As I expected

Here is Ambrose-Evans Pritchard:

Company taxes will fall by €20bn a year equal to 1pc of GDP, to be phased in gradually by 2015 under a convoluted system of rebates.

Premier Jean-Marc Ayrault said it amounted to a 6pc cut in unit labour costs, enough to close the gap with eurozone rivals. “France is not condemned to a spiral of decline, but we need a national jolt to regain control of our destiny,” he said.

The mid-rate of VAT for restaurants and services will jump from 7pc to 10pc. The top rate will rise slightly to 20pc. Spending cuts will plug the revenue gap in order to meet the EU’s 3pc deficit target.

Critics call it the most humiliating U-turn in French politics since François Mitterrand abandoned his disastrous experiment of “Socialism in one country” under a D-Mark currency peg in 1983.

Mr Hollande came to office vowing lower VAT rates to protect the buying power of workers, and called business tax cuts a “gift to the rich”. He imposed €10bn of fresh taxes on firms just weeks ago in his 2013 budget, a move that set off a revolt by business leaders.

.  .  .

Pressure is mounting from all sides. The International Monetary Fund warned this week that France risked being left behind by Italy and Spain as they embrace root-and-branch reforms.

.  .  .

Jean-François Copé, the Gaulliste leader, said the Hollande package was “hyper-complex, bureaucratic, and wholly inadaquate”. Business leaders said it helps but comes too late reverse a collapse in profit margins as recession looms.

The tax reform aims to switch the burden from wealth creation to consumption, a trick used by Germany to carry out its “internal devaluation” within EMU. The policy was pioneered by Margaret Thatcher, a detail that France’s socialists prefer to keep quiet.

For Mr Hollande, it has been a painful wake-up from the utopian reverie of his first months in office. “Exercising power today is very hard. You don’t get any breaks, of any kind,” he confessed.

Yes, reality kinda sucks.  On monetary issues a large share of the right is out of touch with reality.  On fiscal issues it’s the left.  But to their credit, they learn more quickly than those on the right.

PS.  Can anyone find me average hourly nominal wages in Britain over the past 10 years or so.  That’s the best test of whether tight money is the problem, or whether inflation is becoming a problem.



17 Responses to “As I expected”

  1. Gravatar of On UK Hourly Wages « uneconomical On UK Hourly Wages « uneconomical
    28. January 2013 at 06:26

    […] For Scott: I thought I’d done a post on this before but I had only prepared the graphs.  The ONS does not have an “official statistic” for nominal hourly wages, but they do publish some data in a spreadsheet in the Labour Market stats, which is updated quarterly.  The latest data available is from November 2012 [Excel spreadsheet], and comes with this caveat: IMPORTANT NOTE REGARDING LFS EARNINGS ESTIMATES […]

  2. Gravatar of W. Peden W. Peden
    28. January 2013 at 06:37

    Not quite what you want, but here are the average weekly earnings figures going back a little over 10 years-

    (You can get annual changes up at the top.)

    The figures suggest that nominal conditions have been tightened by about 50% since late 2008. Timetric used to have some hourly earnings data, but they were discontinued around 2008.

    Even an old monetarist aggregative approach suggests tight money- household M4 (the demand function for which has long been rather stable) has been tight since late 2008, and outside of the financial sector M4 (which was distorted by the collapse of the inter-bank lending market in 2008 and which has long been unrelated to nominal expenditures) the broad money supply began to tighten in late 2007 when non-financial business liquidity began to dry up-

    The Bank of England is also one of few central banks to publish a Divisia aggregate. Non-financial Divisia M4 tells a similar story to non-financial M4 i.e. tight money until the second half of 2011 when things eased a bit.

    I’ve been enjoying William A. Barnett’s book “Getting it Wrong” recently and he’s won me over to the Divisia approach, though I think that excluding the financial sector is also important to understanding money’s relation to nominal expenditures on final goods. There are also a few things in “Liquid Assets Outside M4” which ought to be in M4 e.g. if one is going to include banks’ commercial paper, why not commercial paper generally?

  3. Gravatar of Tom Tom
    28. January 2013 at 06:42

    Where is the evidence that the left learns fiscal policy more quickly?
    The evidence would look like: a leftist gov’t reducing the size of the gov’t, spending less this year than last year.
    Without an IMF or other external requirement.
    (If it’s an IMF requirement, that’s not really learning.)

    The problem is that “gov’t action” can’t easily be separated into some monetary stimulus/ deficit spending from where the gov’t spends the stimulus. And to be against wasteful gov’t spending, like Solyndra, will naturally make most Reps also oppose gov’t stimulus, whether it’s fiscal or monetary.

    Note that most Reps do, almost always, support tax cuts. So if the Dems were serious about higher deficits, they should be seriously proposing more tax cuts. But they’re not.

    And you say this is not “monetary policy”, but I say it IS part of “gov’t policy”, and it your desire to falsely separate them that leads to your claim.

    There is an asymmetry in that the IMF / World Bank & other agents are quick to point to excess gov’t spending, whereas too little monetary expansion is more difficult to show. Even when true.

  4. Gravatar of ssumner ssumner
    28. January 2013 at 08:09

    W. Peden. Thanks–I have a new post.

    Tom, Compare the quick turnabout in France with the relentless pursuit of tight money at the ECB.

  5. Gravatar of Suvy Suvy
    28. January 2013 at 09:20

    Milton Friedman was right: if you have a single currency without a nation to rule it, you’ve got some problems. The Euro is acting like the gold standard of the 1930s; fixed exchange rates don’t work and distort flows of capital. Each of these countries need an independent monetary system, including France. Eventually, France will suffer the same problems that Spain, Italy, Portugal, and Ireland are having. Their private sector debt levels and their government sector debt levels are just as bad if not worse than many of the other countries. It’s only a matter of time.

  6. Gravatar of Geoff Geoff
    28. January 2013 at 09:26

    “Milton Friedman was right: if you have a single currency without a nation to rule it, you’ve got some problems.”

    When/where did Friedman say that?

    For Friedman also said that money is much too important to be left to central bankers. (He never met me, because I can be the sole money issuer and really make my own world a fantastic place).

    I think your analogy to the 1930s gold standard is a little off. I don’t see how any purely fiat system can be an analogy of a commodity standard. It’s like night and day really.

  7. Gravatar of Suvy Suvy
    28. January 2013 at 09:54


    Milton Friedman said this in an interview with Michael Bordo.
    “I think the Euro is in a honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think the differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time…

    If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn’t in on the euro. It’s only a year old. Give it time to develop its troubles.”
    –Milton Friedman

    That was said in a keynote address in 2000. This quote is from pages 9-10 of the paper.

    He actually compares the Euro in a very similar way to the gold standard.

  8. Gravatar of Geoff Geoff
    28. January 2013 at 10:08


    Ah, thanks. Is Friedman here criticizing the Euro on the basis of past failures of fixed exchange rate regimes? Or on currencies without a single government controlling it? Or both? Which is more important? It’s not clear to me.

  9. Gravatar of Gabe Gabe
    28. January 2013 at 12:03

    ” That’s the best test of whether tight money is the problem, or whether inflation is becoming a problem.

    Seems to be a narrow paradigm from which to view the economy. I’ll gladly take some loose monetary policy to goose things ups, i think I can profit off of it. I do doubt the free lunch monetary utopia philosophy seen here though.

  10. Gravatar of Suvy Suvy
    28. January 2013 at 19:47


    I think both are problems with any sort of fixed exchange regimes and Friedman thinks both are problems. The main problem is that different countries need very different monetary policies and that’s why fixed exchange rates don’t work. They distort flows of capital and create imbalances in trade. That’s why the Euro will never work unless each country gives up its sovereignty. I can’t imagine Germany giving up its sovereignty to Italy or Spain, so I think the Euro collapses eventually.

  11. Gravatar of Geoff Geoff
    28. January 2013 at 20:20

    “I think both are problems with any sort of fixed exchange regimes and Friedman thinks both are problems. The main problem is that different countries need very different monetary policies and that’s why fixed exchange rates don’t work. They distort flows of capital and create imbalances in trade.”

    I wonder if Friedman, or you, or others, or anyone, has bothered to take this explanation to its logical conclusion:

    If countries are to be argued as requiring different monetary policies according to identifiable differences between those countries, then by the same logic, states, cities, towns, suburbs, houses, ultimately even individuals, should have different monetary policies according to identifiable differences that individuals themselves make to distinguish themselves from others, in terms of desires, preferences, ideas, thoughts, plans, etc.

    Moreover, to the extent that diverse individuals are to be put under the same monetary policy within said states, cities, towns, etc, then there will also be distortions to capital and imbalances to trade.

    It would seem to follow that eliminating all such distortions and imbalances would call for an unplanned monetary order, controlled by individuals according to their own plans with their own property.

    Now, in response to the possible rebuttal that this would necessarily look like a system where there are 300 million different individuals with 300 million different monetary policies, I would say that there is no more truth to this than the claim that allowing individuals to choose which vehicle they travel in, would result in 300 million different vehicle types.

    In reality there would likely be similarities, but these similarities would consist of choices individuals make for themselves on whether to use the currency of group A or group B or whoever, such that there would almost certainly be far fewer currencies in the world as compared to what currently exists with planned geographical separations of, what, over 100 currencies in circulation today?

    I would think that if individuals could choose for themselves, there would arise true optimal currency areas, rather than the artificial armchair posturing ideal OCAs that come out of the minds of misguided pundits who, instead of asking individuals what they want, instead seek to “calculate” their way to concluding “Northern European states shall enforce a single currency A, while southern European states shall enforce a single currency B.”

    I’ll tell you one thing, economists are among the world’s most arrogant, presumptuous, pompous sufferers of Hayek’s “fatal conceit”. It is truly remarkable how so many of them actually believe that they have the intellectual wherewithal to plan, however minor an extent, millions of other people’s lives, without having even the slightest inclination of what their actual knowledge and preferences and plans really are. I often get morally repulsed just thinking about the gall of those economists. There is no humbleness or uncertainty in them whatsoever. They often try to present themselves as skeptical and uncertain, for rhetorical effect, but peeling back the outer layers of that hypocritical exterior often reveals a disturbing absolutist conceit.

  12. Gravatar of mbk mbk
    29. January 2013 at 02:08


    Agreed on France. And of course very often – in Europe at least – each political side has to reform the thing that is holy to its core constituencies. So, up to (social) democrats to reform fiscal policies and up to the “right” to reform monetary policies, and in the US, gun laws. Voters distrust the left on monetary policy and they distrust the right on fiscal policy. In countries with shaky coalition governments (EU), or twitchy balances in congress (US), that matters.

    “Compare the quick turnabout in France with the relentless pursuit of tight money at the ECB.” Just as well I could opine that without the tough ECB stance, neither Italy nor Spain nor Greece nor now, France, would have reformed anything at all. So, a contrarian to your views might argue the German/ECB strategy … … is working.

  13. Gravatar of Benny Lava Benny Lava
    29. January 2013 at 05:40


    Yglesias has already addressed that. Do a search on his blog. Basically his answer is that in the US this problem is solved through government redistribution. Wealthy states like New York (the Germany of America) sends more money to the government than it recieves in federal payments and poor states like Alabama (the Greece of America) get more than they pay in.

    So if you take this to its logical conclusion a possible solution for the EU would be to become a single country and act like a country. Rather than taking your exercise and arguing in the opposite direction, when states and cities are not countries.

  14. Gravatar of ssumner ssumner
    29. January 2013 at 06:03

    mbk, You said;

    “So, a contrarian to your views might argue the German/ECB strategy … … is working.”

    The strategy may be working, but the people are unemployed. I don’t favor artifically creating Great Depressions (27% unemployment) to enact changes that voters should do on their own, and would do eventually.

  15. Gravatar of Tim Worstall Tim Worstall
    29. January 2013 at 06:35

    UK average wages. I’d try to find the ASHE stuff from ONS. Mean and median, broken out again into male/female, age group, public private sector etc.

    I don’t know if they’ve got one single report that gives the time series or not. But there are certainly annual releases.

  16. Gravatar of ssumner ssumner
    30. January 2013 at 07:17

    Thanks Tim.

  17. Gravatar of Jim Crow Jim Crow
    30. January 2013 at 08:05

    If Germany wants A) to save the Euro and B) to have its loans repaid isn’t the German/ECB strategy counterproductive? I have a very naive understanding of Europe so do they have an endgame, are they just reality challenged, or has Euro-wide employment finally started improving?

Leave a Reply