Economics 101 – Pass the Hollandaise Sauce

Predictably, Socialist Francois Hollande has beaten incumbent Nicolas Sarkozy for France’s presidency.

 

Francois Hollande (unflattering photo)

This reflects the French understanding of what an economy should be: everyone working for the government, unsackable, for 35 hours a week, with 6 weeks vacation, and retirement at 60 with a generous pension. How to pay for it? Tax the “rich” of course. Industry, business and commerce are at best necessary evils; in fact, leave out “necessary.”

Sarkozy, when first running, seemed to actually get it, promising a “rupture” with such noodleism. And he did manage a few timid reforms, notably raising the retirement age to 62. But then he too succumbed to French disease, and the only “rupture” was between his promise and his performance. In the end, trying to save himself with crude immigrant-bashing, he deserved to lose.

Hollande promises to roll back the retirement age to 60, expand the 35 hour week, increase government spending (already over 50% of GDP), raise taxes even more (including a 75% tax, on top of other levies, on the highest incomes); and his enemy, he says, is “finance.”

This man should be sent not to the Elysee Palace, but to a lunatic asylum.

 

Eden (Whitemountainarts.com)

In the Garden of Eden, inhabitants could have everything they wanted, at no cost. In the actual world, nobody can; and that, my friends, is what economics is about. It concerns how we deal with scarcity. This entails two fundamental problems: (1) how scarce resources get distributed, and (2) how to relieve scarcity in favor of abundance.

The Left, and the French, see only Problem 1, and seem blind to Problem 2 and, indeed, to how their responses to Problem 1 have consequences for Problem 2. The French seem to think they still inhabit Eden.

A good example of how this plays out is rent control, a classic Problem 1 response aimed at making housing affordable by simply capping the price. Perfectly logical – if you ignore Problem 2. Of course, the result of capping rents below market prices is underinvestment and increased scarcity. Developers have no economic incentive to build new apartments or even maintain existing ones. Only luxury apartments not subject to rent control get built. The result is that average rents in rent-control cities are actually higher than without rent control. Most beneficiaries of rent control are not poor but affluent. Meantime, many apartment buildings in the supposedly “affordable” category become uneconomic and are simply abandoned by their owners. In New York and San Francisco, two major rent control bastions, legions of deteriorating, boarded-up buildings are in city hands, uninhabitable, while thousands of homeless sleep on the streets in winter. A Swedish socialist who studied the matter concluded that the two most effective ways to destroy a city are bombing and rent control.

This is hardly rocket science. But God forbid any politician dare to propose touching rent control – after all, we have to keep greedy landlords from gouging poor tenants, right?

In general, any politically-based governmental economic intervention tends to be Problem 1 oriented to the detriment of Problem 2, and hence dysfunctional for the welfare of society as a whole.

Load up on that tempting Hollandaise sauce.

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2 Responses to “Economics 101 – Pass the Hollandaise Sauce”

  1. Gregg Millett Says:

    It will be interesting to see how France VS. Germany does over the next few years! And the EU for that matter. This could be California vs. New York!

  2. Lee Says:

    German inspired austerity hasn’t been working. Hopefully the French and Germans will balance well enough that we can address both Problems #1 and #2 satisfactorily.

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