From an internship way back when, I recall there being two ways to calculate GDP, only one of which I actually remember.* That method is by adding up the total expenditure on factors of production in a country. Wikipedia tells me there are actually two others: adding up all income directly (which makes a heck of a lot of sense), and adding up expenditures.
France has lower output, as measured by one of these three techniques, than the US. Paul Krugman says that this is reason to be cautious about the new IMF redistribution paper. And I’d probably agree. In the same post Krugman says that he lower output is explained specifically by the fact that the French work less. But a quick look at data from FRED (it’s too annoying to post it from my iphone) reveals that France’s GDP per hours worked is in fact also lower than in the US.
Therefore the French are either less productive, or something else is going on. The BEA uses the third technique for calculating GDP (pg 6-8). This method literally adds up C+G+I+X-M and attempts to exclude intermediary purchases by businesses, eg of finished window glass by Honda. I’m going to assume France does the same. If so, it must be the case that expenditures per hour worked are lower in France than in the US. Is it possible that France’s output takes the form of more non-market income, such as unpaid childcare? Is it possible that expenditures could be masked or appear attenuated when they appear in G rather than in C? For instance, the value of a CT scan could be the same for two patients, but if Medicare only covers one of them then the gross total expenditures will differ.
What if France is actually more “efficient” (not in the welfare sense) in turning money into value? Even at purchasing power parity, is it possible or plausible that a typical dollar-equivalent in France buys more non-tangible stuff that cannot be accounted for in PPP?
This has the same flavor as arguments that the CPI overstates inflation because it isn’t possible to account for the value of certain advancements in society, thereby overestimating the extent to which prices grow relative to the value of services rendered. And as in that case, I keep being reminded of the Jencks, et al. paper I linked to a while ago.
For the record, I’m not some kind of Francophile/europhile and I’m not trying to imply “yes” answers to all of these things. I am however trying to break the illusion that the US is some kind of ideal standard. And I’m trying to work through macro in my head a bit more. I’m sure that my lack of macro knowledge is on full display here.
*I’m certain this wasn’t taught in my undergrad principles or macro courses.
Lots of Bad Ideas 