Thursday, February 7, 2013

Tool of the State: Harvard Prof's Micro-Management Economic Proposal Being Implemented by France's Socialist President

Gita Gopinath
When French President Francois Hollande unveiled a plan in November for a business tax credit and higher sales taxes, he was implementing an idea similar to the type championed by economist Gita Gopinath, Bloomberg reports.

What Gopinath is promoting is known as “fiscal devaluation.”  The idea goes like this: Cut payroll taxes, and because nominal wages will stay unchanged for awhile, corporations, because of the tax break, will have lower costs, which will allow them to compete more competitively in international markets.

But here's the kicker. If firms couldn't compete before the payroll tax cut, why wouldn't they have just offer lower wages? It either means that other firms are competing for those workers with higher wages or the government is somehow preventing wages from falling.

Thus, there either isn't a problem, because the wage earners have better options or the core problem is government intervention.

I am all for cuts in payroll taxes, but the justification here is done in a way that just carves out a role for government to manage the economy, especially given that Gopinath advocates an increase in the VAT as part of the overall “fiscal devaluation”  plan. The idea is that the increased VAT will not bear on exports and so will not dampen the positive effect on exports of the payroll tax cut.

A clip of Gopinath discussing her proposal is here. Note, she is just wrong when saying that because a country like France doesn't have its own currency prices can't adjust. Says who? Does she believe in supply and demand and market clearing prices or not? What she is not saying is that there are the government interventions which prevent wages from adjusting to market conditions. If this were allowed to occur, there would be no problem. But, then, there would also be no need for the complex micro-managing programs designed for governments by economic tools of the state like Gopinath.


  1. How does an increase in VAT not effect exports? I am not wasting my time reading her ridiculous proposal, but that just sounds like another situation of the Math supporting a conclusion that isn't possible in reality. Sort of like that Infinite Growth crap the MMT guys push on us daily.

    To add, her husband is a lucky guy. I just wonder if he's smarter than her...

    1. you are powerless. they dont care. they will do as they please.

      you can debate all you want, but beyond a tiny section of academics, your economism has no appeal.

      even when you may be right.

  2. VAT's are not applied to exports in most countries.

  3. Again she's thinking in a nations aggregate accounts, if we take this bit off here then a corresponding amount will show up there amd everyone will gasp incredulity at the brilliance of academic economists. However as has happened many times the result will be different than what she thinks, in many different ways.

  4. Hey, sweetie, your Lord Keynes had this all figured out. According to Keynes, inflation (i.e. devaluing the money) subsidizes the exporters while simultaneously lowering the costs of labor.

    So, sweetie, you don't need to go around using your pretty brain to find any new solutions - even if you happen to be at Harvard, where you are paid just for thinking stupid thoughts. It's enough for you to just keep Bernanke's arousal levels high so that his emissions may profusely drench the US economy at regular intervals. The logic of Lord Keynes will take care of all the messy details.

  5. She's cute.
    Too bad she's dumb.