French people, don’t fret. Things are going well. Just read Paul Krugman’s column in the New York Times and you’ll see that your stagnant ecomomy is actually doing great … even if you can’t find a job!

You’ll also learn that Krugman assumes you’re happy — even when you tell pollsters you’re not.

Krugman kicks off today’s column with a demonstration of what to do when you can’t get your desired result using one set of metrics. Change them!

Krugman applies the tactic to the entire French economy, which by most established measures is in le toilette. He turns France’s high unemployment rate to his advantage:

Yet according to the Organization for Economic Cooperation and Development, productivity in France - G.D.P. per hour worked - is actually a bit higher than in the United States.

It’s true that France’s G.D.P. per person is well below that of the United States. But that’s because French workers spend more time with their families.

… There are several reasons why the French put in fewer hours of work per capita than we do. One is that some of the French would like to work, but can’t: France’s unemployment rate, which tends to run about four percentage points higher than the U.S. rate, is a real problem. Another is that many French citizens retire early. But the main story is that full-time French workers work shorter weeks and take more vacations than full-time American workers. (emphasis ours)

No, the main story is that the economy is stagnant and doesn’t generate enough jobs.

(click on “Read the rest of this entry” below to continue)

Technorati Tags: economics, economy, France, New York Times, NYT, Paul Krugman

One of the reasons for its stagnation is the relatively limited hours that people work and not the other way around. If people were simply working less hours, then more people would get hired to satisfy the demands of the economy. But in France the demand simply isn’t there. It’s not that people don’t want to work; it’s that they can’t.

Disposable income and demand have been squeezed out by high taxes and an enormous public sector. In a nation of over 62 million people (36 million or so of working age), an unemployment rate that has not dipped below 9% in over 10 years is gigantic. As a point of comparison, the French unemployment rate is 66% higher than in the United States.

While Krugman makes a passing note that this “is a real problem,” he never mentions it again and acts like it is an unfortunate side effect of French people spending time with their families.

What happens if you look at overall GDP per capita — including both the working and the under / unemployed? As Independent Sources previously reported:

In 1980, France’s per-capita GDP was 33% higher than the UK’s — US$12,700 compared to $9,527. But by 2004 the roles were reversed: France only had 92% of the UK’s per-capita GDP: $32,662 versus $35,459, respectively. These were not single-year anomalies: the UK passed France in 1998 and has pulled ahead since. This matters because per-capita GDP is the best way to measure a nation’s wealth at the scale of individual citizens. For you econ majors, the same holds true if you use ‘purchasing power parity’ instead of a straight local currency-to-dollar conversion — France has slipped from 116% of the UK’s figure to 97%.

And the French economy remains underpowered, especially relative to the U.S. Using data from the same source as Krugman, over the past 4 quarters the growth of the GDP in the U.S. is has been double the French growth rate. In the most recent quarter, it’s even more startling — the U.S. GDP growth rate is 300% of France’s. Is that really because the French are opting to spend time with their families?

Of course, these straightforward metrics are exactly what Krugman tells us we must look past:

The point is that to the extent that the French have less income than we do, it’s mainly a matter of choice. And to see the consequences of that choice, let’s ask how the situation of a typical middle-class family in France compares with that of its American counterpart.

The French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.

But there are compensations for this lower level of consumption. Because French schools are good across the country, the French family doesn’t have to worry as much about getting its children into a good school district. Nor does the French family, with guaranteed access to excellent health care, have to worry about losing health insurance or being driven into bankruptcy by medical bills.

Perhaps even more important, however, the members of that French family are compensated for their lower income with much more time together. Fully employed French workers average about seven weeks of paid vacation a year. In America, that figure is less than four.

This could be more convincing if the French economy was providing full employment for its workforce and Krugman could show that they are deliberately making this tradeoff. But he can’t.

Here’s a Krugmanesque idea: give everyone in the U.S. twelve weeks of vacation. In the short term that would be great. But then less purchasing power would lead to less buying. Less buying to less jobs. Following the French model, we could then employ as many people as possible in the public sector and raise taxes to pay their salaries. But now there is even less buying power and therefore less demand. Jobs take another hit and this time we can’t employ them all. The economy becomes stagnant and we become … France.

Sustainability is the real problem in the French model. France has fallen from about 82% of US per-capita GDP to about 75%; Germany, Italy, and the UK have remained about constant at 81%, 77%, and 70% respectively (source: IMF data). This means that every year the US, already the leading large economy in per-capita GDP, moves a little farther ahead. And over the long haul, that gives the US options that lower-performing economies, straining under high taxes, regulation, and inefficient and large public sectors, just won’t have. As Krugman notes, French people retire earlier, so this gap is likely to grow — further limiting France’s options.

But Krugman’s argument that France has made “the better choice” is fatally flawed — it’s refuted by the French themselves. A study by the Pew Research Center for People and the Press — the 2002 Global Attitudes Survey (pdf) — showed that Americans like their life more than the French (64% rate it 7 or higher on a 10 point scale, versus 57% of French); feel they’ve made progress in the last five years (51% vs 45%); and are much more optimistic about the next five years (61% versus 46%) (those are T-1, T-3, and T-5 of the study, respectively). And we noted earlier this year that an official French government poll found “a nation of depressed pessimists.” So if the French are happier with their economic model, they have an odd way of expressing it.

Krugman predictably incorporates a little America bashing (”Americans tend to believe that we do everything better than anyone else”) and notes the bad-mouthing the French receive. However, some of the harshest critics of the French economy are the French themselves. Nicolas Sarkozy, France’s popular interior minister, has extolled the “Anglo-Saxon model” and has asked out loud whether it is “France that is wrong and the world that is right.”

Perhaps the French can start reading the NYT to understand that they should be happy with their underperforming, high unemployment economy — in theory, anyway.

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Other resources:

International Monetary Fund - World Economic database

This entry was posted on Friday, July 29th, 2005 at 3:36 pm by Insider and is filed under I knew I'd use my Econ major, France, We Taunt You. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.