What Up With France?

You may be planning to travel to Europe this summer and you're wondering what's going on in France. Is the situation bad? And if so, can problems be solved?

The short answers I would give are: Very bad, and no.

Why can't these problems be solved, at least not in any definitive manner? My reasoning is simple: Mr. Macron is not Mrs. Thatcher, and France is not England.

By Benh LIEU SONG - File:Tour_Eiffel_Wikimedia_Commons.jpg

Facts as I perceive them:

France has more than flirted with socialism throughout its post-revolution history. During the most recent 100 years, socialist presidents were in power 1924-31, 1947-54, 1981-1995, and 2012-2017. That’s 1/3 of the time. With voting results close to 50-50 each cycle, that’s a lot of socialists.

The current retirement system was set up after WWII. Communist pressure inside the country, led by the “resistance” against the Nazis, forced De Gaulle into compromises that have set the country on a six-lane highway towards the left. Gradually over the ensuing seven decades, socialist regulations and “fixes” took hold in one domain after the other.

Private pension plans have become increasingly fragile, probably though a combination of bad internal management and weak national monetary policy. They have been bailed out/fused together over the years. For example, I know someone who receives a basic state pension and two other supplemental private pensions that have changed names about three times over the past ten years.

Meanwhile, the nationalized system is approaching bankruptcy, just as is the case almost everywhere it is tried including the US. With pressure from the EU, France is trying to reduce its deficit/debt, which is a good thing. However, France is still basically a socialist country, so when they try to reduce the budget and/or increase taxes to solve the budget problems, they can’t reduce benefits without the public going nuts.

You have noticed the “yellow vest” crisis, which came about because of a minor gasoline tax hike. Minor perhaps, but this was the “last straw” for many people since it is the outcome of years of tax increases and service reductions. (Example: Healthcare used to be tolerably good. Today, it is embarrassingly poor: a year’s wait to consult certain specialists; people waiting 12 hours to see a doctor in emergency rooms; rampant overcrowding and under-staffing; suicides among health workers.)

Today, Macron has decided to pool all national and private retirement pension set-ups into one large system that is complicated, misunderstood and poorly explained. As a result, every single benefit group is howling: the unions, the lawyers, the nurses, the federal bureaucrats, the railroad workers, the energy sector, the transportation sector, retirees. – even the ballet dancers and concert musicians. So even though the unionized sector of the population is small, popular anger against these reforms is high.

Macron has a majority in France’s equivalent of Congress, so the reforms might pass, especially because they can dispose of a silver bullet called the "49-3." This is a fast-track code section that can be used in case of need, but it tends to cause irritation and suspicion.

Everyone is getting exhausted by the constant strikes and demonstrations, which are hurting not only commuters and city dwellers but also many commercial entities that depend on peaceful coexistence. The French are survivors so they manage to scrape by, and strangely enough they still cling to their love of what they call “solidarité,” which is essentially the redistribution of wealth through public benefits. They don’t see that this redistribution, combined with obligatorily high taxes and rigid labor laws, is destroying their economic model.

I believe it will destroy Europe, but we’ll just have to wait and see. It might even destroy Western Civilization as we know it if it catches on in the US.

Francophiles watch the news every day to see if we can discern a clue about how this will end. Recently, the French “Congress” has started debating the pension reforms on the floor, but the opposition has filed more than 41,000 amendments, making the process slow if not impossible. Meanwhile, subway and train strikes continue to render ordinary life most difficult. Yet somehow life seems to go on.

What a paradox is this beautiful country: so smart is so many ways, and so dumb in others. And when I think it's very possible the US will go down the same rabbit hole....

What's Going On In France?

You may have noticed snippets of news about French people in yellow vests gathering in their townships to rabble-rouse. Do you wonder what it's all about?

[Source: Amazon.fr]

My husband was born in France, and we travel there regularly. He turns on the French news every morning, and the scenes of discord and violence are taking up more and more of the daily broadcast. In my opinion, it’s developing into a second revolution, already getting worse than the student rebellion of ’68 that became quite violent. 

I suppose technically it’s a tax revolt. People have been struggling for at least 15 years now, first under a socialist government under Mitterand, then a right-wing-but-ineffectual-middle-of-the-road party under Chirac and Sarkozy, then another left-wing attempt under Hollande, and now under Macron. Macron was Hollande's finance minister who is in fact what I would call a “Third Wayer,” an amalgam between socialism and capitalism. He’s trying to pick a path between European-imposed austerity and an all-providing state, but he's discovering that oil and water don't mix.

He began properly by modifying the federally imposed employment contract terms. But then he promised more purchasing power to the populace and started by … raising taxes! Go figure. People then got hit with rising gasoline costs plus the added insult of a higher “environmental” tax (which most of the electorate supports in theory), and this was the last straw, apparently. 

The uprising started on social media and just exploded, somewhat like the Arab Spring events a few years ago. Now everybody is getting into the act: the labor unions, the truckers, the professors, the students, the nurses, the retirees, the unemployed, the hooligans–you name it.

It might not end until Macron and his government resign, although maybe he can salvage something temporarily by handing out some goodie or other. In the end, it may be the best news yet for France’s populist party, the Front National of Mme LePen (now called the Rassemblement National). She wants to close the borders, stop international trade, stop immigration, throw out the Arabs, tighten security, and still maintain the socialist national benefits. Good luck with that. 

France: Perhaps the Real Canary in the Coal Mine?

I'm living in France at the moment, so what happens here is particularly interesting to me.  The ambiance is a mix of anxiety about the future and cautious hope that things can't be as bad as they seem.

John Mauldin, whose weekly e-mail newsletter is one of my must-reads, puts his finger on the European situation in this week's Thoughts From the Front Line.

A healthy Europe is vital to the future of the U.S., in the sense that our current state of dreamy optimism is fragile.  Our self-confidence is dependent upon things progressing smoothly in other parts of the world, and the slightest hiccup, whether at home or "over there," can have a ripple effect.

John has another column from last year that explains this fragility nicely.  It has to do with complexity theory.  Read here.

The European Perspective

I have been living in the French countryside for the last few months. The view of the Rhone Valley is gorgeous, and my first experience planting and caring for my own garden is a rewarding one. The only bothersome detail is that I'm particularly sensitive to bug bites, and somehow over here the bugs that bite are completely invisible--rather like No-See-Ums. What is a No-See-Um? [Thanks to Epestsupply.com for the image.] "You might not know what a No-See-Um looks like because of its tiny size, but if one bites, you won’t miss it! The No-See-Um is a bloodsucker many times smaller than a mosquito, but with a bite inversely more painful." (Source: M.wisegeek.com) Well, I sure know what they feel like, even if I don't know what they look like. Come to think of it, I guess the French bugs take after the French politicians. Over here, the latter give handouts to the people, and then try to tax in invisible ways to cover the cost. I've given several examples of this here. I hope you will enjoy reading some of my observations about the French situation. Meanwhile, I'll go put on some bug spray. (Too bad they don't have an anti-tax spray.)

The French Idea of Combatting Inflation

I had a good laugh at this one (in French).


[Thanks to tf1.fr for the photo.]

Xavier Darcos, the French Education Minister, is all smiles as he tells the public that he's reached an agreement with the largest distributers of school supplies to freeze the price of the bare necessities to, at most, the same figures as last year, and in some cases actual cost.

Forget the free market; France's political class feels the need to protect their electorate by deal-making, rather than inflation-fighting.

Obviously, the distributers will make up the difference by increasing the price of other necessities sold in their stores, but that fact is not important to the governing class.

Of course, they announce this today, August 29th, when French schools open on Monday. Most families have already done their shopping for school, so at best, these measures will only help the laggards. Realizing their error, the government has extended the special prices until mid-September. (They were supposed to expire at the end of next week.)

Parent associations had already been complaining that supplies had increased in price about 2.06 percent. And we mustn't forget the Terrible TVA, the Value Added Tax that weighs upon most purchases--including school supplies--to the tune of 19.6 percent.

Ah, Vive la France and what the French are fond of labeling their "Cartesian" mindset. This is a reference to one of their most famous home boys, 17th century mathematician and philosopher Rene Descartes, whose sense of logic brought us "I think, therefore I am", and also afforded us so much food for this chicken-and-egg-style debate thereafter. (For the latest among these, see my reading recommendation in the right column for Antonio Damasio's fantastic work, Descartes' Error.)

I would love to be able to write that new French president Sarkozy has his work cut out for him; but his free-market rhetoric is only skin deep. He has little understanding of economics, by his own admission. What a pity, because if anyone could persuade the public to follow him on a path to freedom, he's the fellow.

Why Isn't the US Economy Vigorous?

The answer to this question is simple: It is that the cleverer entrepreneurs have turned their sights towards speculation.

This is a phenomenon of fiat money times (i.e. times like now, when the currency is not standardized, for instance by some ratio to a weight of gold. For more information on this, read my earliest posts.)


[French paper "livre" from the 1790s. Thanks to www.atsnotes.com for the image.]

After all, how many adventurous whippersnappers can resist the carrot of gambling winnings now offered in hedge funds and take-over companies, over a nose-to-the-grindstone industrial or service sector job right now?

History is full of times like these. One was the 1920s. Another was the 1790s in revolutionary France.

In rereading Andrew Dickson White's classic, Fiat Money Inflation in France, I was struck by the following passage, and by the similarities between conditions today and those of France at the time:

"They knew too well, from that ruinous experience, seventy years before, in John Law's time, the difficulties and dangers of a currency not well based and controlled. They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor,—more injurious, indeed, than professional criminals whom the law recognizes and can throttle [emphasis added]; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality. All this France had been thoroughly taught by experience. Many then living had felt the result of such an experiment—the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known; and there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper. Hardly a man in the country who had not heard those who issued it cursed as the authors of the most frightful catastrophe France had then experienced.

"It was no mere attempt at theatrical display, but a natural impulse, which led a thoughtful statesman, during the debate, to hold up a piece of that old paper money and to declare that it was stained with the blood and tears of their fathers."

(The whole work can be downloaded from the mises.org website.)

Do any of these words touch you? The difficulty of checking the "overissue" of fiat money? The "absorption" of the working man's purchasing power through inflation? The toll it takes on "fixed incomes," people like your grandmother? The trillions of dollars being made today in speculative finance?

The over-stimulation and then "flaccid" letdown in industry? The "breakdown" of savings? The "blood" of the unsuspecting victims of the recent sub-prime mortgage debauchery?

The outcome of the French experiment with fiat money was a catastrophe. There are those who will say that times have changed, that with today's electronic communication systems and current data, such a tragedy is impossible. I say watch out, because history has a nasty habit of repeating itself.