by David Galland
May 4, 2012
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 the edge.
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 state.
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 Sarkozy.
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
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
The writer of those words was a member of a Valencia University economics
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
Please take a moment to watch a worthwhile interview with the
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
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.
simply, the only hope now is that these governments begin to reduce their
roles in their respective economies, and dramatically so.
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 public.
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 again.
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
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:
"It's 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.