Politicians don’t ‘grow’ economies.
We witnessed that rarest of things last week—a politician’s public humility. When France, along with Germany, reported an unexpected uptick in economic growth for the second quarter, French Finance Minister Christine Lagarde called the return to growth “very surprising.” Imagine that—a major global economy stops shrinking, without the benefit of trillion-dollar stimulus packages or major reforms, and a politician doesn’t rush to claim credit for the achievement.
Politicians don’t “grow” an economy like a vegetable garden, and the reasons behind economic growth in the global economy are at least as mysterious to our political class, if not more so, than they are to the rest of us. Ms. Lagarde, who spent decades in the private sector, is perhaps better placed than many politicians to appreciate this fact. A single quarter of 0.3% growth hardly means it’s off to the races for France or Germany, and the euro zone’s economy as a whole still shrank in the quarter, by 0.1% of GDP.
But at a time when politicians around the world are desperate for any sign of a turnaround, it’s refreshing to hear the minister responsible for France’s economy speak the truth about growth. It is the product of literally millions of decisions made by millions of people about what to produce, buy and sell. Politicians can influence all that decision making, especially by increasing or decreasing the incentives to produce, work and innovate. But they can’t control today’s multi-trillion-dollar economies, no matter how much they’d like to take credit for doing so when things start looking better.
France did pass a modest stimulus package earlier in the year, and it has joined the cash-for-clunkers craze that has swept the Western world. But France and Germany were among the countries in Europe that resisted Treasury Secretary Tim Geithner’s imprecations to join the U.S. on the megastimulus bus, and on present evidence this fiscal restraint does not appear to be hurting their chances for recovery.
One quarter’s modest growth could easily be wiped out by later revisions in the data or a subsequent slowdown, so it would be a mistake to make too much of the second-quarter’s bounce. But Ms. Lagarde’s frank surprise at France’s return to growth holds a lesson her counterparts could learn from.
Wall Street Journal
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Full article: http://online.wsj.com/article/SB10001424052970204683204574354431606457314.html
