I wish I knew how to say “cherry pick” in French. Then I could write a snappier headline for this post about Paul Krugman’s recent efforts to show the devastating effects of Eurozone austerity policies.
Per the longstanding arguments of the New York Times columnist and Nobel Prize-winning economist, tight monetary and especially fiscal policies in post-financial crisis Europe have unnecessarily weakened recovery for reasons having nothing to do with sound economics and everything to do with conservative ideology run wild. In recent months, he has contended, these deeply and tragically misguided policies needlessly threaten to plunge the Eurozone into yet another recession.
His supposedly dispositive evidence? The economic performance of France. According to Krugman, a close examination of the country’s record completely debunks the conventional wisdom that its economy has long been a big government-ruined disaster area desperately in need of major belt-tightening and much more: “hugely uncompetitive, failing to create jobs, etc. etc.” In fact, Krugman purports to show, in critical respects that have dominated the analytical spotlight lately, the government-heavy French economy actually compares shockingly well with America’s.
How weird, then, that two of the main evidentiary points he makes seem heavily dependent on ignoring critical context.
His first major U.S.-France comparison concerns labor force participation. Focusing on prime-age workers (between 25 and 54 years of age), Krugman presents data revealing that whereas just under 76 percent of Americans in that demographic hold jobs – just above the recent record low – the French figure is just under 81 percent.
Here, however, is what Krugman doesn’t tell you. First, since 2001 (the time-frame of the chart he presents), according to the World Bank, France’s population has been growing at an average annual rate of only 0.62 percent. U.S. annual population growth during this period has averaged 0.87 percent – fully 40 percent faster. And despite France’s much slower growing population, and therefore slower growing prime-age workforce (assuming it’s even grown at all), the chart Krugman so values reveals that France’s labor force participation rate since the last recession began has been falling only slightly slower than America’s.
Another key demographic development affecting labor force sizes and participation rates – especially in times of poor economic stagnation: immigration trends. The World Bank estimates that, between 1999 and 2003, net immigration in France totaled about 1.08 million. The U.S. figure was 5.32 million. Since 2009 – the economic recovery period whose low U.S. labor force participation rates have caused such consternation – the United States absorbed only slightly fewer immigrants on net (five million). And its labor force participation rate has actually started rising slightly during this time. Net immigration into France, by contrast, fell to just under 650,000 – or by some 35 percent. Yet its higher absolute labor force participation rate has continued to fall.
Krugman also insists that France is a more globally competitive economy because its current account deficits as a share of its gross domestic product have been lower than America’s – especially during the bubble decade. Again, however, he omits crucial contextual information. For example, during what he (with appropriate sarcasm) calls the “Bush boom” of 2002 through 2007, the U.S. economy grew in real terms 38 percent faster than France’s. (The World Bank is my source here, too.) That’s bound to affect the absolute size of current account deficits and their share of GDP.
In addition, France sends 60 percent of its exports to its fellow Eurozone members – which means that its biggest trade markets can’t depreciate their currencies versus France’s to improve their price competitiveness when they begin to run big deficits (or simply want to boost their surpluses) the way America’s biggest competitors can, and have.
Finally, as with his labor force participation chart, Krugman overlooks major messages being sent loudly by his current account balance chart: During the bubble expansion, France’s international balances worsened at about the same rate as America’s. Just as important, since then, the U.S. deficit’s improvement has been considerably better.
Krugman has long blasted those disagreeing with him (including me) as ignoramuses, and this year in particular has expressed special confidence that the facts usually bear out his own version of liberalism. But his latest discussion of austerity shows there’s no need for opponents to get down to into the gutter with him. They simply need to let the facts speak for themselves.