Monday, April 23, 2012

Parsing the French Election

Unfortunately, Sarkozy came in second in Sunday's nationwide election.  This means he will face a run-off election with Socialist candidate Francois Hollande in two weeks.

Sarkozy has been instrumental in the effort to impose fiscal discipline on Europe.  Unfortunately, he was also caught in the undertow of the European crisis.  Despite being a conservative, the debt-to-GDP ratio for France has risen from 67% to 90% during his administration.  Even more damning, Sarkozy promised originally to reduce unemployment to 5%, but it has risen to 10%, which is a 13-year high.

He was attacked for pushing austerity instead of growth by the Socialist Hollande.  As mentioned numerous times in this blog, it takes both austerity AND growth (including the U.S.).  Because austerity is termed in fewer dollars or Euros per spending line on a budget, we think of growth the same way.  Typically, Hollande promised more spending to boost growth.

Spending WILL boost growth, provided you can afford to borrow enough, which neither France nor the U.S. can afford to do.  That is not an option in this economic environment.

Growth can be produced by making it easy to grow, i.e., by reducing regulatory handcuffs.  We complain about it in the U.S., but look silly compared to the Europeans.  As an example, an employer has to get permission from a judge to fire an employee in France, which understandably makes an employer reluctant to hire anyone.  In Greece, you cannot close a store without government permission.  In Italy, the rider faces a fine for riding in an improperly licensed taxi.  There are thousands of other examples.

There is no line on the budget that shows the cost of over-regulation.  If we insist on thinking in terms of budgets, how about a rule that every agency must reduce their number of regulations by 1% per month every month?

Conservatives think almost any regulation is unnecessary as business would find it unprofitable to do something stupid and are therefore "self-regulating."  Liberals think only regulation can keep poison out of the water and grandma safe at home.  Maybe, we just need 1% more moderates per month every month?