Friday, November 8, 2013

S&P in Bed with the Very Serious People? Paul Krugman Thinks So

Paris, Boulevard St. Germain, where the French sip coffee and
worry about what Standard & Poors thinks of their socialism.

And, from my perspective, Krugman proves it. From today's blog:
So S&P has downgraded France. What does this tell us?
The answer is, not much about France. It can’t be overemphasized that the rating agencies have no, repeat no, special information about national solvency — especially for big countries like France. Does S&P have inside knowledge of the state of French finances? No. Does it have a better macroeconomic model than, say, the IMF — or for that matter just about any one of the men and women sitting in this IMF conference room with me? You have to be kidding.
Krugman then, using two graphs of data, demonstrates, quite conclusively, that the UK is underperforming France, economically speaking. Yet the Brits are the darlings of the Very Serious People because they've talked and walked the austerity path, which not surprisingly has led UK to undergo a double-dip recession. But, hey, everybody knows austerity is expansionary!

France has itself double-dipped, but a case can be made that the eurozone did that to themselves with the austerity it has forced on its suffering periphery, i.e. the PIIGS.

No, Paul's right. France raised taxes to preserve their social safety net. S&P sleeps with the ideologues that think destroying the safety net shows how Serious you are.

At some point we'll stop listening to the ratings agencies. I stopped back when they were rating subprime-mortgage-backed securities AAA.

Do check out Krugman's data. It's striking.

Update. Fans of Atrios know he's good at coining phrases of merit, like "Very Serious People." Krugman's famous one is the "confidence fairy," meaning what will show up and stabilize the markets if we'd only slash Social Security and Medicare, which, of course is what DC's Very Serious People advocate. Because they're ready to "take tough measures."

All of this is actually pretty grim, but Krugman's in Yurp giving a talk to the IMF, so he flags this picture, apropos of catchy turns of a phrase. Don't miss it. Enjoy.

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