Please Help me on this essay!! Choose a recent [within the last year) article fr
ID: 1181751 • Letter: P
Question
Please Help me on this essay!!
Choose a recent [within the last year) article from The Economist, The Wall Street Journal, The Financial Times, or The New York Times that deals directly with the topics of fiscal policy or monetary policy. Prepare a one- to two-page review paper that includes: a brief summary of the article, an explanation of the article's connection to fiscal or monetary policy, and a discussion of the article's most important points. Your review paper must be typed and double spaced and should include a Chicago Style citation of the article. Grading Rubric: Summary Course Connection Discussion Proper CitationExplanation / Answer
Let me give you an idea of what we're talking about. A year ago the magazine The Economist declared France "the time bomb at the heart of Europe," with problems that could dwarf those of Greece, Spain, Portugal and Italy. In January 2013, CNN Money's senior editor-at-large declared France in "free fall," a nation "heading toward an economic Bastille." Similar sentiments can be found all over economic newsletters.
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties - who isn't? - but in general performing as well as or better than most of its neighbors, with the admittedly big exception of Germany. Recent French growth has been sluggish, but much better than that of, say, the Netherlands, which is still rated AAA. According to standard estimates, French workers were actually a bit more productive than their German counterparts a dozen years ago - and guess what, they still are.
Meanwhile, French fiscal prospects look distinctly nonalarming. The budget deficit has fallen sharply since 2010, and the International Monetary Fund expects the ratio of debt to GDP to be roughly stable over the next five years.
What about the longer-run burden of an aging population? This is a problem in France, as it is in all wealthy nations. But France has a higher birthrate than most of Europe - in part because of government programs that encourage births and ease the lives of working mothers - so that its demographic projections are much better than those of its neighbors, Germany included. Meanwhile,
France's remarkable health care system, which delivers high quality at low cost, is going to be a big fiscal advantage looking forward.
By the numbers, then, it's hard to see why France deserves any particular opprobrium. So again, what's going on?
Here's a clue: Two months ago Olli Rehn, Europe's commissioner for economic and monetary affairs - and one of the prime movers behind harsh austerity policies - dismissed France's seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts - and tax hikes, he declared, would "destroy growth and handicap the creation of jobs."
In other words, never mind what I said about fiscal discipline, you're supposed to be dismantling the safety net.
S&P's explanation of its downgrade, though less clearly stated, amounted to the same thing: France was being downgraded because "the French government's current approach to budgetary and structural reforms to taxation, as well as to product, services and labor markets, is unlikely to substantially raise France's medium-term growth prospects." Again, never mind the budget numbers, where are the tax cuts and deregulation?
You might think that Rehn and S&P were basing their demands on solid evidence that spending cuts are in fact better for the economy than tax increases. But they weren't. In fact, research at the IMF suggests that when you're trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.