What Economic Theory Is the NYT Pushing on France?

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Thursday, 01 November 2012 05:01

A NYT article on the problems facing France's president Francoise Hollande included several peculiar assertions. At one point it noted Hollande's efforts to meet a deficit target of 3 percent of GDP (strangely labeled as "economic rigor") and then tells readers:

"Others complained that Mr. Hollande’s decision to meet the target by raising taxes and freezing spending, rather than cutting it, would throw France into recession, even as growth, so far elusive, would by itself provide more tax receipts and jobs."

There is no obvious economic theory whereby spending cuts would be less contractionary in the short term than tax increases on the wealthy. If Hollande cut spending by 30 billion euros rather than raising taxes by the same amount, the spending cuts would almost certainly do more to cut jobs and reduce growth. (It might have been useful to disclose the identity of the "others.")

The piece later tells readers:

"He [Hollande] has also sent mixed messages — vowing that France will not undergo austerity while raising taxes on companies and the rich, and at the same time trying to show that he is fiscally responsible to the markets and his euro zone allies."

It's not clear what the mixed message is here. It seems that Hollande is trying to reduce France's budget deficit by imposing taxes on people who have money rather than hitting ordinary workers and retirees. There is nothing obviously contradictory in this picture.