8.17.2005

Devaluing a MIT PhD like no one else...

Whenever there’s a topical overlap between Paul Krugman and France, I gotta blog about it.

A few weeks ago the left’s favorite economist wrote “The French Choice”, a NYTimes editorial arguing that despite a yawning gap in fiscal measures of standard of living; the French just have different and arguably better societal priorities. Since no leftist economy has ever managed to exceed the US standard of living (except for when we briefly had our own leftist economy under Carter) this un-provable argument has always been the refuge of last resort for the intellectually dishonest; first in the context of communism and now in the context of France. Next to a lobotomy such twisted reasoning is the only way to quiet the cognitive dissonance of educated leftists actively pushing the very same policies which are now pulling their dream state under. “It’s not worse…it’s just different!”.

Actually it is.

The only empirical measure for Krugman’s claim that the only difference between the French and American economies is “priorities, not performance” is the utterly dishonest comparison of productivity per hour. Per hour worked, France’s economic output is slightly higher than the US but to argue that this in any way reflects the productive value of an economy is disgraceful – especially for an Economist with a PhD from MIT. It would be the same to argue that some lucky rookie baseball player who has a hit his first time at bat is as good or better than Barry Bonds who fails to get a hit over 60% of the time. Through policies such as the 35 hour work week and regulations which make it nearly impossible to fire anyone, only the very fittest population in the French work force is employed. Productivity per hour is the only measure which hides the vast number of unproductive members of French society. When the entire population is taken into consideration, a picture less favorable to Krugman’s argument comes into view:



While Krugman admits the obvious: “that the typical French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.” He attempts to put a happy face on the situation by arguing that having a minimum 7 weeks paid leave for the employed (it’s family fun all year round for everyone else!) is more than an adequate trade off for a lower standard of living. A generation ago, one could make such an argument and not get laughed at but the truth is that the current generation is swiftly becoming poorer. Fewer and fewer Parisians can even afford to leave their homes for the traditional August vacation. Instead they must sit on trucked in sand overlooking that glorified open sewer, the Seine.

And for as good as French schools may be, the future is bleak for their graduates. This quarter the US economy grew 35 times faster than the French economy.

Krugman is right to be concerned about France’s inevitable slide into poverty. It will be harder and harder for his lot to convince the US to take their medicine when the corpse of their last patient is rotting nearby.

13 comments:

Joe said...

The reason he doesn't site empirical measures for standard of living is precisely because his argument is based on the contention that qualitative differences (i.e., time with the family) can be assessed when describing standard of living. Krugman isn't trying to contend that France is making more money than us..he's making the utterly outlandish claim that non-monetary, non-quantifiable things can make a poor person just as happy, if not happier than a richer person. Things like time with one's family, health-care security, etc, etc. And while I don't tend to embrace "the good ol' days" type thinking, I do think it's pretty clear that the relationship between happiness and wealth is, at best, modestly proportionate. Lawyers are some of the most depressed people in the world, for example. In other words, Krugman is just asking what I think is a very important question for any person to think about..what constitutes success?

Andrew said...

Absolutely! To question what determines success, or to define success in terms other than money is perfectly reasonable. The issue I have with Krugman is that he’s again using bogus data to back up his arguments which in this case attempt to argue that despite all economic indicators to the contrary, France is not worse off than the US, just different. As long as affluent educated lefties buy into this, they’ll be able to continue supporting policies that will make the US more like France without having to worry that it will also make the US worse off. The exact same bad faith arguments that Krugman made in his piece were made by socialists in the 70’s to explain away the Communist block state’s inability too keep up. “Cuba has a higher literacy rate than the US! YAY!”

In this study, hard working capitalist nations such as Ireland and the UK are over 10% happier on average than the French.
(http://www.eurofound.eu.int/publications/files/EF03108EN.pdf)

In this study 58% of Americans were “Very Satisfied” with their lives, while only 18% of the French were.
(http://www.harrisinteractive.com/harris_poll/index.asp?PID=585)

What these studies show is that having true “choice” is what makes people happy. Being forced to have an artificially low standard of living does not.

Joe said...

Why does the Uk, with it's nationalized health care, qualify as a capitalist country when France does not? Obviously, France's economy is not marxist; it has a substantial degree of freedom, and the U.S. has certain regulations on it's markets as well as different entitlement programs. You seem to want to draw a radical line between "socialist" and "capitalist" countries. What criteria do you use for drawing that line?
I'd also like to point out that 10% unemployment, historically speaking, isn't all that high. Ours is 5%, which is about as low as any economy will permit. As far as your happiness index goes, as my math class discussed this morning, correlation is not causation. There are certainly myriad possible explanations for the fact that the French tend to be more depressed than people in other countries. Statistics are only as good as their underlying assumptions, as you pointed out about Krugman's argument.

Joe said...

I forgot to make one point. While our unemployment rate as a nation is 5%, it is much higher for certain sub-groups within the population (minorities, people in certain regions, etc). Again, this shows that statistics can be misleading. Even if the average unemployment rate is 5%, what is the standard deviation of that rate with respect to various subgroups?
I'm on the 5th day of my high-intensity math boot camp, a requirement for my admission to school, and I'm starting to dream in equations.

Ben said...

I don't see where Andrew makes the claim that the French are something other than capitalists. I do see where he describes Ireland and the UK as "hard working capitalist nations" and the French as "the French." The inference seems clear enough; the French have regulated hard work out of their ecomomic equation.

On the other hand, I would like to see someone clarify the terms "socialist" and "capitalist" in this context. Every country that enacts some manner of social program (welfare, unemployment, food stamps) could be called "socialist," couldn't it? Unfortunately, it would seem to boil down to degree and by my reckoning, that doesn't allow for very clear categorization.

Re: the sub-group contention, isn't it going to work similarly with all countries? For instance, immigrant populations accross the board tend to have higher unemployment numbers. What's the point in parsing up America's unemployment numbers if you don't do it for other countries and compare them? Both France and America have relatively high immigration numbers so why don't we start with those? If we're going to compare our successes, we have to be sure and not cherry-pick information.

Andrew said...

Actually it's quite simple. In a Capitalist economy the majority of GDP is from private sources. For a socialist economy the opposite is true. 80% of the US GDP is private verses 40-50% for France.
(http://biz.yahoo.com/ifc/fr.html)

The inherent lack of competition within state owned industry deprives an economy of "creative destruction" which so nimbly redirects capital from inefficient to efficient destinations within capitalist countries. This lack of capital efficiency is one of the principal reasons France’s economy is such a disaster.

Andrew said...

Ireland: 37% GDP public spending and falling
http://www.heritage.org/Research/Budget/bg1831.cfm


UK 41% GDP public spending and falling
http://www.wsws.org/articles/2004/aug2004/spnd-a14.shtml

Joe said...

I agree that unemployment can be unevenly distributed in other countries as well, but if it isn't, then it would undermine the degree to which the U.S. economy seems superior. I'm sure this would be a fairly easy thing to find out for an industrious person, but I don't know.

I think there may be an error in Andrew's last comment. He determines a country's capitalist or socialist idenitity by the percentage of it's GDP that is raised by private industry vs. publicly owned industry. That seems like a legitimate way of making the distinction. But it is incorrect or misleading to then imply that the UK and Ireland are capitalist by citing their percentage of public SPENDING. The percentage of GDP raised by public industry and the percentage of GDP SPENT by public industry are completely different things.

Andrew said...

Sorry for not being clear. I was in a hurry but the distinction between the percentage of an economy that his public vs. private is the SAME as what percentage of government spending is within GDP. The money has to come from somewhere. Basic Macro econ here. At the end of the day ledgers have to balance -- spending == production.

So to make my point REALLY basic here. 60% of the french economy is public vs. 40% for Ireland and England and 20% for the US. Thats where characterization between Capitalist vs. Socialist comes in. While no country has ever been the ideal either way, France is certainly vastly more socialist than the US, UK or Ireland.

Andrew said...
This comment has been removed by a blog administrator.
Andrew said...

Lets use Wal-Mart as an example of why production always equals spending. As of 2003 Wal-Mart’s revenues of $258 billion (production) equaled 2% of US GDP.
(http://www.nybooks.com/articles/17647)

If we look at their balance sheet from the same period:

(http://www.smartmoney.com/eqsnaps/index.cfm?called=1&story=financials&timewindow=3&symbol=WMT&opt=QI)

and add up cost of spending (cost of revenue, taxes, depreciation and profits) you’ll also get $258 billion dollars.

Andrew said...

Here's a good article on calculating GDP.

GDP = consumption(spending) + investment(assets) + exports − imports

(http://en.wikipedia.org/wiki/GDP)

Andrew said...

I could go on and on with comical stories of French economic ineptitude but I’ll end with this one.
(http://www.theregister.co.uk/2003/10/15/bull_government_subsidies_undermine_eu/)

Essentially when France’s largest computer company was going under, rather than let it get liquidated and have its assets go to more productive uses they -- wait for it – nationalized their entire IT industry. The net result is that the French Govt. is really the only customer Bull has, it loses about a billion dollars a year, the rest of the French IT industry is on life support and the French now happen to be one of the most technologically illiterate populations in the G8.