The myth of profligate France and austere BritainPosted: July 30, 2014
Via Steve Kates (who else!) I learn that Brian Lee Crowley of the Macdonald Laurier Institute believes that:
If the all-stimulus-all-the-time Keynesians are correct, for example, France should be the strong man of Europe, for its Socialist president came to power rejecting “austerity” and preaching the virtues of stimulus. Britain, which pursued a course of fiscal discipline under the coalition government of David Cameron, should be in steep decline.
But what does ‘a course of fiscal discipline’ actually mean? And shouldn’t we care about what France under President Holland has actually done, rather than what he campaigned on? Let’s go to the figures:
But of course, the deficit-to-GDP ratio has a numerator (deficit) and a denominator (GDP), so what if we just look at the size of the deficits without weighting by GDP?
(Both charts use data from Eurostat.)
As we can see, both economies went heavily into deficit as the global financial crisis struck in 2008/9. Both have since reduced the size of their deficits; however, France’s is smaller than Britain. It’s true that David Cameron’s government pursued fiscal consolidation, but as you can see, it has slackened off in the past few years, while France is increasing the pace of consolidation after it took its foot off the brakes in 2011-2.
This reminds me of another cherished myth about the Channel economies: that in the nineteenth century, France, as with other Continental powers, shut its borders to the flow of goods while Britain championed free trade. As John Nye has pointed out, this is very wrong:
(Graph from John Vincent Nye, “The Myth of Free-Trade Britain and Fortress France: Tariffs and Trade in the Nineteenth Century”. Journal of Economics History, 51(1), 23-46.)