The Daily Reckoning by Bill Bonner
On This Day - 1 September 2014
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Krugman has outdone himself this time A  A  A

Bordeaux, France

Dear Diary,

"What's the secret?"

We had decided to put the question directly. Why not? How often do you have dinner with a Rothschild, much less dozens of them?

Today, one of Bordeaux's most notable winemakers goes to her grave. Phillipine de Rothschild was already stone cold when we arrived in town on Saturday; she died last week at 80. Today, she will be buried.

But we came not to bury a Rothschild but to praise one; that is, not for an unhappy occasion, but for a happy one, the marriage of one of Phillipine's cousins.

"She was so loved and respected in the wine industry here in Bordeaux," a relative reported, "that the other winegrowers, merchants and even the field hands, lined the road and took off their hats when they brought her body back from Paris."

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Phillipine told the French leftist newspaper, the Liberation, that despite the family name and the family fortune she had not always had an easy time of it. During the war, being a Rothschild in France was hazardous. Her mother was sent to a concentration camp, where she died in 1945. Phillipine used her mother's maiden name, escaped the roundup, and after the war she went on stage in Paris as Philippine Pascal. Then, in 1988, her father died and she came back to Bordeaux to run the famous Mouton Rothschild winery.

At the dinner following the wedding, we paused to remember her and raise a glass in her honor; after all, she had given the wine for the occasion.

Seated to the left of a charming ambassador and to the right of a lively, elegant lawyer (who had married into the Rothschild clan) we happily passed a few hours in light conversation. Between courses came the inevitable question:

How had the Rothschilds been so successful for such a long time?

"They married well," was one reply. "First, they married each other. I guess the Jewish community was small at the time. And families were very tight. Cousins married each other. That way, they kept the brains and the money in the family. But even later, they were very careful about whom they let into the group."

"They stuck with good industries," was another hypothesis. "The English branch of the family stayed in finance. That was always a good business in London. And it got better as London became the center of international capital. Whenever the Russians...or the Arabs...or the Austrians...or the French, for that matter, ran into trouble in their own countries, they went to London. They're still doing it. That's why there are so many Russians and so many French people there now. But don't get me started on the French..."

We will not get started on the French. But we will pause, briefly, to note that as an economist Paul Krugman might make a good dentist. Then, he could expound his ideas to an open mouth, without causing further damage.

Instead, he wrote a remarkable column in the New York Times. This time, he's outdone himself; his "The fall of France" opinion is exceptionally dumb. After berating French president Hollande for failing to embrace American-style money-printing, he notes that the French economy is actually doing pretty well. "Prime-aged adults are a lot more likely to be employed in France than in the United States," he writes. France "doesn't have a trade deficit, and it can borrow at historically low interest rates."

Mr. Krugman believes that Mr. Hollande and his 'austerity' policies are "failing France...also failing Europe as a whole." Why? Here his delusions stumble over each other again. First, France is not practicing austerity. Its government spending is already 57.1% of GDP - 5 percentage points higher than it was just 10 years ago. And its deficit is well above the allowable 3% of GDP level, and growing infinitely faster than the zero-growth economy itself.

Second, you do not get genuine prosperity by spending money you don't have on things you don't need. Whether you borrow the money...or print it...the result is much the same; you get poorer, not richer. If you could get rich simply by living beyond your means...and then printing the money to pay your bills... Zimbabwe would be the richest nation in the world. Instead, it is destitute.

Krugman fears that France will fall into a Japan-like slump because Europe is practicing too much 'austerity'. But neither fiscal nor monetary stimulus will rescue a debt-drenched economy. For all its 30 years of high deficits, Japan has gotten nothing but more debt, with a debt/GDP ratio of 220%.

Third, Krugman thinks that prosperity is the key to peace. Here's the line: Europeans aim to "secure peace and democracy through shared prosperity," he writes. This idea is absurd when applied to democracy. Democracy was allegedly secured by the ancient Greeks more than 2000 years ago and again by the Americans in 1776. Prosperity had nothing to do with it; compared to today's Europeans, both were appallingly poor.

Likewise, there is no known link between prosperity and peace. The last century was one long, sad story of the world's richest peoples trying to exterminate each other with thorough planning and sophisticated, expensive weaponry.

At the beginning of WWII, Philippine's father had left to join de Gaulle's Free French in London. Many other Jews fled to America. Philippine's mother, a catholic, believed she would be protected by Bordeaux officials and spared by the Nazis. She was wrong. She was deported to Ravensbruck.

Her cousin was wrong too. As the Nazis began laying hands on Jews in the occupied zone, the young woman fled, accompanied by a young Frenchman who protected her. He took her to a remote farm, where she would be safe. He left with these words: 'after the war is over, I'll come back and marry you.' Which he did. We were invited to their grandson's wedding.

Omnes. Gentes. Alleluia.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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