France Adopts Reaganomics (Again)
At an April 2012 campaign rally after a torrential rainstorm, Francois Hollande, on the eve of being the first Socialist Party member elected President of France in 24 years, boldly proclaimed: "We have chased away the clouds, the sky is all 'rose." The crowd roared their approval of Hollande's imagery communism red triumphing in France. But on January 14th, 2014 Hollande solemnly acknowledged the failure of his collectivist policies by announcing his administration would cut $40.8 billion of taxes on companies and the self-employed, plus reduce social security charge paid by employers by 5.4%. More shocking to the Left, Hollande said he would pay for his supply-side policies by cutting $86 billion in public spending. Two decades later and again facing a collapsing economy, the Socialist Party of France is being forced to adopt the supply-side economics of President Ronald Reagan.
Hollande campaigned on an economic manifesto of reducing the retirement age from 62 to 60, a 75% income tax for high earners, constructing 500,000 units of government housing per year and the creation of 60,000 new public teaching jobs. His policies were a throwback to the 1981 election of the last French Socialist Party President Francois Mitterrand and his Communist Party allies who nationalized 38 banks and 7 key industries, raised minimum wage, cut work-week hours, increased public sector wages, created 250,000 government jobs, increased social welfare payments and radically expanded the nation's money supply. But as public debt tripled by 1983, the French inflation rate jumped to 14.5% and unemployment rate rose to over 10%.
With France about to be kicked out of the European monetary system, the Socialist Party was forced to adopt the supply-side economic policies of cutting taxes and dramatically slashing public spending that President Ronald Reagan was championing in the United States. Two years later, inflation had fallen to 4% and unemployment stopped rising. Although they kept the red rose as its symbol, the Party for twenty years abandoned socialist policies in all but name and adopted free-market liberalism.
After the 2008 financial crisis, the Socialist Party revived its collectivist agenda. They claimed their manifesto of higher taxes and economic stimulus projects would lead to full employment and eliminate the budget deficit. But the Hollande administration's deficit spending has driven France into the same crisis as Mitterrand's government 30 years earlier. The French government now spends 56% of the nation's GDP, making it one the highest-spending governments in the European Union. Hollande's vast public sector and punitively high tax rates have driven the rich to take their wealth and leave and for businesses to relocate production off-shore. Franc's annual deficit has doubled and the nation's unemployment rate is now at a 15-year high of 11%. Chronic youth unemployment now tops 26% and still rising.
As I reported in "French Rioting to Dump the Euro," there have been violent demonstrations, such as the 30,000 truckers, farmers, fishermen, and food industry workers that staged a series of protests in November against job-killing taxes and European Union regulations by waving "Right to Work" banners and hurling rocks and iron bars at police. The Socialists fear a rising "spiral of violence" as living standards fall. Recent polls showed the right-wing National Front political party seemed poised to win upcoming French municipal and European Union parliament elections.
Before his speech, Francois Hollande was already the most unpopular president in French history according to a poll showing that only 26% of the French people have a positive opinion of his leadership. But after his press conference, members of his cabinet had to perform rhetorical acrobatics to deny that the president was adopting conservative policies. Members of former President Nicolas Sarkozy's conservative "Union for a Popular Movement" were baffled on how to respond after the Hollande essentially co-opted their center-right agenda. It is unclear how the speech will help the Socialist Party, but it did unify the far left, which denounced the president as selling out to pressure from corporations and financial markets. The French business lobby MEDEF praised the announcements, but asked for more details.
Francois Hollande in his speech sought to show that the Socialist Party, like the party of Francois Mitterrand in the mid-1980s, understands France's problems and is willing to reverse policies and adopt measures known in France as the "tournant de la rigueur" (austerity turn) to fight inflation and regain competitiveness. Hollande is keenly aware that after the Socialist Party adopted supply-side economics in 1983, the French economy did recover and Mitterrand was re-elected in 1988.
President Ronald Reagan warned, "Government's view of the economy could be summed up in a few short phrases: 'If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.'" "The Gipper" must have been smiling down from heaven as one more French president is forced to make another historic capitulation in admitting that government-mandated high labor costs and strong public spending were destroying the economy of France.