If history has taught one certain lesson, it is that
the less fettered an economy, the better humankind is able to do what it does
best: run from trouble and run toward opportunity. In this way mistakes are
quickly resolved and progress assured.
Conversely, the deeper the muck of regulation,
mandates, taxes, subsidies and other bureaucratic meddling, the slower we
humans are in following our natural instincts until the point that progress
is slowed or even stopped.
It is said that history doesn't repeat itself, but it
often rhymes. In the current circumstances, it appears that enough time has
passed that current generations have completely forgotten the critical
connection between the ability of humans to freely pursue their aspirations
and economic progress.
You can see this ignorance in the popular demand for
even more, not less, meddling in the affairs of humankind. Should this trend
continue – and for reasons I will touch on momentarily, I firmly
believe it will – then the aspirations of the productive minority will
soon be dampened by ever higher taxes and other attempts to "level the
playing field" and the global economy, already in tatters, will fall off
There is no more timely nor
acute example of this growing trend than what is currently going on in
France. I refer, of course, to the first round of the presidential election
process, scheduled for this weekend.
In France, if no candidate attracts no better than 50%
of the vote, then the two leading candidates go to a decisive runoff vote,
this time around to be held on May 6.
The current president, Nicolas Sarkozy, a conservative
in name only, was running at a fairly steady gait toward re-election (thanks
to the head start awarded all incumbents), when leading socialist candidate
Francois Hollande came out with a proposal to tax
anyone with an annual income of over one million euros at a rate of 75%. He
also promised to add a tax on all financial transactions and increase taxes
on France's biggest companies to 35% – securing bragging rights as
levying the world's third-highest corporate taxes, the US being #1. This all
on top of a 25% VAT, one of the world's highest. By some calculations, the
result of Hollande's new taxes is that effectively
100% of all incomes over one million euros will now be stripped away by the
For good measure, Hollande
also promised to reverse the recent modest increase in retirement age from 60
to 62 pushed through by Sarkozy. While I am sure it is mere coincidence, I
found it noteworthy that Mssr. Hollande's
campaign slogan is "Change – Now!"
Remarkably, at least for those with some small
understanding of economics, as a result of leaning into the microphone with
these proposals Hollande has galloped ahead of all
other potential contenders and is now projected to finish nose by nose with
After which the also-rans will be removed from the
race, freeing their supporters to share their affections elsewhere. Given
that the leading contender for third place with an estimated 14% of the vote
is one Jean-Luc Mélenchon – charitably
categorized as "far left", a label that can be applied to most of
the other candidates – it is projected that the
"conservative" Mssr. Sarkozy will go down
in double-digit flames come May 6.
Bringing to mind the prophetic utterance of Louis XV:
"Après moi, le déluge."
The deluge in Louis' case manifested as the murderous
affair commonly known as the French Revolution. In the case of Mssr. Hollande taking up
residence in the Palais de l'Élysée,
the deluge is likely to manifest in the form of rising interest rates as
investors look to protect against an acceleration in the country's debt to
GDP ratio, already projected to hit almost 90% this year, exacerbated by a
flight of capital, investors, entrepreneurs and large businesses.
As is the nature of such things, because of the
aforementioned predilection of humans to run from trouble, we likely won't
have to wait for Mssr. Hollande
to be formally enshrined in the gilded halls for the trouble to start –
it will begin within days and maybe even minutes of the handicappers
concluding that his ascendency is a sure thing.
Given that France is the third-largest economy in the
already-troubled Eurozone, one can expect the deluge to spread, with
potentially devastating consequences. That the guillotines may soon be rolled
out across Europe can be better understood by taking into account that the
Eurozone sovereign deadbeats are on the hook for roughly nine trillion euros
in debt, some significant percentage of which has to be rolled over to ready
buyers over the next couple of years. Adding weight to the problem is that,
according to the latest figures out of the IMF, Europe's banks may have to sell off up to 3.8 trillion
euros in assets, many of them questionable, between now and the end of
next year. At least, if they want to remain solvent.
Across the pond, the United States also has aggressive
funding needs, given that the "change" we experienced ourselves in
the last presidential election has left the government gasping for about $1.4
trillion in additional funding each year. Then there is Japan, officially the
world's largest debtor in terms of debt to GDP, where the easy
availability of local funding has dried up, requiring that nation to go to
the international markets for funding as well.
The phrase "an awful lot of hogs at the
trough" comes to mind.
My point is not just that these governments are broke
and are about to get a lot more broke as interest rates rise on their many
debts and financings, but rather that the global trend toward a resurgence in
public demand for socialism in response to a worsening crisis is a certainty.
How could it be otherwise when for decades now the
schooling of children has been delegated to functionaries of the state?
For evidence, look no further than the screen swipe
here. It is a quote from an essay by a college student in the United States
on role the government should play:
The writer of those words was a member of a Valencia
University economics class. The professor, Jack Chandliss,
asked the class to write an essay on what the American dream means to them, and what they want the federal government to do to help
them achieve that dream. Out of 180 students participating, only about 10%
wanted the government to leave them alone and not tax them too much, but a
whopping 80% wanted the government to provide pretty much the whole dream
thing wrapped in a tidy bow – including free college tuition and health
care, jobs, even the down payment on their future homes, money for retirement
and hard cash, taken in the form of taxes from rich people. Please take
a moment to watch a worthwhile interview with the professor.
Pretty eye-opening, eh?
The point here is not complex, but it is important.
With the apparatus of state education over many years
serving to bamboozle the populace into the hardened belief that government
has a positive role to play in virtually all aspects of modern life, it
should come to no surprise to anyone that, when push comes to shove, people
are now trained to look to government to solve the problems – even when
it was the government that created the problems in the first place.
Thus, confronted with the intractable mess they have
made, these governments have to keep alive the mythology they have created
about their omnipotence. Which is easier said than done, because with things
now swirling fairly quickly around the drain, the mob is beginning to lose
faith – and even patience.
Which puts these governments in a very tight spot,
because the only way they can actually fix things is by doing exactly the
opposite of what people have come to expect from their governments, which
is always to do more. Put simply, the only hope now is that these governments
begin to reduce their roles in their respective economies, and dramatically
so. Concurrently, they have to encourage people in their aspirations to
greater wealth, by lowering their taxes and unwinding the tangle of
regulations they have created over the last half-century.
But if the governments actually tried to take these
actions, the brainwashed masses would be positively befuddled then outraged, as it goes against everything they have been
taught. Why, it would be like the Pope shuffling his way to the balcony of
St. Peter's Basilica and informing the doting faithful that there isn't a god
and never has been.
Riots would follow.
So it is that we find ourselves at a particularly
interesting juncture in the historical record.
On the one hand you have a majority of the world's
population who have been carefully schooled into
believing that the institution of government holds the solution to all
problems and is the source of succor to all who need it. (Even that subset of
the populace who has lost confidence in their current government invariably
believes as doctrine that the next and better government can change things
for the better and lead the way to the shining castle on the hill.)
In this mix are the politicians and their
functionaries, 99.99% of whom believe that, if for no other reason than their
re-election prospects, they have to do something to meet the demands of the
Of course, under normal circumstances the
"something" usually consists of making grand-sounding speeches and
otherwise blowing smoke. Today that's just not going to cut it, for the
simple reason that the crisis is real, it is spinning out of control, and it's
not going to go away unless and until the markets are allowed to breathe
Which brings us full circle to the
simple truth that the brainwashed public won't stand idly by while the
politicians lower taxes and regulations on the profit makers or cut back
state pensions and guarantees or otherwise reduce any of the many services
the state has taken on itself to provide.
"Between a rock and a hard place" is an
inadequate phrase to describe the situation.
Meanwhile, the mob has started to gather, their dark
mutterings heard by the politicos who quickly don the red caps themselves, the better to be viewed as one with the people and join in
expressing outrage against the capitalists who have been selected as fall
guys in this unfolding drama.
When confronted by reporters about the fact that his
75% tax on high-income owners would raise nowhere enough revenue to offset
France's towering debt and social obligations, Mssr.
Hollande was heard to respond:
not a question of return. It's a question of morality."
When coercion and theft are considered moral, anything
is possible, and none of it good.
While I certainly can't say how this is all going to
end, I'm pretty sure it's not going to end well.
[Was David's pessimistic view of the future shared by most
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