Mises Wire

Home | Wire | Paul Krugman is Still Wrong on Europe

Paul Krugman is Still Wrong on Europe

  • 3969596088_5aa463ac4d.jpg
0 Views
01/08/2016

It always amazes me that official statistics change so much within a few months interval. I was reviewing the data of an article I wrote nine months ago for Mises Daily when I noticed that since April, Eurostat updated its statistics and that it is now even clearer that Krugman is wrong about France and the UK. Indeed, during the past three years, UK's growth has been underestimated by 0.4 points per year whereas France's growth has been slightly overestimated. Since the statistics published by Eurostat keep changing, we must however be careful.

It's clear that France does not have "hypocondria" as Krugman said.

As I wrote in April 2015, "Except for some Keynesian propagandists, nobody believes that the French economy is not deeply in crisis and it is now more and more obvious that Krugman is wrong."

It is now with no doubt that the UK recovered from the 2009 crisis far better than France, as you can see on the right (updated) graph below. Indeed, GDP per capita growth from 2007 to 2014 was higher in the UK than in France by about a point -whereas Paul Krugman argued in his January 2nd 2015 column that GDP per capita growth from 2007 to 2014 was 2 points lower in the UK than in France. 

LR Blog1 1.png

Keynesians have repeated for at least four years now that austerity in Britain was harmful and that France's situation was not that bad. In 2013, a French Keynesian economist, Xavier Timbeau, wrote that "UK becomes bogged down in austerity." Using his "sophisticated models", he predicted that the UK's growth rate in 2014 would be 0.8%: UK's growth rate in 2014 was 2.9%. It is the least to say that the predictive power of Keynesian "theories" is weak. As for the unemployment rate, it continued to decrease in the UK whereas it stays stable in France. When will Keynesians understand that "France becomes bogged down in socialism?"

LR Blog1 2.png

As for government spending, its growth continued in France in 2014 whereas it continued to  decrease in the UK.

LR Blog1 3.png

Early in January 2015 Paul Krugman wrote:

But surely we’re also seeing the ideological bias of many in the news media. France is supposed to be a terrible failure, because it still believes in a strong welfare state — and so it is reported as a failure, never mind the numbers.

But as we can see — if we do mind the numbers — Paul Krugman loses his argument. The French welfare state is a terrible failure: the trust in the French political elite is at its lowest, as can testify the growth of the National Front, a populist far right party, during last December elections.

The real problem here, however, is not that Krugman is wrong — we became largely accustomed to this fact which could almost be erected as a law of nature at this point. The problem is epistemological. How can data help us to advance our knowledge in social sciences if it's constantly wrong and/or revised? How can we have a rational debate if the statistics, and especially the predictions, advanced in the media are systematically wrong? This confirms the fundamental insights of Austrian economists who are rightly critical about the over reliance on aggregated statistics. There is no constant in human action — only a priori truths logically deduced from universally true concepts (as the concept of human action), as well as few empirical statements about individuals (such as the disutility of labor), can help us in our understanding of the world. As Mark Thornton put it, “The dominance of positivism in economic methodology encourages economists to worry less about the logical consistency of their models and to concentrate more on the development of models that exploit historical data in making predictions.” 

Statistics are illustrations, they cannot prove or disprove a theory, let us not forget that.

Louis Rouanet is currently a PhD student at George Mason University.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
When commenting, please post a concise, civil, and informative comment. Full comment policy here

Add Comment

Shield icon wire