The burden of government spending is enormous, with the public sector consuming 57 percent of economic output.Posted on 06/29/2013 5:04:53 AM PDT by SeekAndFind
The late, great Margaret Thatcher famously said that “Socialist governments…always run out of other people’s money”. And “I love the smell of napalm in the morning” is an iconic line from Apocalypse Now.
Thinking about the fiscal mess in Europe, I’m going to combine these two sentiments and state that, “I love it when statists run out of victims and start cannibalizing each other.”
And that’s about to happen in France.
The burden of government spending is enormous, with the public sector consuming 57 percent of economic output.
That’s more than either Greece or Sweden!
If something isn’t done, France will suffer a Greek-style crisis as investors lose trust in the government’s ability to pay its bills.
The situation is so bad that even the country’s Socialist President claims that he plans to cut spending, but he faces a revolt in his own party from those who refuse to recognize reality. Here are some excerpts from a column in the UK-based Telegraph.
President Francois Hollande has already angered much of his own Socialist base with plans to cut spending next year in absolute terms for the first time since 1958, but this may be just start of the battle. The Cour des Comptes said France is not even “halfway” through its fiscal squeeze. …”France is drifting away. Like a receeding wave, it is retreating little by little from the global economy, imperceptibly in the past, but visibly so today,” said Jean-Pierre Letartre, Ernst & Young’s chief in France. …The government has pencilled in economic contraction of 0.3pc this year, with a weak recovery starting in the second half, but a chorus of private economists fear far worse if there is any outside shock. “It could be as much as minus 1.5pc,” said Jean-Michel Six from Standard & Poor’s. …Mr Hollande has so far gone along with EU austerity demands, backing away from his pledge for a New Deal growth strategy in the elections last year. But his poll ratings have crashed at the fastest rate ever for a new president, and much of his own party is near revolt.
I’ll be surprised if France actually follows through with genuine spending cuts, but you can see from this chart that the time for fiscal restraint is long overdue.
To be somewhat optimistic, it’s worth noting that governments will do the right thing when there’s no other alternative.
Greece, for instance, has cut spending three years in a row, bringing the budget down from 124 billion euro in 2009 to 106 billion euro last year. Unfortunately, there have also been big tax hikes, and the overall level of spending is still about where it was in 2007, so Greece is far from a role model. But at least theera of ever-rising outlays has ended.
And I’ve already pointed out that the Baltic nations are a role model since they made genuine spending cuts the moment the crisis began and they’re now enjoying an economic rebound.
I realize this will be the understatement of the year, but France is not going to be the new Estonia.
Unlike the Canadian Liberal Party or Australian Labor Party, it does not appear that the Socialist Party in France is willing to recognize reality and do the right thing.
But the good news is that they don’t have any room to raise taxes. Successful people already are leaving the country because of punitive tax rates, and I suspect even President Hollande privately understands that France is on the wrong side of the Laffer Curve.
So I expect there will be a fight. On one side, we’ll have the rational statists who recognize that spending cuts are needed to avoided a fiscal crisis. On the other side, we’ll have the irrational statists who blindly think more money can be squeezed from the rich with more class-warfare tax policy.
Let’s hope for heavy casualties on both sides.
P.S. There’s a lot to like about France, and I reported a few years ago that it was ranked as the top nation for good living. But that’s only if you already are rich. Now that the French national sport is taxation, productive people who want to become rich have a big incentive to go someplace else.
Too much democracy is fatal to any republic.
I know a Frenchman who owned and operated five businesses in France. He said the government made it impossible to operate at a profit. You pay your taxes on the first of the year based on what the government says you’re going to make. Then, you pay hell getting back the difference when you don’t make that much. (He implied you couldn’t.) He said that to go out of business he’d have to pay his employees for an additional five years. So, one Friday he locked up everything and moved to America. He is now living in Tampa in a doublewide and working for somebody else. (So, obviously he didn’t go profitably under but just left so he could survive.)
RE: So, one Friday he locked up everything and moved to America.
Looks like he did not go out of business legally. Won’t the French version of the IRS be after him?
“Looks like he did not go out of business legally. Won’t the French version of the IRS be after him?”
I’m sure if he went back there would be issues. But he hates the French government and probably won’t go back.
Waaah!!!!!!!!!!!!!! I’m an outraged socialist, and I’m mad at all these austerity programs. I demand the government i.e. taxpayers fund my indolent lifestyle and my right to retire when I’m about thirty-eight or so. Waaahhhhh!!!
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That’s the US 24hours after the EBT cards stop working....
The government only spends 57% of the GDP? They’ve cut to the bone. There’s nowhere left to cut. What about the children? What about the do-nothing government workers? The useless departments? The bloated salaries and pensions? The union hacks?
“plans to cut spending next year in absolute terms for the first time since 1958, “
A dollar sez it never happens.
“To be somewhat optimistic, it’s worth noting that governments will do the right thing when there’s no other alternative.”
That’s not optimism. That’s delusion. The only people who ever cut are those who campaigned on cutting, whose great interest is in cutting, and who cannot be blocked from cutting.
If something isn’t done, France will suffer a Greek-style crisis as investors lose trust in the government’s ability to pay its bills.
Can't governments just print money? Even if they can't do that, can't they steal what they want?
Oh, by the way, what if the "investors" are the power behind the throne, and their intent is to force an "investment" crisis whose resolution will hand them still greater control over the state?
Statistically, governments will double down on stupid.
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