As bad as the monetary debate has been in the U.S., it’s even worse in Europe. In the eurozone even the left doesn’t seem to understand that easier money is desperately needed. Ryan Avent points to a depressing new report:
Latest Flash PMI data indicated that the downturn in French private sector output deepened in February. January’s Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, slipped from 42.7 in January to 42.3, its lowest reading since March 2009.
The steeper fall in overall output was driven by an accelerated decline in the service sector, where activity contracted at the fastest pace in four years. Manufacturers signalled a slightly slower decrease in production compared with one month previously, albeit still sharper than signalled in the service sector.
New business placed with private sector companies in France fell again in February, extending the current sequence of contraction to one year. The rate of decline quickened slightly since January and was only marginally slower than December’s 45-month record.
NGDP growth is far slower than in the US; almost non-existent.
A recent Neil Irwin article showed that the Fed has been consistently over-optimistic over the past 5 years. There have been nearly 40 Fed meetings since mid-2008, and the FOMC decision turned out to be excessively contractionary in every single meeting. Nearly forty in a row! If policy is efficient, errors should be symmetrical.
Both Paul Krugman and the market monetarists have been warning the Fed that their policy was inadequate. Krugman has focused on the difficulties of monetary stimulus at the zero bound, and that policy needs to move expectations. Market monetarists have focused on the need to target the forecast, and the fact that market signals tell us that money is too tight. Both of us have pointed to the US in the 1930s, and Japan since the 1990s, as showing that errors were far more likely to be made in one direction than the other.
In contrast, the Richard Fishers of the world have been wrong every single day, every single week, every single month, for nearly 5 years. Who should the Fed be listening to now?
PS. Here’s Nicolas Goetzmann’s blog, which is the primary market monetarist blog in France. I took three years of French—but it was back in the 1960s. And I got a C.
PPS. Hollande also needs to talk to Art Laffer.
PPPS. Policy decisions were far too contractionary in the second half of 2008, when we were not at the zero bound. So fear of “unconventional policy” is no excuse. Of course that’s doubly true in Europe, where the ECB has raised rates on several occasions during the Great Recession.