22 October 2010

French strikes a triumph of emotion over reason

The ongoing strikes in France, led by left wing unions and student groups, are opposing the raising of the minimum retirement age in France from 60 to 62.  If you read Idiot Savant you'd think the Sarkozy administration plans are about funding tax cuts for the rich.  If you take off your economically illiterate red coloured glasses you'd learn that it is actually about starting to confront the economic reality that the French Government cannot perpetually run budget deficits, like it has for several decades.  

If nothing was to be done, by 2050 two working age French people would be paying the retirement income of one.  With public debt set to hit 337% of GDP by then (it is 80% now), France will make Greece look like a mild defaulter.  
Of course in the world of the "see no fiscal reality" left, you simply put up taxes.  The legions of young people protesting in favour of protecting pensions shows the ignorance that can so easily be spread, few realising that they will have to pay far more taxes than those who are currently at retirement age, to pay for those who will retire when THEY are in their 50s.   

The reason why this is happening is the ponzi scheme madness of government funded pay as you go (PAYGO) pensions.  The same crisis would exist in the UK, if the retirement age was not to be increased.  In New Zealand the same crisis will occur as well, only partly covered by Dr. Cullen's socialised "fund" designed to invest tax revenue for retirement rather than just operate a PAYGO system.  The United States has this crisis writ large as well.  

The only way these schemes can be sustained is by reducing what is paid, increasing the eligibility age and increasing the tax contributions of those who might not get anything out of it.   A better way would be to simply freeze schemes at their current nominal level so that the total amount paid out erodes over time, but it also enables tax cuts to be implemented over time as well.   If people invest their own money in retirement income rather than the state spending it (or "investing" it), there is a greater pool of savings, more capital for private sector growth and a sustainable basis for retirement income.  

However in France, socialism is ingrained in "being French" say some.  It is an attitude that also infects the European Union, but one that cannot deft reality forever.   People in France might observe that GDP per capita in real terms for that country is now drifting towards that of Greece and Spain, not the UK and Germany.   I suspect the French appetite to do anything substantive to stop that relative decline remains low.


Jeremy Harris said...

Sadly the reality that these schemes either need; ages raised, entitlements lowered, higher taxes or phase out, will be replaced by printing money - hyper inflating the problem away in the process eliminating the middle class...

simpleton said...

This has made me think a bit more, to focus, even though I am aware of it in different forms thru out NZ local and central govt., EU, USA to UN.

Sarkozy's Perfect Storm
French Fury Goes Beond Pensions
A Commentary by Ullrich Fichtner.


Rama Yade, criticized the French Football Federation for choosing an excessively luxurious hotel for its national team, before it was revealed that Yade herself would be staying at one of the most expensive luxury hotels in South Africa during her visit.

Soon afterwards, it became known that Christian Blanc, secretary of state for the Greater Paris region, had spent €12,000 of his budget on Cuban cigars within 10 months -- and Blanc didn't even understand what all the fuss was about. Other administration officials, including Industry Minister Christian Estrosi, allowed family members to use their official residences, paid for with taxpayer money, for private purposes. Did they feel guilty? Not at all. Did anyone apologize? What on earth for?.....
and so it goes on.

At the end of the day they may still have to figure how to budget all the income and pension schemes and age changes required, but even I might be out on the streets if there is no cutting back on "expense accounts" etc. and who else is collecting social welfare and not contributing much if any taxes that is dragging them down.
Nor do I want an Argentian way of govt controlling the superannuation scheme or how other pension schemes have been ripped off.
There is just no accounting by people that get the power. The rest of us become power less as rates go up, GST up, arguable a tax reduction when GST should never have gone over 10% ,ETS taxes, leaky house payout on rate payers, On going immigration using more resources and so demanding new infrastructure and strainign the old set ups. Now even unlimited rate demands can be made for the benefit of all the community so long as they are the ones that do not have to pay for it.
Enough for now,