Economic Exaggerations in Europe

Hmm. Allies of British Prime Minister David Cameron’s government are now taunting French President François Hollande for having run the French economy “into the sand,” according to The Financial Times – presumably in contrast with Britain’s triumph.

How does that look in terms of, you know, the actual numbers?

See the chart here on real gross domestic product in Britain and France since the beginning of the economic crisis.

Neither economy has covered itself with glory, but this sure doesn’t look like a British triumph.

O.K., but maybe we should only look at developments since Britain’s coalition government took power in 2010. That’s actually a bad idea – economies do tend to rebound from deep slumps, so you would expect faster growth since the trough in Britain, which had the deeper slump. Still, for what it’s worth, see that chart as well.

Britain’s performance was clearly worse than France’s until the last couple of quarters, when it pulled slightly ahead. Again, hardly the kind of thing that would justify the boasting.

It really is amazing to watch a so far brief and not all that impressive cyclical upswing get sold as a gigantic policy triumph.

But I guess that’s politics.

The Euthanasia of the Rentier

A reader recently quoted John Maynard Keynes: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.”

It is, of course, a perfect quote for our times, too. It comes from the last chapter of the “General Theory” – a chapter that definitely bears rereading in the light of current debates.

For what Keynes describes in this chapter is, pretty much, a condition of secular stagnation – of persistently low returns on investment, combined with a chronic oversupply of saving. He believed, in 1936, that this would be the state of affairs in the decades ahead, and was of course wrong in that belief. But he wasn’t wrong about the possibility of such a state of affairs, and since Larry Summers, the former Treasury secretary, came out as a secular stagnationist a while back, the view that we may well be there now has gone mainstream.

What struck me, looking at what Keynes wrote, were his remarks on interest rates and the return to capital: low rates of interest, he suggested, “would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.”

Actually, for now, at least profits remain high – but bond yields are very low.

What Keynes didn’t say, but now seems obvious, is that the rentiers are unlikely to accept their euthanasia gracefully. And therein, I’d argue, lies the ultimate explanation for the persistent clamor for monetary tightening despite weak economies and low inflation. I’ve described on a number of occasions how tight-money advocates are constantly shifting their arguments – it’s about inflation; no, it’s about sound market functioning; no, it’s about financial stability – but always with the same bottom line: rates must rise now, now, now.

Well, what I think we’re hearing are the voices of the rentiers – and those who, explicitly or implicitly, work for them – demanding their natural right to earn good returns even if the resource they control isn’t actually scarce anymore.

They are not willing to go gently into their euthanasia.