Meanwhile In France - 'Unexpected' Bumps In The Road

Includes: EWQ
by: Acting Man

Economy Not Getting Any Better

Like much of the rest of Europe, France's economic data just keep deteriorating with nary a pause. Reuters reports that business confidence and economic output have both declined further in unison. Allegedly "unexpectedly," which immediately raises the question, who exactly was it that didn't expect this? Please raise your hands incurable polyannas! What else was going to happen in this socialist paradise with its ministry of industrial insanity? Here are the data in all their ghastliness:

French business confidence and industrial production unexpectedly declined as President Francois Hollande grapples with a budget deficit and an economy that is on the verge of recession.Sentiment among manufacturing executives fell to 91 in November from 92 the previous month, suggesting gross domestic product may fall 0.1 percent this quarter, the Bank of France said today. Industrial output dropped 0.7 percent in October, leaving it down 3.6 percent from a year earlier, national statistics office Insee said in a separate release. "Clearly things are not great and the car industry in particular is a disaster," said Dominique Barbet, an economist at BNP Paribas SA in Paris, who predicts that GDP will decline this quarter and in the first three months of 2013. "Consumer spending is depressed and as long as the labor market remains unfavorable, confidence will remain weak." Economists forecast that industrial production would rise 0.2 percent in October, according to the median of 23 estimates in a Bloomberg News survey. Confidence had been projected to remain at 92 in November, a separate poll showed.

French industrial production, disaggregated. Legend : CZ : Manufacturing - (C1) : Manufacture of food products and beverages - (C3) : Electrical and electronic equipment; machine equipment - (C4) : Manufacture of transport equipment - (C5) : Other manufacturing

OK, what is this about France being on the "verge" of a recession? Last week unemployment data were reported and a new euro era record was set. When exactly will they call it a recession? As we never tire to stress, GDP data are terribly uninformative when it comes to judging economic performance, and this only confirms it once again.

A Confluence of Disasters

To the remarks by Mr. Barbet above, how can the car industry be a disaster when it was just "saved" by the socialist government? Specifically, as it were, ailing Peugeot. See our previous articles on how the government has practically taken over affairs at the troubled car maker, including providing € 7 billion in state aid, sorry, 'support' (aid is not allowed according to EU rules) - where losses now continue to be produced under the watchful eye of, well, whoever (possibly Mountebank himself?).

Of course confidence will "remain weak" as long as unemployment is high - but one should not say such things within earshot of any of the Keynesian economic miracle workers in the French government, because they will feel compelled to immediately put the cart before the horse again. You know the drill - they believe employment creates growth - even wasteful employment like ditch digging. Alas, it is and always will be, the other way around.

Unemployment in France is hitting fresh euro era records. As can be seen, the cyclical low - where we suspect the combined catallactic and institutionalized unemployment rate approximately lies - is at a level that Ben Bernanke would definitely regard as "unacceptably high" in the U.S.

To briefly explain the foregoing chart comment: the catallactic unemployment rate is what one might also term voluntary unemployment (for instance, someone might decide to voluntarily eschew work he deems is not paying him well enough, or he may simply take a vacation from work). As Mises explains (in Human Action, ch. XXI, 4), in the unhampered market economy, catallactic unemployment is the only type of unemployment that can possibly exist:

If a job-seeker cannot obtain the position he prefers, he must look for another kind of job. If he cannot find an employer ready to pay him as much as he would like to earn, he must abate his pretensions. If he refuses, he will not get any job. He remains unemployed.

What causes unemployment is the fact that-contrary to the above mentioned doctrine of the worker's inability to wait-those eager to earn wages can and do wait. A job-seeker who does not want to wait will always get a job in the unhampered market economy in which there is always unused capacity of natural resources and very often also unused capacity of produced factors of production. It is only necessary for him either to reduce the amount of pay he is asking for or to alter his occupation or his place of work. There were and still are people who work only for some time and then live for another period from the savings they have accumulated by working.

One might ask, how is this possible? Why would there be only voluntary unemployment in a truly free unhampered market economy? The reason is that labor is a scarcer resource than land. This may one day change (perhaps when there are 30 or 40 billion people on earth? No-one knows for sure), but it hasn't changed yet. We mention only land, as the unused produced factors of production Mises mentions above are of course the product of mixing land (in the widest sense of the term) with labor.

France is of course anything but an unhampered market economy. Under its new government it is well on the way to becoming a "coerced" economy, one in which there is still private ownership in the means of production, but in many cases this ownership threatens to become only of the nominal sort: it is the government that decides which assets may be disposed of, what can be produced and where, etc. - at least in the case of the so-called "nationally important industries" (such as car makers, steel, and who knows what will be next).

Moreover France's labor market ensures a very high rate of institutional unemployment - this is most definitely involuntary unemployment, created by laws allegedly designed to "protect workers." France's voluminous labor code is infamous for its myriad of restrictions - minimum wages, which price most unskilled laborers out of the market, are quite possibly one of its lesser problems.

And this dear readers is one of the things at the root of the European crisis. First a massive credit boom (the euro area's narrow true money supply TMS-1 was €2.28 trillion in 2001, and has recently climbed to € 5.054 trillion) has led to an egregious misallocation of resources across euro-land, especially in the periphery and the soft core (France and Belgium) and now that the boom has turned to bust, the sclerotic, inflexible, over-regulated and overtaxed euro-land economies find themselves uniquely challenged with the adjustment process. To top things off, the French have elected a man as their president whom Gaspard Koenig has so trenchantly described as "the ultimate - and probably also terminal - embodiment of the European-style Welfare State".

In defense of the French people we should mention at this juncture that they were not exactly spoiled for choice. The establishment offered the economically illiterate Ersatz-Napoleon Sarkozy as an alternative to Hollande, and other than that there was a bunch of xenophobic fascists (the Le Pen clan) and a bunch of old-style Marxists (Melenchon et al.) on the radical fringe (with Hollande probably now living in mortal fear of the latter overtaking him from the left!).

It is hard to believe today that we actually owe the term "laissez-faire" to the classical liberal tradition that flourished in French economic thought in the mid 19th century. The French evidently need to urgently reacquaint themselves with some of the thought their own countrymen helped pioneer.

The CAC 40 index in Paris: the mirror of bubble and bust, and lately of France's moribund economy.

Charts by: Insee, Bigcharts