On Le Monde’s site, an article was posted concerning the outlook for France’s economic recovery according to Prof. Patrick Artus: Les conditions d’une vraie reprise ne sont pas réunies. Reading the article, a similar argument can be made for the US, with the same conclusion: non, pas encore.
Much like us, France saw a 4th quarter uptick in growth, and much like us it was largely technical, related primarily to inventory depletion. In the US, businesses replaced inventory, but at a slower pace. Another factor was higher productivity without higher wages.
Prof. Artus explains that in the 70s and 80s, economic cycles were usually linked to inflation – interest rates rose, business activity and consumer consumption slowed, inflation came down, the economy rebounded. Boom.
Since then, inflation has been tamed, and today’s economic crises are tied more to asset bubbles and excessive indebtedness. Under these circs., when the economy stumbles (the bubble pops or deficits start to matter), banks stop lending, businesses spending contracts and households consumption gives way to higher savings rates.
According to Prof. Artus, under an expansionist economic policy, the economy’s rebound will require lending to restart, businesses to start investing and households to start spending. (Se what he did there? Just reverse the progression. Economists! What can’t they figure out?! Engineers are said to solve problems we didn’t know we had with solutions we can’t understand. Can the same be said of economists? Discuss.) After some time, salaries will have to rise (remember, this is a Frenchman talking about France. L’union fait la force, l’oignon fait la soupe!). Prof. Artus doesn’t think France has reached that point, and the idea that a rebound is underway, based on what is required under his economic model, is clearly a thought properly classified as ‘wrong.’
That very same argument can be made of the US, and, in a bit of a two-fer, this argument also helps explain my generally low regard of economists. My initial responses to this argument are summed up thusly: “Duh. Really? You get paid for these insights?”
I admit, not the most professional response, but valid nonetheless. If one requires evidence that the credit spigot has reopened and loans are flowing, business investment is up and on the rise, household consumption is climbing at the expense of savings, then one would be hard press to claim 4Q09 results in France or the US evidence of the economy’s rebound. No, if those are your requirements, you will not see the rebound even if you are an optimist or a scientist*! Under Patrick’s restrictions, you won’t see it unless you look to the past, because you’ll be very much in the midst of the recovery, or even well past it’s juicy bits, and likely to find the first part of the ‘buy low, sell high’ mantra no long available to the investor in you.
It would be more informative to point out where an economy is in its cycle based on the various measures of a model like Patrick’s, which suggests my criticisms may have more to do with the medium (newspapers, the Web) than the message. In a classroom, I’m almost positive this would be explored to a more meaningful depth and presented in a more informative manner. So, Prof. Artus, my beef isn’t with you, your model or your abilities, au contraire, but rather in the surfeit of credence given to sloppy economic writing in today’s media.
* A Pessimist sees the glass as half empty
An Optimist sees the glass as half full
A Scientist sees the glass as full of air and water