Is France Obselete?

An amazing law, even by French standards.  My good friend Petr Barton at IREF gives the details...

A summary paragraph:

The French government is hoping to help consumers – and increase growth – by making it illegal to manufacture products with artificially shortened lifetime. We argue that proving such case will be nearly impossible in modern technology and the ban will act as a tax, with consequences even worse than the status quo. If governments want to artificially boost production, they should in fact subsidise products with shortened lifetime, instead of banning them. 

 Of course, better still to leave things alone.  The key to the above paragraph is the word "artificially," the point being that this law doesn't even succeed on its own cockeyed terms.  Amazing.

I should note that Petr's blog is generally quite insightful.  You might follow him on Twitter at @iref_eu .  Some nice detail on economic problems in Europe.  The piece on Greek debt payments was surprising to me....I guess I bought the propaganda.  But it turns out that Greece is not "crippled" after all.

P-Kroog on the Death of the Republican Party

P-Kroog in the NYT...

He makes two points.  One is that we are NOT having a debt crisis.  And he's clearly right,
in an unimportant way.  It's important to keep track of a distinction.  If I open a line of credit with a banker, then I get (say) $250k of "credit."   Then, I borrow $50k.  Compare me to someone else who has only borrowed $20k.  Who has more of a debt crisis?  It depends on the remaining credit of the other guy.  If he has a credit line of $20k, and he has borrowed ALL of it, then he has a debt crisis.  I have borrowed far more, $50k, but my credit is still fine, because lenders believe that I have a capacity to repay even more.

The amount of CREDIT the US has with the world is much, much bigger than the amount we have borrowed.  So, no one is seriously worried about us repaying.  Because a company that is bankrupt has no way of getting more revenues.  But the US could easily collect enough revenues to service its debt, just by raising taxes by 20%.  I think PK is underestimating the temporary effects of the Eurozone crisis, and our borrowing costs are artificially low because people just want to hold dollars and get out of Euros.  So the reason people are buying T-bonds is NOT because they are US debt, but rather because they are US dollars.  Still and all, sure, he's right about that.  I worry that we are going to raise taxes in the future to pay for stupid spending now, but there is no "Crisis".

As for the Republicans, his second point....gosh, I hope so!

Can data sooth the "savage" meme?

Veronique & Tyler took a beating for displaying a graph of government spending in selected Eurozone countries and questioning the severity of European austerity.

They were criticized for confusing austerity with spending cuts, not adjusting for inflation, not expressing the data as a percentage of GDP.

Despite its flaws, I think the graph has an important message, as just yesterday the AP ran a story that was picked up everywhere which had the following lede:

The European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs.

The dreaded MSM is in love with the "savage cuts" meme.  The graph shows that such cuts don't generally exist.  And that is a valuable service (though the message is not yet getting through).

As to whether or not there's "austerity" in Europe, that determination would require a precise, agreed on definition of the term, which we currently lack. Perhaps the NBER could devise a method to identify austerity periods like they currently do for recessions.

As an awkward aside, I'd also like to point out that expressing government spending as a percentage of GDP when the economy is in a recession would tend to hide rather than reveal spending cuts, so I think giving the raw numbers is the right approach (though an inflation adjustment would be helpful).