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April 16, 2006

Telling France What to Do

Michael Blowhard writes:

Dear Blowhards --

I'm often puzzled by the determination of some blogggers and columnists to go on about what France should do about its economy. Where does this bossiness come from? Two MBlowhard points. First: What business is it of ours? Second: C'mon, get real. France was a beaten-down wreck of a country as recently as 1945. These days it's a rich country. Whatever their current problems and flaws, they have certainly spent the last 60 years doing something right.

The most recent controversy has concerned employment regulations that the French government proposed loosening. Students were unhappy with the proposals and protested; the French government caved.

The let's-tell-France-how-to-conduct-its-affairs crowd takes it for granted that France badly needs to loosen its labor market. But is this even true? Do French employment regulations really adversely affect the French economy? Dean Baker thinks they don't, and he supplies a variety of surprising facts and figures.

I offered some thoughts about France in the comments on this Shannon Love posting. On this blog, I gabbed a bit about France here, here, and here.

Best,

Michael

UPDATE: The Franco-American blogger Corbusier wrote enlighteningly about France here and here.

posted by Michael at April 16, 2006




Comments

In this case, I'll trust the straightforward microeconomic theory over the obviously jerry-rigged "data", thanks.

Posted by: J. Goard on April 16, 2006 4:53 AM



I've commented more than once that economic systems should match national character, but I remember being reprimanded by one Libertarian who pointed out that if we accepted the existence of successful economic systems different from our own, we only risked gaining popular sentiment for the tinkering of our own.

Since America is pretty much the farthest along on one end of the free market spectrum, there were no countrys example that he wanted his fellow citizens to admire. Thus, his constant bid to cut down any supposed successes in other countries.

He noted that, of course, the same applies elsewhere in the other direction. America can do no right for lefties for fear of inspiring the population towards market reforms. (For example, America gets little credit for the EITC, one of the best income redistribution programs that I have seen put into practice in any country.)

Posted by: Tom West on April 16, 2006 7:44 AM



1. The changes in the French law were proposed by the French government, and they were defeated by mobs in the street. Do you favor Mobocracy, Michael?

2. Dean Baker says that job protectons are "GOOD". I suppose that they are. In the same way that steak is good. Does that mean that everyone should eat steak? Who pays? Do you believe in freedom? If so, the job protection laws are limitations on that freedom.

3. It may have escaped your attention that there was rioting by unemployed immigrants last year in France. There will be more riots and worse ones unless it becomes easier to hire workers.

Posted by: Elliott Banfield on April 16, 2006 7:52 AM



One thing very seldom mentioned was that French workers without the sort of employment protections in question are basically second-class citizens. Regardless of income very few lenders will consider them for any sort of credit, not even credit cars let alone car loans or mortgages, and even renting apartments is nearly impossible.

Posted by: Peter on April 16, 2006 9:42 AM



JG -- Why?

TW -- I think a lot of what irks some commentators is that according to their theories, France simply shouldn't function at all. Yet on it rolls. When's the last time you read a column asking the question, "Well, given that according to our models France shouldn't be doing well at all, yet they're actually getting by well enough, whassup?" But I suppose that would require that they be less attached to their theories ...

EB -- By no means do I think the US should take much advice from France, let alone model its economy on France's. That said, why should they take economic advice from us? It isn't as though we don't have our problems. And what does irk some American commentators so much about France?

Peter -- It'll be interesting to see how (and if) France sorts that kind of thing out. My guess: if they do, they'll do it in a very French way ...

Posted by: Michael Blowhard on April 16, 2006 10:18 AM



France misses no opportunity to tell the US how we should conduct our affairs. If they'd prefer that we butt out of their business, perhaps they should butt out of ours.

As to why the irritation with France, for me it's because they pretend (loudly) to be allies, while conducting themselves as unfriendly neutrals. When added to the unwarranted condescension, this is unpleasant.

For comparisons, look at Russia and China. They conduct themselves as unfriendly neutrals but don't pretend otherwise. The result is that they are not reviled in the way that the French are.

Posted by: Doug Sundseth on April 16, 2006 12:54 PM



I haven't looked at the data, except in the coarsest way. But I think the coarsest glance, that the US and UK employment recovered from the oil embargo, and the rest of Europe didn't, is pretty convincing. But there are other causes, like the monetary policy Baker points out and the relative ease of starting businesses.

Dean Baker invokes Ireland and Austria. I don't know much about Austria, and it's probably good evidence for him, but it is absurd for him to invoke Ireland. Frankly, it makes me doubt his good faith and distrust everything else he says. Ireland just transitioned from poor to rich. It's been growing incredibly fast for the past 30 or 50 years. It's still growing at least twice as fast as other rich countries in Europe.

Employment protection in Ireland wasn't a big deal: In the past, the people were poor, so you could afford to take the risk that they wouldn't work out, compared to the French. Ireland only recently introduce a minimum wage, so, in the past, an employee who didn't get raises would be tempted by the rapidly rising wages to seek entry-level jobs elsewhere.


Peter - so people without employment protections are second class citizens. They're surely better off than people without employment.
Anyhow, bad credit just reflects the high unemployment in France. If you could solve that, people would get credit.

Posted by: L on April 16, 2006 1:46 PM



Man. What's a blogger to do if not poke his nose in everybody's business?

Posted by: Scott Chaffin on April 16, 2006 1:48 PM



I should have read the comments to Baker's post, where he retracts his claims about Ireland.

Posted by: L on April 16, 2006 2:05 PM



Elliott Banfield,

Why can't the french protest when the government does something they don't like? Don't they have the right to demostrate if they want? Or should they just sit back like we do and let the government/corporations ship all of the good paying jobs out of France to China, India, and who knows where else? I'm proud that they stood up for themselves, unlike complacent and ignorant americans. Maybe they want a country and government that tries to balance the desires of all sides rather than capitulating to just the businesses, to the detriment of the regular citizenry.

One of the main reasons that the government was trying to end the traditional system was so that they could start giving quota jobs to all the immigrant "youths" who rioted and destroyed other people's property a few months ago. We all know how well that's worked in the US. The french (people) aren't so dumb. Good thing for them their unemployment rate is so high, so that AA got stuffed before it even started. Hooray for the french! Maybe if the immigrants can't find a job, they should go back to their homelands. Why does Europe need more immigration if unemployment rates are so high now? Obviously, most of these immigrants won't assimilate. Most just come to collect welfare. Ship 'em out.

For those who are unaware economically, the United States is in an undeclared financial war with Europe. This war is about the dominance of either the Euro or the US dollar as the world reserve currency. The European Union was created to compete with the United States as an economic block with a single currency. The European Union's GDP is roughly that of America's. The US dollar has the advantage of having many decades of precedent on its side, and also the most powerful military. It is a safe haven for capital, and has largely transparent markets. Europe is striving to get these too. More and more countries are starting to "diversify" their central bank currency reserves with euros. The europeans are now more and more exerting their independence from the US. The US elite hates this, so the right wing spin machine of radio and blogs is constantly attacking the most vocal european critic of the US, France. I'm not a big fan of either the socialists or the capitalists. But the economically ignorant right wing pick up on this and hammer away. Parrots.

Of course, in the currency wars, the big prize is oil pricing. The europeans want OPEC countries to hold their excess currency reserves in euros. Thus, they are VERY ACCOMODATING to--you guessed it--massive immigration from muslim countries of the middle east and africa! Funny, that. Since we import so much oil, this MIGHT give those here a little insight into who supplies our oil and where our immigrants are coming from. Also why we wage war. Follow the money!

But the wee little european people are beginning to fight back. Same here in the US. Maybe we all do not want our countries ruined for the short-term interests of politicians and financiers. I always get a real kick out of those demographic projections that show Europe and the US being majority minority countries by 2050. Does anyone really think that the regular citizenry will go along with this for another 45 YEARS? Hell, people are agitating and rioting now! What's the term...the "tipping point"? We are there now.

I am sure, Elliott, that you are some sort of free-marketeer. I would be glad to debate some of your ideas on this nonsesnsical sophistry, for the benefit of those less informed about this topic who read this thread. Please respond!

Posted by: BTM on April 16, 2006 4:35 PM



BTW, the true US unemployment rate is atrocious. The Bureau of Labor Statiistics publishes several different measures of unemployment each month. The REPORTED number is U-3. The most accurate, BROADEST measure of unemployment is U-6. The U-6 figure is 8.7%. My own guess is that it is higher, probably by 1-3%. The government fudges these statistics to paint a rosy picture for the financial markets, since we need 2.5 billion dollars a day of financial capital coming into our financial markets EACH DAY from foreigners to balance our $800 billion/yr trade deficit.

Posted by: BTM on April 16, 2006 4:41 PM



Doug -- France is uniquely annoying, isn't it? Still, I'm surprised by how the "This is what France oughta do economically -- become like us!" op-ed piece has become such a standard. If I were annoyed by someone, I think I'd be likely to express my annoyacne by saying, "Hey, I find that person annoying." I don't think I'd be likely to express it by saying, "Hey, here's what he oughta do with his job and his money."

L -- Odd, that goof about Ireland, no? I guess even econ pros need fact-checkers.

Scott -- True! I was forgetting myself.

BTM -- I wish more foreign capital were coming in to support my lifestyle.

Posted by: Michael Blowhard on April 16, 2006 4:55 PM



BTM:
I'm skeptical about the importance of reserve currency, although it's pretty clear that the euro wants to be one. China doesn't hold lots of US treasuries because they're safe or because they need dollars to buy oil; they hold dollars to manipulate exchange rates.

Europe allowing Muslim immigrants has nothing to do with oil. It's been going on for decades before the euro, and, to a certain extent, since back when the US was the big player in oil. Also, those immigrants come because their countries are poor, not rich in oil. I doubt that the Persian Gulf countries care about North Africans or Turks.

Posted by: L on April 16, 2006 8:20 PM



L,

European pandering to the OPEC countries of the Middle East started long before the debut of the euro in 1999 (or was it 2000?). You should read what Oriana Fallaci has to say about it. It appears that the "islamisation of Europe" began in the 1970's, as a response to the dependence of Europe on Middle Eastern oil and the '73 oil embargo. Modern economies are not only sensitive to the availability of oil, but also to its price. The europeans learned just how vulnerable they were back in the 1970's.

The europeans began their quest to create a currency to rival the dollar back in the 1970's, after the US went off the gold standard, and when the US made it clear that this was not a temporary, but a permanent measure. They first came up with the ECU, or Economic Currency Unit, which pre-dated the euro. And so on and so on...

The thing about creating such a currency and making such a big move is that they would not have done it without first checking with the big international players to see if this were amenable. OPEC is such an international player. Japan and China are others. Big committments are made which shape national policies for many years to come. We are talking about many trillions here. This is the whole ball of wax.

I have no doubt that the US also made concessions to other big players in order to win their cooperation, not just in keeping the dollar as a world reserve, but also to hold greater and greater amounts of US Treasury bonds. Military bases in Saudi Arabia? Shipping our manufacturing base to China and India? What do they get to keep holding onto as many dollars as they do? What about the OPEC countries? Remember the Dubai Ports deal? What other parts of the US are being auctioned off that we haven't heard about? How about the open border with Mexico? We seem to import a lot of oil from them too? Is it just about cheap labor? What about NAFTA and GATT? Was this done solely for our own interests?

(For those who don't know, a reserve currency means that Central Banks of the world hold a particlular currency as a sort of collateral, for the sake of, as L said, maintaining acceptable exchange rates between currencies. For instance, the chinese yuan's value is "pegged" at so many per dollar. The chinese do this to make sure their currency is cheap compared to the dollar so that they can sell so much of their stuff to us americans (undercutting our own american workers). They can defend this exchange rate in the currency markets with the gigantic amount of currency reserves in their Central Bank. Also, Central Banks really don't hold dollars, per se. They send the dollars back to the US by buying Treasury bonds, which earn interest. Having the role of the world reserve currency means that there are always many buyers for our government debt, at lower rates of interest. You can see that we are exploiting this situation to the maximum, by running gigantic debts here at home, and the rest of the world stepping in to fund that debt habit. The europeans want in on this game too, where the rest of the world sends us real goods and services, and we send them slips of paper IOU's. Just think of how much money european politicians could spend if debt were no object!)

Also, the OPEC countries are not really that concerned with where the muslims emigrate from, as long as they are Islamic. Many muslims emigrate from their own countries, which are resource and human capital poor, to richer welfare states. Free housing, education, medical care, and some spending money. I guess that beats life in Lebanon, and by a mile at that. Emigration wouldn't be so much of a problem if poplations were truly equal. The idea that most of the people immigrating to Europe are like the indian doctors or lawyers you know is quite false. Those people are the exception, not the rule. Many are unskilled and unschooled, and not really looking to assimilate or work hard. Just look at France.

Hip, hip, hooray for France! They have so much more backbone than we here have given them credit for! And this is just the beginning of the populist backlash in Europe!

Posted by: BTM on April 16, 2006 10:10 PM



Yeah, France is doing great. That's why so many people from economically depressed countries like the USA and UK are moving to France to work and start businesses.

2nd-hand anecdote: A property agent in Jerusalem says that now is a good time to sell, because French Jews are bidding up local prices.

Posted by: Jonathan on April 17, 2006 8:19 AM



Jonathan,

I never claimed that France was doing well. I hate socialism. All quotas are is just one more layer of ineffective, costly socialism. You'll note that the US and UK also have a great deal of governmental red tape. Less than Europe, to be sure, but much more than China and India, where it seems many US entrepreneurs are headiing. We're not exactly the end point for business investment these days.

By the way, I'm no euro booster. I love America. I just don't want it to be turned into a third world country, swinging unpredictably between socialism and unchecked capitalism, subject to the whims of foreign capitalists and powers. I fear our own socialism and debt is taking us there, and I hate it.

In my opinion, people in America, especially conservatives, would better spend their time changing this country than trying to belittle France. Let the french choose their own way. And if they can cut out more socialism, and undercut their cultural destruction by non-western immigrants, so much the better. We could learn a lesson from them here.

Posted by: BTM on April 17, 2006 6:09 PM



BTM -- I wish more foreign capital were coming in to support my lifestyle.

That capital is almost certainly available for your use, you probably just aren't availing yourself of it. Specifically, US (and World) interest rates are ridiculously low because of the savings glut. If you're willing to go into debt (say buy a house with a big fat mortgage and join the housing bubble), then you're benefitting by about an extra 3-5% off (estimates vary wildly) your mortgage rate - a serious chunk of change.

Posted by: Tom West on April 19, 2006 6:13 AM



I'm with Mr. Chaffin on this one. I say we keep on telling everyone else how to live! Publish and be damned irritating, I say!

And oh, Mr. West--if foreign capital is keeping American demand artificially high, then that's a good thing for America's trading partners. Including, most certainly, Canada. (To say nothing of China.) We're all in this together, non?.

Posted by: Friedrich von Blowhard on April 19, 2006 9:49 PM



MB:

I don't quite get your update. M. le blogger Corbusier is probably harsher on the common Frenchman for evading risk and hoping (against hope) for a "jackpot" job offering guaranteed security for life than any right-winger I've read recently. Doesn't that contradict the whole spirit of your post?

Posted by: Friedrich von Blowhard on April 19, 2006 9:59 PM



it makes me doubt his good faith and distrust everything else he says.

For me it was Baker's tossed-off blurb at the end about French productivity being higher than American productivity. True on a per-hour basis...but the French work far fewer hours per week and so produce far less. Which is why their GDP per capita is almost $15000 less than America's today.

If you want to know what direction the vector of world politics is heading, you could do worse than look at the recent poll in the Economist on this topic. Only 30 something percent of Frenchmen think the free market is the best way to organize an economy.

But 70% of Indians and Chinese believe that (along with 70% of Americans). That tells you all you need to know about the trajectory of this century. The French riots are just epiphenomena.

Posted by: gc on April 20, 2006 9:57 AM



I think a lot of what irks some commentators is that according to their theories, France simply shouldn't function at all.

Does the French economy function? I mean, in a way that, were our own economy functioning in the same way, we would describe it as prosperity? You have a country with a per-capita GDP about equal to Arkansas, stagnant growth, and high unemployment. If you look at people voting with their wombs, most European countries are well below replacement rates.

I think you'd have a much stronger "In 1945 it was a poor country, now it's a rich country" argument if you were making the argument in 1970. Since then, the US has been steadily pulling away from Europe in per-capita GDP, to a large part because of reforms (reiterations? rededications?) similar to what commenters urge for France. Low taxes, deregulation, free labor markets and free trade are infrastructural improvements that really pay off if you look at things on a generational timescale.

Finally, I'll note a quote from the recommended article: "There is one other point that really should not be in dispute other things equal, employment protections are GOOD."

I'll dispute the point. Job security based on your employer not wanting to fire you is very good. Job security based on your employer not being able to fire you even though they want to is very bad, and I have to think it's very corrosive to a society when people take it to heart that they can't be fired even if they deserve it.

Posted by: Zach on April 27, 2006 10:49 PM



Also, I think the oft-repeated statistic that France is more productive than the US in the last hour worked begs the question of why the last hour is the last hour.

Look at it this way: if Americans were as productive in their last hour worked as France is, employers would be battering down the doors to get people to work more hours. They'd be hiring people on the street to keep the good times rolling. And in fact, the American economy does this -- the workers spend significantly more time working, and there are significantly fewer unemployed.

High unemployment and low exploitation of highly productive laborers in a peaceful economy that's not in any particular recession strikes me as a sign that something is deeply out of whack. It's as though you walked into a factory that made great cars at high profit margins -- and was only operating at 75% capacity.

Posted by: Zach on April 27, 2006 11:07 PM






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