Stimulus produces faster economic growth and also leads to less public debt. I and other Keynesians have argued this for years. Here is an excellent piece of research by a young economist from Italy who has also taught at LSE and Harvard making the same case.

See Stefan Collignon in the Journal Social Europe, Francois Hollande is Right-Why Fiscal Stimulus would reduce Debt here

Yesterday I spent close to three hours watching the debate between the two finalists in the campaign for the French presidency, Nicholas Sarkozy the current President and François Hollande the candidate of the Parti socialiste. I have to say that in their own way both were impressive, thoroughly in charge of their dossiers, well informed, passionate defenders of their positions and a credit to French politics.There were a number of aggressive exchanges with M.Sarkozy on the defensive but also denouncing Hollande for distorting his position and the facts. M.Hollande mostly effectively repulsed these claims.

I prefer  most of the positions advanced by François Hollande though I wish he were much bolder when it comes to escaping from the deadening hand of austerity and deficit hysteria. M.Sarkozy is clearly an embattled President and far too willing out of electoral necessity to shake hands with the devil of ultra rightist anti-immigrant politics in an effort to save his Presidency. He looks as a consequence likely to fall victim to the electoral backlash to prolonged high unemployment, economic depression and public anger over possible corruption and distrust of his bling bling style. But he will go down fighting to the end, a formidable politician of the centre right. The polls still show M.Hollande  a decisive victor but the results may well be closer.

The latest rolling poll shows the gap between the two candidates narrowing to 53 % for Hollande to 47 % for Sarkozy a gap of about 1.5 million votes if  there are about the same number of voters as in the first round. Still a close election if the polls are accurate.

The Canadian government is busy cutting programs and jobs and laying off some 18,000 civil servants. No surprise the economy is shrinking in response to this foolish ideologically inspired austerity. The central bank has made noises about raising interest rates. If the Governor of the Bank of Canada has any brains he will avoid doing this for some time to come.

I reproduce below courtesy of Statistics Canada, an excellent agency which itself has been negatively affected by job cuts, their most recent report on the GDP.

Gross domestic product by industry, February 2012

Real gross domestic product declined 0.2% in February. Temporary closures in mining and other goods-producing industries contributed to the decline. Decreases in mining and oil and gas extraction, manufacturing, utilities as well as forestry and logging outpaced advances in construction. In service-producing industries, gains in wholesale trade and in the finance and insurance sector outweighed declines in retail trade and in the transportation and warehousing sector.

CSV version of the chart

Mining and oil and gas extraction falls

Mining and oil and gas extraction fell 1.6% in February following a small decrease in January and a 2.0% increase in December. Excluding oil and gas extraction, mining declined 7.0% in February, as output at potash and nickel mines was reduced by temporary shutdowns. Potash mining was down 19% as a result of the closure of mines in Saskatchewan in response to weak world demand. Copper, nickel, lead and zinc mining declined 9.9% as several nickel mines in Ontario, which also produce copper and precious metals, were closed for safety issues in early February.

CSV version of the chart

Oil and gas extraction decreased 0.9%. Crude petroleum production declined partly as a result of unplanned maintenance activities in Alberta. Natural gas production was also down. Storage levels of natural gas remained high in February. Support activities for mining and oil and gas extraction increased 1.6%.

Manufacturing declines

Manufacturing declined 1.2% in February after increasing for five consecutive months. Non-durable goods manufacturing decreased 1.4% on reduced output of food, chemical, and plastic and rubber products. Durable goods production fell 0.9% as lower output in transportation equipment and primary metal manufacturing more than offset increases in non-metallic mineral products and machinery manufacturing.

Utilities decrease

The output of utilities decreased 1.9% in February, partly as a result of unseasonably warm weather leading to lower demand for electricity and natural gas. Output of electricity was also lowered by planned maintenance activities at some facilities.

Construction and home resale market up

Construction rose 0.5% in February with increases in residential and non-residential building construction as well as in engineering and repair work. The output of real estate agents and brokers increased 1.1% in February on increased activity in the home resale market.

Wholesale trade increases while retail is down

Wholesale trade (+1.5%) increased in February for a third month in a row, on the strength of wholesaling of building materials, motor vehicles and parts, machinery and equipment as well as personal and household goods. In contrast, wholesaling of petroleum and farm products declined.

Retail trade (-0.4%) decreased for a second consecutive month. The decrease was led by a decline in activities at new car dealers, which experienced a notable increase in January. Excluding new car dealers, retail trade edged down 0.1% in February. Decreases at food and beverage stores, health and personal care stores as well as electronics and appliance stores outweighed increases at building materials stores, clothing stores and general merchandise stores.

Transportation and warehousing services decline

Transportation and warehousing services declined 0.9%, as trucking and support activities for transportation were affected by the weakness in other industries.

The finance and insurance sector rose

The finance and insurance sector rose 0.5%. Management activity of mutual funds, residential mortgages and personal loans as well as the brokerage of securities increased. The output of insurance carriers was also up.

Other industries

The public sector (education, health and public administration combined) was unchanged in February as gains in health services were offset by decreases in education services and public administration.

Forestry and logging as well as accommodation and food services declined.

CSV version of the chart

A new report from the ILO’s International Institute for Labour studies entitled Better Jobs For A Better Economy edited by Raymon Torres and researched and written by a team of economists and labour market analysts including some 13 individuals  has sharply criticized European austerity measures as having been damaging to employment. It is worth quoting a small passage directly from the  editorial introduction to the Report. (quoted courtesy of the authors and publisher)

viii

In addition, as part of the policy shift, the majority of advanced economies

have relaxed employment regulations and weakened labour market institutions

(Chapter 2), and more deregulation measures have been announced. These steps

are being taken in the hope that financial markets will react positively, thereby

boosting confidence, growth and job creation.

However, these expectations have not been met. In countries that have

pursued austerity and deregulation to the greatest extent, principally those in

Southern Europe, economic and employment growth have continued to deterio-

rate. The measures also failed to stabilize fiscal positions in many instances. The

fundamental reason for these failures is that these policies – implemented in a con-

text of limited demand prospects and with the added complication of a banking

system in the throes of its “deleveraging” process – are unable to stimulate pri-

vate investment. The austerity trap has sprung. Austerity has, in fact, resulted in

weaker economic growth, increased volatility and a worsening of banks’ balance

sheets leading to a further contraction of credit, lower investment and, conse-

quently, more job losses. Ironically, this has adversely affected government budgets,

thus increasing the demands for further austerity. It is a fact that there has been

little improvement in fiscal deficits in countries actively pursuing austerity policies

(Chapter 3).