Pardon my French about French economics.
By Paul Krugman
posted Thursday, June 5)
Fifteen years ago,
just after François Mitterrand became president of France, I attended
my first conference in Paris. I can't remember a thing about the conference
itself, although my impressions of the food and wine--this was my first
adult visit to the city--remain vivid. The only thing I do remember is
a conversation over dinner (canard aux olives) with an adviser to
the new government, who explained its plan to stimulate the economy with
public spending while raising wages and maintaining a strong franc.
To the Americans
present this program sounded a bit, well, inconsistent. Wouldn't it, we
asked him, be a recipe for a balance of payments crisis (which duly materialized
a few months later)? "That's the trouble with you Anglo-Saxon economists--you're
too wrapped up in your theories. You need to adopt a historical point of
view." Some of us did, in fact, know a little history. Wasn't the
plan eerily reminiscent of the failed program of Leon Blum's 1936 government?
"Oh no, what we are doing is completely unprecedented."
French have no monopoly on intellectual pretensions or on muddled thinking.
They may not even be more likely than other people to combine the two.
There is, however, something special about the way the French political
class discusses economics. In no other advanced country is the elite so
willing to let fine phrases overrule hard thinking, to reject the lessons
of experience in favor of delusions of grandeur.
To an Anglo-Saxon economist, France's
current problems do not seem particularly mysterious. Jobs in France are
like apartments in New York City: Those who provide them are subject to
detailed regulation by a government that is very solicitous of their occupants.
A French employer must pay his workers well and provide generous benefits,
and it is almost as hard to fire those workers as it is to evict a New
York tenant. New York's pro-tenant policies have produced very good deals
for some people, but they have also made it very hard for newcomers to
find a place to live. France's policies have produced nice work if you
can get it. But many people, especially the young, can't get it. And, given
the generosity of unemployment benefits, many don't even try.
some problems are easy to diagnose but hard to deal with. If George Pataki
can't end rent control, why should we expect Jacques Chirac to be able
to cure Eurosclerosis? But what is mysterious about France is that as far
as one can tell, absolutely nobody of consequence accepts the obvious diagnosis.
On the contrary, there seems to be an emerging consensus that what France
needs is--guess what?--more regulation. Socialist leader Lionel Jospin's
idea of a pro-employment policy is to require employers to pay workers
the same money for fewer hours--an idea that was popular with voters, the
recent election results would suggest. Even conservative Phillipe Seguin,
regarded as an iconoclast by French standards because he has questioned
the sacred goal of European monetary union, thinks that one way to add
jobs is to ban self-service pumps at gas stations.
Beyond more of the same, what does
the French elite see as the answer to the nation's problems? For more than
a decade its members have sought salvation in the idea of Europe--that
is, a unified European economy (under French leadership, of course), with
common regulations and a common currency. In such a continental market,
they imagine, France can once again prosper.
a unified European market is a pretty good idea. There is even a reasonable
case for unifying Europe's currencies--although there is also a good case
for doing no such thing. (There is a whole industry of people--Eurologists?--who
make a living by debating that issue.) But to acknowledge the potential
virtues of European economic integration risks missing the essential fatuousness
of the whole project. France's problem is unemployment (currently almost
13 percent). Nothing else is even remotely as important. And whatever a
unified market and a common currency may or may not achieve, they will
do almost nothing to create jobs.
Think of it this way: Imagine that
several cities, all suffering housing shortages because of rent control,
agree to make it easier for landlords in one city to own buildings in another.
This is not a bad idea. It might even slightly increase the supply of apartments.
But it is not going to get at the heart of the problem. Yet all the grand
schemes for European integration amount to no more than that.
in practice, the dream of European unity has actually made things worse.
If you are going to have a common currency, everything we know suggests
you should follow what Berkeley's Barry Eichengreen calls the Nike strategy.
But instead of just doing it, European nations agreed to a seven-year transition
period during which they would be required to meet a complex set of criteria--mainly
to reduce their budget deficits while keeping their currencies strong.
There is nothing wrong with balancing
your budget. In fact, European nations need to do some serious fiscal housecleaning.
And as the happy experience of America under Bill Clinton has shown, it
is quite possible to reduce the deficit and increase employment at the
same time. All you need to do is cut interest rates, so that private spending
takes up the slack. But you can't cut interest rates if you are obliged
to keep your currency strong. So the Maastricht Treaty (the blueprint for
European currency union) ensured that the budget-cutting it required would
be all pain and no gain. Nobody can make a precise estimate, but a guess
is that without Maastricht, France might have an unemployment rate of 10
percent or 11 percent. Not great, but a couple of points better than now.
some French politicians have been willing to say nice things about budget
deficits, nobody seems willing to challenge the dogma that European integration
is the answer. Even Seguin the iconoclast declares that "the fight
against unemployment is inseparable from the realization of the grand European
But let us not blame French politicians.
Their inanities only reflect the broader tone of economic debate in a nation
prepared to blame its problems on everything but the obvious causes. France,
say its best-selling authors and most popular talking heads, is the victim
of globalization--although adroit use of red tape has held imports from
low-wage countries to a level far below that in the United States (or Britain,
where the unemployment rate is now only half that of France). France, they
say, is the victim of savage, unrestrained capitalism--although it has
the largest government and the smallest private sector of any large advanced
country. France, they say, is the victim of currency speculators, whose
ravages President Chirac once likened to those of AIDS.
refusal of the French elite to face up to what looks like reality to the
rest of us may doom the very European dreams that have sustained the nation's
illusions. After this last election it is clear that the French will not
be willing to submit to serious fiscal discipline. Will the Germans still
be willing to give up their beloved deutsche mark in favor of a currency
partly managed by France? It is equally clear that France will not give
up its taste for regulation--indeed, it will surely try to impose that
taste on its more market-oriented neighbors, especially Britain. That will
give those neighbors--yes, even Tony Blair--plenty of reason to hesitate
before forming a closer European Union.
But if it turns out that Chirac's
political debacle is the beginning of a much larger disaster--the collapse
of the whole vision of European glory that has obsessed France for so long--we
can be sure of one thing: The French will blame it all on someone else.
A 1995 Atlantic
Monthly piece praises France's enduring "sense of civic
solidarity," citing the French government's willingness to subsidize
health care and cafes that feature live music. (The magazine has
also archived a 1958
article by Raymond Aron, titled "The French Economy: A Study
in Paradoxes.") A pre-election editorial in the Economist
states, "The Socialists, with their Communist partners, could inflict
grave damage on France's chances of economic recovery." CNN
shows that French voters felt differently. For more detailed results of
the elections (in French), try Le
Monde or the TV channel France
is the European Union Web server. Also see the online forum for opponents
of the Maastricht Treaty. To ponder the similar fates of New York
City landlords and Parisian bosses, try this "Strange
Bedfellow" column on rent control and then follow the "Dialogue"
it sparked. And, finally, SLATE
examines the controversial euro
from an aesthetic standpoint, and finds it lacking.
Paul Krugman is a professor of economics at MIT whose
books include The Age of Diminished Expectations and Peddling
Illustrations by Robert Neubecker.