and some other Latin American governments -- when a party takes power on a
program of increasing hand-outs to the lower class, it has to perpetually
confiscate other people's property to fulfill its promises (because if you're getting handouts
just for voting, why would you ever bother to get a job and work hard to create
your own savings?). And those who try to hang on to their business
and savings have to be marginalized and demonized, so that public sympathy
cannot build in their favor and jeopardize the officeholders' hold on power, so
the confiscation program is always accompanied by rhetoric in which the
confiscator aligns himself or herself with the popular will and the defenders
of private property and savings are characterized as unpatriotic enemies of the
state. This is "chavismo" or "chavismo -lite" depending on how
far the party in power goes, and it has been a successful electoral strategy in
Argentina, Ecuador, Venezuela, and so
on. Recently Cristina Fernandez, the
president of Argentina, succeeded, for example, in disemboweling Clarin, the leading
media business in that nation, on anti-trust grounds, although most would say
it was because Clarin no longer gave her the unconditional support she thought
was her due. And here you can see
Cristina arguing that credit rating agencies are being used by the media and
people with interests contrary to Argentina to fool people.
Thus, the Times story notes that Maduro and his cronies
claim "his government is facing an 'economic war' waged by what he calls
the right-wing opposition in Venezuela and its backers in Colombia and the
United States." Standard operating
procedure.
Of course, voters here in the United States are far too intelligent
to subscribe to these kind of populist paranoid fantasies, aren't we? No intelligent voter would ever fall for the
argument that persons defending their businesses and savings against
politicians' pandering to lower-income votes are "waging an 'economic
war'" against the nation.
Reading on to the opinion page, I saw Paul Krugman titled
his column for the day "The Plot
Against France". Wow. A plot?
Sure sounds sinister. Who are the plotters? Krugman identifies "Standard & Poors
... The Economist ... CNN Money ... and
Mr Olli Rehn, Europe's commissioner for monetary and regulatory affairs".
An interesting cabal - 2 publications, a rating agency and a
bureaucrat. Remarkably, it's the very
same coalition that Cristina in Argentina and Maduro in Venezuela are fighting
against - media, rating agencies and non-complicit government figures.
And what does the plot consist of? In S&P's case, they downgraded
France. Quelle horreur! And the media
have published critical stories about France's external debt. And Mr. Rehn? He called on France to stop
raising taxes. To Krugman, these
evildoers are "using debt fears to advance an ideological agenda". That "right wing opposition" that
Maduro is fighting against, is everywhere!
Fortunately, we have Krugman to set them straight. Because France's fiscal policy is
"exemplary" he says. And their
"fiscal prospects look distinctly nonalarming". This of course from the man who in January 2008 titled Europe "The Comeback Continent". But hey, no one's perfect. Let's look at the exemplary fiscal policy of
France -- since debt is incurred in nominal dollars, the following table compares France's general
government debt to its nominal GDP.
Here, in nominal numbers, are the debt and GDP numbers for France
(trillions of euros):
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
Increase from first year to last.
|
|
Nominal government debt outstanding[1]
|
1.212
|
1.319
|
1.493
|
1.595
|
1.717
|
1.834
|
0.622
(50% increase)
|
Nominal GDP[2]
|
2.586
|
2.845
|
2.627
|
2.571
|
2.778
|
2.608
|
0.022
(<1% increase)
|
As the table shows, France has increased its debt by 50%
over 6 years, yet its nominal GDP has barely budged.
For every 50 euros of additional debt, France got less than 1 euro of
additional income. Which clearly puts a strain on its debt servicing capability.
Per the IMF, France has run federal budget deficits > 3%
of GDP for 6 straight years. That's a pretty long experiment with Keynesian
stimulus. Clearly its multiplier is bumping along the zero bound and there is
no evidence for any economic growth to be gained by continued deficit spending.
To address France's debt problem, Krugman advocates "temporary tax hikes" which he says are better than spending cuts. He cites to "research from the IMF" but the link just runs to one "working paper" which says it does not reflect the official views of the IMF. In fact, there are many research papers the IMF has published on the subject of tax vs. spending multipliers and they find many different things, including some that find tax multipliers to be greater than spending multipliers, the antithesis of Krugman's position. In general, the consensus is that fiscal multipliers are small for developed nations whether the policy involves tax or spending changes.
As far as France goes, with government spending constituting 56% of GDP, and a deficit of 4%, obviously tax revenue is already 52% of GDP. All that is left to "temporarily" tax is 48% of the economy! While at the same time, the larger share of the economy already captured by the government is off limits to the Krugmaniacs of the world. France's debt burden is to be borne entirely, under Krugmanian policy, by taking more from the private sector and cutting back privately funded consumption. And those who take a different perspective are just "plotters against France".
To address France's debt problem, Krugman advocates "temporary tax hikes" which he says are better than spending cuts. He cites to "research from the IMF" but the link just runs to one "working paper" which says it does not reflect the official views of the IMF. In fact, there are many research papers the IMF has published on the subject of tax vs. spending multipliers and they find many different things, including some that find tax multipliers to be greater than spending multipliers, the antithesis of Krugman's position. In general, the consensus is that fiscal multipliers are small for developed nations whether the policy involves tax or spending changes.
As far as France goes, with government spending constituting 56% of GDP, and a deficit of 4%, obviously tax revenue is already 52% of GDP. All that is left to "temporarily" tax is 48% of the economy! While at the same time, the larger share of the economy already captured by the government is off limits to the Krugmaniacs of the world. France's debt burden is to be borne entirely, under Krugmanian policy, by taking more from the private sector and cutting back privately funded consumption. And those who take a different perspective are just "plotters against France".
Unfortunately it looks like the chavismo model of political economy is moving north with the
Krugmaniacs of the world serving as its mules.
I think the northern version
needs a new name which I've decided should be "Krugismo". But it might
behoove the Times to look at what happened to Clarin and think twice about what
happens to elite organizations and freedom of speech in the chavismo / Krugismo model.
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