Law and the Created Order
7/10/12 at 02:42 PM 1 Comments

America, France, and the Doomed Formula for Economic Recovery

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On May 15 of this year, Françoise Hollande was inaugurated as France’s 24th president. During his campaign, Mr. Hollande made some remarkable promises to the French people. The nation’s economy is on the brink of complete disaster. In fact, many observers believe that it may simply be too late to save it. Government revenues are down, the national debt is 90% of the nation’s gross domestic product, and government auditors have recently released a report that indicates that France will need to come up with €6-10,000,000,000 (that’s billion) to meet the current year’s budget demands and another €33 billion to close the budget gaps for next year. These figures do not include the spending that will have to come if Mr. Hollande is going to keep those remarkable campaign promises.

These promises were announced in January 2012 as a set of sixty propositions. Included in these are the creation of 60,000 new teaching jobs, public subsidies for employment in areas of high unemployment, and lowering the retirement age by two years. None of these policy goals were taken into account as the auditors worked to calculate the nation’s budget requirements of the next two years. So, it is safe to say, that the estimates that I cited above are conservative estimates and in order to further his agenda, Mr. Hollande will have much wider gaps to fill.

What is so baffling to me is that he hasn’t even attempted to hide the way in which he intends to fill those gaps. He has promised to raise taxes. These tax increases, however, will not impact the middle class, or so he says. They will target corporations and the wealthy. Mr. Hollande has already announced that he is planning to tax those households that bring in €1 million or more at a rate of 75%. This means that those in this tax bracket will be required to turn over the first €75 of every €100 that they earn. It means that those workers will not see even €1 go into their own pockets until the afternoon of September 30, 2013, having worked every minute of the year from January 1 for the benefit of the government. Not many French citizens fall into this tax bracket, but can they really be so naïve as to believe that as Mr. Hollande’s tab runs up that his definition of the “middle class” is not going to become increasingly narrow? The arrogance that must accompany the assumption that the government knows how to spend your money better than you do must surely be alarming. It would be to me.

Unfortunately, it appears that the United States may not be too far behind France on this road. During the last year, America’s national debt surged to over 100% of the gross domestic product (compared to France’s debt that represents “only” 90%). More spending and more taxes only represent more government arrogance, not more efficient services, better healthcare, more job prospects, and more economic opportunities. Who in his right mind would work to earn the one millionth euro in France when he knows that that is the tipping point for government robbery to reach its pinnacle? With America’s highest tax bracket projected to be heading to well over 50%, the same disincentives to hard work and high earnings will soon be a part of our bleak economic picture, too.

Government is important. Government is an institution that was instituted by God for the protection of people. Government allows us to do collectively what we could never do individually. No one would ever altruistically volunteer to deliver letters to rural homes and no group of individuals could ever raise a modern army or build a modern navy without a collective, unified, and centralized effort to do it. But Americans somehow learned to read and do algebra in the days before the government started spending more than $10,000 per year per pupil in public schools. It is no secret that high levels of government spending lead to high levels of government taxation and high levels of taxation lead to disincentive to work and to earn.

The truth is, France’s economic recovery would have a chance if Mr. Hollande simply cut taxes, cut subsidies, and cut programs. All of that might be hard for individual French citizens to bear for the short term, but in the long run it would create individual incentives to work hard, to build companies, to earn more, and to spend more efficiently. In America, we can surely educate our children more effectively for much less than $10,000 per year and I assure you that when we’re spending our own money (as opposed to one another’s money), we will find that there are a whole host of things that we can do better for ourselves than the government can. Hopefully, it isn’t too late for us or for France.

Sources include:

The Economist, 7 July 2012, “François Hollande’s fiscal puzzle,” pp. 49-50.
National Center for Educational Statistics, U.S. Department of Education.

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