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Archive for September 1st, 2012

I’m a bad person. I know it’s not nice to take joy in the misery of others, but I can’t help but smile when I see a story about bad news in France.

In my defense, this is not because of hostility to French people, who have always been friendly to me. Instead, France has become the global symbol of statism (particularly since Sweden has been moving in the right direction). The French, for instance, are increasingly infamous for class-warfare tax policy and onerous levels of intervention.

And since it’s my job to promote liberty, I’ll confess that it’s easier for me to convince non-French policy makers that free markets and small government are the right approach when there’s more evidence that statism is failing in France.

So why am I smiling? Well, France wasn’t doing so well under the de facto socialist Nicolas Sarkozy, and it seems that things are looking even worse now that the de jure socialist Francois Hollande is in charge.

Here’s some of what Reuters recently reported.

“It’s always time for a tax hike!”

The French are bleaker about their country’s future than at any time since 2005, a new poll showed on Saturday, with 68 percent saying they are “rather” or “very” pessimistic… Hollande’s government has been reeling from unemployment at a 13-year high and a rash of job cuts in recent weeks at top employers like carmaker Peugeot and retailer Carrefour. The government launched a plan this week to create 150,000 state-sponsored jobs for youth. Only 34 percent of those surveyed were confident in the government’s ability to battle unemployment, and just 20 percent expect the government to be able to improve their buying power. …The poll found that the pessimism extended even to 58 percent of Socialist party supporters.

I’m wondering when the pessimism will spread to investors. France recently lost its triple-A credit rating, but the rating agencies don’t do a good job, so I think it’s much more important to look at the prices of credit default swaps.

In other words, how much does it cost for an investor to insure debt from the French government? According to this CNBC site, France isn’t viewed as being as creditworthy as nations such as Switzerland, Germany, and the United States, but it is closer to those countries than it is to Spain, Italy, or Portugal.

This is just a guess on my part, but I think France is reaching the point where investors are suddenly going to get concerned about the government’s ability to fulfill its promises.

If Hollande follows through on his threat to impose a “patriotic” 75-percent tax rate, for example, that could be the trigger that makes the bond market a lot more skittish. Particularly since it will result in fewer rich people in France.

I’ve already written about French entrepreneurs and investors leaving the country because of Hollande’s class-warfare tax agenda. It’s gotten so bad that even Hollywood types are packing their bags.

Actor Johnny Depp has moved out of France and returned to America because he didn’t want to become a permanent French resident and pay income tax there. …Depp has now moved his family out of France after government officials asked him to become a permanent resident, as he feared he would end up paying tax in both countries. He tells Britain’s The Guardian newspaper, “…France wanted a piece of me. They wanted me to become a permanent resident. Permanent residency status – which changes everything. They just want… Dough. Money… ” Depp goes on to explain that if he spends more than 183 days a year in France he will have to pay income tax in both Europe and America, adding, “So you essentially work for free.”

Wow, complaining that he doesn’t want to “work for free.” What is he, some sort of radical libertarian from the Tea Party?

But he may want to chat with fellow tax-averse actor Jon Lovitz before moving back to America. Obama’s class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands either.

P.S. Here’s a very good Chuck Asay cartoon about the French economy.

P.P.S. In a few areas, France has better policy than the United States.

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I wrote yesterday that the United Kingdom is doomed because there isn’t a political party with the vision or courage to restrain the welfare state.

At various points, I’ve also expressed pessimism about the future of France, Germany, Italy, Spain, Ireland, and even the United States.

Simply stated, almost all western nations suffer from the same toxic combination of dependency, demographic decline, and poorly structured entitlement programs.

But some nations are heading in the wrong direction more rapidly than others, and Greece is best example (perhaps I should say worst example?) of a country that is careening toward catastrophe.

It’s such a basket case that I’m not sure whether the politicians or the people deserve the lion’s share of the blame.

  •  The politicians deserve blame because they treat public office as a tool for self-enrichment and self-aggrandizement, largely by steering taxpayer money to friends, cronies, contributors, and supporters. Sometimes they do this in a search for votes. Sometimes in a search for cash.
  •  The people deserve blame because they view the state as a magical source of freebies and they see no economic or moral problem with using a coercive government to steal from fellow citizens. They realize the system is corrupt, which is why they seek to evade taxes, but that doesn’t stop them from trying to live at the expense of others.

In a best-case scenario, this type of dysfunctional system reduces prosperity. But when the number of people mooching off the state reaches a critical mass (as illustrated by these two cartoons), then you get societal meltdown.

Which is a good description of what’s happening in Greece.

And even when the government is on the verge of collapse and there’s pressure for reform, the political elite somehow figure out how to screw things up.

The latest example is the possible creation of “special economic zones.” When I first glanced at the story excerpted below, I thought this meant the Greek government was going to create something akin to “enterprise zones” featuring lower tax rates and less red tape.

Because I’m a supporter of the law applying equally to everybody, I’m not a big fan of such policies. I want to reduce the burden of government, of course, but I want that approach for entire countries, not just a handful of areas selected by politicians.

But at least the concept is good, right?

Not when Greek politicians are involved. They have taken the worst features of enterprise zones and combined them with the worst features of redistributionism. Here’s some of the story from Ekathimerini.

The government is paving the way for negotiations with the European Commission regarding the creation of special economic zones (SEZ) in Greece, Development Minister Costis Hatzidakis confirmed on Tuesday in Athens. …“SEZ will give a boost to the basis of the real economy,” said Hatzidakis, reiterating that the existing labor legislation will be fully respected. ..This forms part of the 10-point priority plan Hatzidakis announced yesterday aimed at boosting growth. Changes to the investment incentives law and the fast-track regulations will be completed within the next 15 days. The bill to be prepared will include subsidies of up to 80 percent for smaller companies… Public-private partnerships will be used for bolstering regional growth.

So the zones will keep all the bad labor laws, but provide big subsidies and create “public-private partnerships” (i.e., cronyism).

I hate to sound negative all the time, but that sounds precisely like the kind of nonsense that put Greece in a ditch to begin with.

To be fair, the article does talk about targeted tax relief and accelerated procedures for dealing with red tape. But that’s not exactly good news. Targeted tax cuts are a form of discrimination and they create an environment favorable to lobbying and corruption. And while it seems like good news to approve licenses more quickly, why not just get rid of bureaucratic hurdles? After all, this is the country (this is not a joke) that requires stool samples from entrepreneurs seeking to set up online companies.

It’s very hard to have any optimism after reading this type of story. Greece surely is an example of statism run amok, but let’s return to the point I made above about almost all other western nations heading in the same direction. Greece may be closest to the fiscal cliff, but the rest of us are driving in the same direction.

And if you think this is overheated rhetoric (yes, I’m prone to hyperbole), check out these dismal numbers from the Bank for International Settlements and the Organization for Economic Cooperation and Development.

P.S. The BIS and OECD numbers show that the United States is in worse shape – in the long run – than every European welfare state. I assume this is largely based on assumptions of health care spending rising more rapidly in America. The bad news is that this is a reasonable assumption (thanks to our third-party payer problem). The good news is that we can easily solve the problem with a combination of entitlement reform (which deals with a direct cause of third-party payer) and tax reform (which deals with an indirect cause of third-party payer).

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