Remember when Paul Krugman warned that there was a plot against France? He asserted that critics wanted to undermine the great success of France’s social model.
I agreed with Krugman, at least in the limited sense that there is a plot against France. But I explained that the conspiracy to hurt the nation was being led by French politicians.
Simply stated, my view has been that the French political elite have been taxing the nation into stagnation and decline and there is every reason to think that the nation is heading toward a severe self-inflicted fiscal crisis.
But it turns out I may have been too optimistic. Let’s look at some updates from Krugmantopia.
We’ll start with a report from the Financial Times, which captures the nation’s sense of despair.
…if the country’s embattled socialist president was hoping for some respite from what has been a testing year, he can probably think again. … the French economy barely expanded during the second quarter of this year after stagnating in the first. …the result will make it all but impossible to achieve the government’s growth forecast for 2014 of 1 per cent… Bruno Cavalier, chief economist at Oddo & Cie, the Paris-based bank, says one reason is the huge constraint on disposable income posed by France’s tax burden, which has risen from 41 per cent of GDP in 2009 to 45.7 per cent last year – one of the highest in the eurozone.
The government has responded by rearranging the deck chairs on the political Titanic.
French President Francois Hollande dissolved the government on Monday after open feuding among his Cabinet over the country’s stagnant economy. …France has had effectively no economic growth this year, unemployment is hovering around 10 percent and Hollande’s approval ratings are sunk in the teens. …Hollande’s promises to cut taxes and make it easier for businesses to open and operate have stalled, in large part because of the divisions among his Socialist party.
For what it’s worth, Hollande’s commitment to tax cuts and deregulation is about as sincere and genuine as my support for the Florida Gators.
After all, he’s the guy who imposed a new top tax rate of 75 percent (which he said was “patriotic”)
And that’s just the personal income tax. When you add other taxes to the mix, you get a system that is so onerous that more than 8,000 households paid more than 100 percent of their income to the French government!
No wonder successful people are escaping to other nations.
By the way, if you’re wondering why Hollande is appointing new people to his government, it’s because some of his ministers were complaining that so-called austerity was inhibiting Keynesian spending policies that would make government even bigger!
Austerity measures being pursued by France and elsewhere in the euro zone are quashing growth, FrenchEconomy Minister Arnaud Montebourg was quoted saying on Saturday… The outspoken minister, a fierce critic of budget austerity, is known for frequent attacks on big business and the European Commission, which he accuses of strangling economic recovery with its prioritization of deficit reduction. …While not as strident as the comments by Montebourg, French Finance Minister Michel Sapin similarly argued for moderated deficit reduction in an interview published in Italian newspaper La Repubblica. “The euro zone is at risk of getting stuck in a spiral of weak or negative growth. We absolutely must slow down the rate of deficit reduction,” Sapin was quoted as saying.
In other words, the French policy debate is between the far left and the crazy left.
Which is why this dour assessment from across the English Channel probably understates the depth of the problem.
Since Francois Hollande was elected President in 2012, French GDP per capita has fallen. Its economy is expected to grow by just 0.7 per cent this year. …the country now looks set for stagnation – with its unemployment rate entrenched above 10 per cent (and youth unemployment double that). …the problems are obvious. The French government accounts for a massive 57.1 per cent of the economy in state spending and transfers. The tax burden is so high at 57 per cent for French employees (the sum of income, payroll taxes, VAT, and social security contributions as a proportion of the gross employment cost)… The World Economic Forum says that France is near the worst performer on a host of measures: positioned 130 out of 148 countries for its regulatory burden, 134 for the tax rates on profits, 135 on cooperation in labour-employer relations, and 144 on hiring and firing practices. …No wonder investors have voted with their wallets. FDI into France is estimated to have fallen by 95 per cent in the last decade.
Wow. No wonder the French people are so glum about the economy, as reported by the EU Observer.
…in France, the eurozone’s second biggest economy, eight percent felt the country’s economy was good. …Only 34 percent feel the jobs crisis has peaked compared with 60 percent who are bracing themselves for a darker economic future.
Which raises a good question. If the French people are so pessimistic about the future, why do they keep electing socialists?!?
Particularly when they tell pollsters they support smaller government!
Last but not least, we have a story from the New York Times about the mind-boggling regulation and protectionism that , mostly because it illustrates the pervasive statism that is strangling France.
Alexandre Chartier and Benjamin Gaignault work off Apple computers and have no intention of ever using the DVD player tucked in the corner of their airy office. But French regulations demand that all driving schools have one, so they got one. Mr. Chartier, 28, and his partner, Mr. Gaignault, 25, are trying to break into the driving school business here… But they are not having an easy time. The other driving schools have sued them, saying their innovations break the rules. …their struggle highlights how the myriad rules governing driving schools — and 36 other highly regulated professions — stifle competition and inflate prices in France.
And what are these rules and regulations, other than the bizarre requirement to own a DVD player?
“The system is absurd,” said Mr. Koenig, who was a speechwriter for Christine Lagarde when she was the French finance minister. …he has been campaigning for changes, including calling for an overhaul of the written test, which he says goes far beyond making sure that a person knows the rules of the road. Instead, he said, it seems intended to trip students up with ridiculous questions, such as: If you run headlong into a wall, would you be safer if you were in a tank or in a car? (The answer: a car, because it has air bags.) …Some studies have concluded that the French are probably paying 20 percent more than they should for the services they get from regulated professions, which include notaries, lawyers, bailiffs, ambulance drivers, court clerks, driving instructors and more. …Francis Kramarz, an economist who has studied the French licensing system, says that barriers to getting a license are so high that about one million French people, who should have licenses, have never been able to get them. …Mr. Kramarz said that it often costs 3,000 euros, or about $3,900, to get a license. But others said the average was closer to 1,500 to 2,000 euros.
Gee, isn’t big government wonderful!
The statists say it helps the less fortunate, but it seems the poor are the ones most hurt by regulations that push the cost of getting a license to $2,000 or above.
P.S. In an uncharacteristic expression of mercy, President Hollande has announced that he wants to limit the fiscal burden so that no taxpayer has to surrender more than 80 percent of their income to the government.
P.P.S. No wonder Obama will never make America as bad as France, regardless of how hard he tries.
P.P.P.S. Here’s the best-ever cartoon about French economic policy, though this cartoon deserves honorable mention.
P.P.P.P.S. Even the establishment, as indicated by stories in Newsweek and the New York Times (as well as The Economist and the BBC), is noticing that the French economy is dismal.
P.P.P.P.P.S. No matter how much I mock France, there are places in Europe with even worse economic policy.
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would be interested to see your response to this: http://ourtimes.ca/Featured_Story/article_374.php
Is it possible? Of course it is. Not only is it possible but it’s the predictable reaction of voter-lemmings heading into decline.
With the outlook for French voter-lemmings so immediately bleak, who will let go off their government support, jobs, contracts, subsidies etc. for the Mitchell promise of a vibrant economy growing at 4-5% a year, but 5-10 years from now? There is no escape from that vicious French (and European in general – and now also increasingly American) cycle, where everyone is squeezing everyone else’s cojones. Anyone who lets go at this point ends up with his cojones getting squeezed while having lost his only leverage on the socialist system (squeezing others’ cojones).
It did not get to this point overnight for France. It all started with a little French HopNChange, a little more fairness into the French society, a slightly flatter effort reward curve compared to major international competitors. The ensuing inevitable iterations of the vicious cycle predictably, deterministically and inescapably brought things to this folly. It’s not over yet for France. There is a long way down still. With the coercive collectivism of the left failing, voter-lemmings will now have to try the other coercive collectivism, that of the right, currently embodied by Mrs. LePen, who the French voter-lemmings perceive as the antipode of the left, when in reality they both are both different faces of the same coin.
French politics is now conducted in one dimension only, perpendicular to the axis of coercive collectivism. The only debate is HOW to use the individual once drafted to the delusive communal causes, not IF. Predictably, nobody wants to work – at least with enough motivation to outcompete the group of more competitive economies worldwide. France is simply doomed, and its large population decisively tips the European balance of givers and takes in favor of the takers. Unless they leave the European project of ever more trans-national coercive collectivism (the EU), the few slower declining countries of Europe (UK, Scandinavia, Netherlands, Germany etc.) will be dragged into the faster decline of those Europeans who have completed a larger portion of the irreversible road down to “hope in prosperity through coercive collectivism”.
The tipping point folks is when your nation’s effort-reward curve becomes a little flatter than that of the most competitive economies worldwide. That point passed a long time ago for France – and was recently crossed by American voter-lemmings. So “Obama does not have to try that hard”; only set the vicious cycle in motion. Judging from what seems to be emerging as the new American growth trendline of 2% (2-3% below the world average) Mr. Obama seems to have already succeeded. American voter-lemmings will now take care of the rest by travelling the vicious cycle all the way to France and Greece — via England, Holland, Germany etc. — who are all headed into decline as their growth rates are not even half the world average. The reality of a relentlessly compounding loss of world standing is ruthless.