David Brewer: It’s the subsides, Stupid

What is really behind the riots in Paris?

Nominally, the protests are about the rising cost of living, and in particular a further increase in the tax on diesel of 6.5 Euro cents, due to take effect on 1 January.

French taxes have never been higher, and they fuel government spending of around 56 per cent of GDP, virtually unchanged since 2009.  This is the highest figure in the world.

How did they get there?  Looking at trends over the last 40 years, we see that during each recession, government spending rose sharply, then fell back gradually, but never to the previous level before another recession came along and pushed it up again.

But where is it all going?  The biggest item is welfare spending, which at 31.5% of GDP is again the highest in the world.  The welfare budget follows the same curve as the total, reaching new heights with each new recession, then falling back only very slowly.

Of course France has an ageing population, and its pensions are unfunded, so it is stuck with a staggering 12 per cent of GDP annual bill for age pensions alone.  So far, Macron has just dithered about this, talking about tiny adjustments, never about moving to a fully-funded system.

But there is another problem that may prove even more intractable, which is France’s penchant for subsidies.  Here again, there seems to be a ratchet effect over the long run, with new subsidies being added without the old ones being retired.

The range of wasteful subsidies is staggering.  Would you believe that American grad students, studying in English in Paris, are eligible for French rent subsidies?  Or that Paris offers a 400 euro subsidy for buying an electric bike?  Or that there are at least six different subsidy schemes for setting up businesses – though a guide to these warns that “Even if you’re eligible for a grant and it has been approved, you shouldn’t bank on receiving it, as it can take months or even years to materialise.”

There are housing subsidies galore: for first-time buyers, owner-occupiers, landlords, and tenants, plus a huge social housing programme which obliges practically every town in France to hold 25% of the housing stock in their area as public housing, even where there is no demand for it. The raft of housing incentives include tax breaks, zero-interest loans, subsidised loans, rent subsidies, and below-market public-housing rents.

Altogether, subsidies were estimated at 110 billion euros, or 5.2% of GDP, in 2013, having risen from 3.5% only six years earlier.

The short-term consequences of this largesse are continued budget deficits (France has not run a surplus since 1973) and waste of resources through uneconomic decisions that are made to look otherwise only by the subsidies.

The long-term consequences are more insidious.  The population becomes inured to the idea of checking for subsidies before making any big purchase – a dwelling, a car, household items.  The government gets used to picking winners and believing that its role is to shove the population this way and that according to the wisdom of the moment.  Investment decisions are distorted because prices no longer reflect authentic supply and demand.  Long-term capital investments are discouraged because there is no telling when the government will change tack, sometimes by 180 degrees, so that they are suddenly penalising diesel engines instead of promoting them, or cutting nuclear power instead of ramping it up, and so on.

Another neglected consequence of French subsidy-mania is the creation of a class of professional parasites making part or all of their living by bagging the difference between subsidised and market prices.  One classic ruse, among hundreds, is to qualify for social housing, then sublet it on Airbnb.

Macron has so far made only baby steps towards solving the problem – slightly tightening eligibility or reducing benefits on a few of the more costly rorts.  But the fact is that the country is so choked with obscure subsidies that scores of them could be abolished tomorrow with minimal squawks from voters, simply because they are largely unknown.  The population has never demanded them, and don’t even know they exist until they go to buy something and are told by the sales agent about the free money schemes available.

Not only is Macron not fixing this problem, he is making it worse.  His latest fuel tax hikes are only the revenue side of a huge programme of “ecological transition”, which he portrays as a sort of Hegelian historical inevitability.

The main burden of this “transition” is borne by yet another bewildering array of subsidies.   There are subsidies for burning wood, or for gas hot water heaters, or for virtually any type of energy-related building cost, from insulation to heat pumps, from solar panels to stoves, and from new windows to chargers for electric cars.  Wind power is still supported by half a dozen different handouts, including cash, tax breaks, subsidised loans, and energy purchase schemes.  The annual budget for “ecological transition” has reached 34 billion euros, or 1.4 per cent of GDP.

Dimly, almost dumbly, the gilets jaunes perceive and resent this latest in a long line of state-sponsored schemes that steal from the lifters to subsidise the sly.  They recognise in Macron and his followers the typically arrogant products of the elite schools of the French education system.  Confronted by angry workers in the country for whom diesel is a major cost, his deputies ask why they don’t take advantage of the generous subsidies available for hybrid vehicles.  Macron himself repeatedly displays his snobbery, recently referring to the “labouring classes”, and earlier characterising a group of meatworkers as “mostly illiterate”.  He has described railway stations as places where the successful cross paths with “people who are nothing”.

Yet for all his arrogance Macron has a point when he describes the common people of France as “refractory”.  After centuries of being treated like bullied children, it’s not at all clear that they are ready to stand on their own two feet, make their own decisions, and take their own risks, without endless backstopping and back-seat driving from the Nanny State.  Nor do they necessarily understand that taxes can only fall if subsidies are scrapped.  Until they face up to basic economic realities, the gilets jaunes are unlikely to find a leader who can finally take the fight to France’s smug establishment politicians, clear out the jungle of inefficient subsidies, and place the country on a path to prosperity.

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20 Responses to David Brewer: It’s the subsides, Stupid

  1. Rafe Champion

    On the subsidies to change to unreliable energy or non coal sources like wood pellets, I wonder if he can do as badly as some of the English, Scottish and Irish frauds and mismanagement. Don’t have them at fingertips but there are some zingers!
    Contributions welcome so I can build my list again.

  2. Rafe Champion

    There were some good Spanish ones as well.

  3. Snoopy

    No Pasarán!

    It is not wrong to say that the demonstrations were caused by the government’s decision to raise gas prices. What is missing is that this is just one of several draconian measures dating back half a year, i.e., ‘tis the proverbial straw that broke the camel’s back.

    For the past four to five months, the French government has done nothing but double down on bringing more and more gratuitous oppression and more and more unwarranted persecution measures down on the necks the nation’s drivers and motorcycle riders.

    In fact, the imposition of ever harsher rules has been going on for the past decade and a half or so — whether the government was on the right or on the left …/…

    The yellow safety jackets themselves are a government imposition ostensibly for your own safety but coincidentally another source of fine revenue, courtesy of the non-compliers.

    Via Instapundit

  4. Myrddin Seren

    Macron himself repeatedly displays his snobbery, recently referring to the “labouring classes”, and earlier characterising a group of meatworkers as “mostly illiterate”. He has described railway stations as places where the successful cross paths with “people who are nothing”.

    As has been said here repeatedly.

    Call them what you will – the New Class, the Globalists, the Protected Classes, Cosmopolitans, whatever – they utterly despise the Proles they effect concern for in order to win office.

    Homo Davos utterly and totally despises ordinary people – it is dogma if you want to be ensconced behind the security barriers at Davos.

  5. Rebel with cause

    fuel government spending of around 56 per cent of GDP

    All our pollies will be booking their “study trips” to France next year to find out how they get away with it.

  6. Notafan

    Le Pen has no great interest in winding back the welfare state

    Just planning to rearrange the deck chairs

    Interesting about the French elite-nothing has changed-in the 19thC the upper class considered themselves virtually a different species.

    Enlightened secular leftists the children of the revolution, walking on their hind legs.

  7. MPH

    Frexit has a certain ring to it but they are trying to leave themselves which is quite a difficult feat.

  8. manalive

    … Not only is Macron not fixing this problem, he is making it worse. His latest fuel tax hikes are only the revenue side of a huge programme of “ecological transition”, which he portrays as a sort of Hegelian historical inevitability …

    That’s an aspect of the forced ‘transition’ in Australia, as puffed by RenewEconomy for instance, that gets up the noses of a lot of people.
    An implied Moore’s Law for the future development of windmills, solar panels and huge Tesla-type battery banks doesn’t exist.

  9. RobK

    It’s the subsides, Stupid
    You can’t be much clearer than that.

  10. stackja

    France famous for Maginot Line and Vichy. Now subsidies?

  11. It appears France has reached a tipping point!

    It’s worse than we thought!

  12. H B Bear

    Confronted by angry workers in the country for whom diesel is a major cost, his deputies ask why they don’t take advantage of the generous subsidies available for hybrid vehicles.

    “Let them drive une Prius.”

  13. billie

    I wonder, what cake does one select to accompany a glass of shadenfreude?

    what’s particulalry delicious, is another arrogant polly attempting to foist a “carbon tax” on a populace who don’t want it

    btw – I am loving Malcolm the knife’s tantrums, and if anyone asks, he was always in it for himself and I TOLD YOU SO! HA! I love all the sooks who adored him coming out and wringing their hands, handerchiefs and napkins at his demise, just a delight to see their misery.

  14. Jumpnmcar

    The French are doing a Eureka Revolt for the last 2 week and the media ignore it.

  15. Paul Farmer

    Always amazes me that France has been put up on the pedestal that it has globally………there is no country living on its past glory more than France and for the glory you pretty much have to go all the way back to Napoleon.

    How they became a permanent member of the UN security Council after their pathetic effort in World War 2 , relies more on the sympathies of Churchill and the groveling by De Gaulle to Stalin then it does to a recognition of deserved status .

    Nowadays they cant control who is coming into their own country, certainly cant control muslim terrorists in their own backyard, given the numerous terrorist attacks there in the last decade and now they can’t exercise control over some rightly peeved off truck drivers . How then do we expect them to be there to save the World as a permanent member of the UN Security Council ? The French seem incapable of saving themselves from their own internal disputes much less anybody else.

    In WW2 besides the attempts of a few partisans who actually had a backbone in the French resistance, their total sum contribution to winning World War 2 was a rounding error off Zero. Ever since Napoleon’s defeat at Waterloo it has pretty much been a tale of woe for the French.

    Franco Prussian War – Loss

    World War 1 – technically a draw but saved by Britain and the Commonwealth countries not to mention the country every loves to hate……..the good old USA. Then French were undoubtedly the principal architect of the Versailles treaty and the Weimar Republic sowing the seeds of WW2.

    WW2 – Loss. Having been a major contributor to the preconditions necessary for the rise of Hitler and his lunatic friends the French did little in the way of stopping him. They were defeated by Nazi Germany in a mere 6 weeks. Even the Poles , a country of 1/4 the population , held out for 4 . After the defeat a large chunk of the country then becomes Nazi sympathisers under the Vichy regime.

    The losses don’t end there but. Indochina War – pretty much gave up and left Vietnam, Laos and Cambodia to the natives and eventual takeover by the Communists.

    Then today we have to put up with smug Macron who said (talking about the US alliance) “Its the ally with which we take all the risks, with which we carry out the most complicated operations”. Unfortunately that’s not quite how in the main it has gone historically Emmanuel for most of the last century. Its usually the other countries taking the risks where France is concerned. Hence for some of us it was a total joy to see Trump put Macron in his place on his recent visit…….long overdue.

  16. Iampeter

    What is really behind the riots in Paris?

    Ignorance, emotionalism and nihilism.
    Any policy issue might trigger this in a place like France and frequently does.
    You’re reading way too much into it.

  17. Bosnich

    “What is really behind the riots in Paris”? Could it be the E.U. and the elitist ratbags that run it ?
    At the moment these mongrels are busily plotting to ignore a democratic vote to leave this monstrosity by the British.Perhaps the Brits should take leaf from the French book and start rioting themselves.

  18. andre lewis

    On every visit to France over the past 30 years there has always been a strike, stop work or demonstration of some sort. Security guards closing the Louvre, rubbish not collected and overflowing into the street, no taxis because they dont like Uber and closing many streets being just a few remembered examples. This though is different because its not militant unionists but ordinary people fed up with elites telling them they know best. Madame Guillotine sorted out some elites before but left them with a similar bunch of patronising bureaucrats. Probably the same will occur after this latest uprising.

  19. Rococo Liberal

    Of course the true fact of the matter is that the politicans are not trult elite either, but jumped up plebs who couldn’t make money in the free market and have no culture or class.

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