French Toast

Some have characterized the 2008 financial crisis—and the persistent economic stall that has afflicted much of the western world ever since—as evidence that capitalism doesn’t really work.

In the end, that’s not really an argument worth having. It simply can never be settled. One side in the argument gets to compare the real world to a non-existent theoretical world, which means it can never be proved wrong. Besides, no country in the world really practices pure capitalism, just as no country practices a pure form of any other economic system.

On the other hand, an argument that is worth having is one that compares one real-world case against another. It is always worth looking at which countries have successful economies, i.e. ones that benefit society broadly, and figuring out what they are doing right. The thing to be avoided is having someone imagine a perfect system (one that has never existed before) and try to implement it. That always seems to end badly.

As for those who think that European socialism is a great way to run an economy, well, I’m afraid there hasn’t been much to encourage them recently. About a year ago, François Hollande succeeded Nicolas Sarkozy as president of France. Hollande is a Socialist with a capital S, meaning he actually leads a party called the Socialist Party. His campaign promises were a virtual wish list for those who say the only way out of a recession is for the government to increase spending. He promised to raise taxes on corporations and wealthy individuals, to hire scores of thousands of new teachers, to lower the retirement age and to subsidize jobs in high unemployment areas.

After he slapped a whopping 75 percent tax on people earning more than one million euro, some of those people (most famously the actor Gérard Depardieu) promptly left for more tax-friendly territories. In March the government was forced to drop the tax when an administrative court advised that it was illegal. Then last month there was a fair amount of embarrassment when new rules aimed at uncovering tax avoidance turned up Hollande’s own budget minister—whose previous job had been tackling the country’s tax fraud—when he got caught lying about his Swiss bank account.

Meanwhile the International Monetary Fund has forecast that France will slip back into recession next year. Companies have stopped investing and, as The Economist reports, “Scarcely a week goes by without another factory closure or a redundancy plan.” Because the European Union has strict rules (on paper anyway) about deficits, France finds itself pleading not to be held to its 3 percent target for this year, having missed its target for last year (4.5 percent). Public debt is at 94 percent of GDP. Hollande’s poll numbers are at a record low, and his own industry minister (considered a left-winger) is now criticizing the government and calling for “fiscal responsibility.”

The point of all this is not that socialism doesn’t work—any more than the dead slow recovery in the U.S. is some kind of proof that capitalism doesn’t work. It just reinforces the point that governments are run by individuals and some individuals are better at dealing with the economy than others. President Hollande is clearly not very good at managing an economy, and that would probably be true no matter what political party he belonged to.

The real danger comes when leaders who are inept at managing the economy turn out to be very good when it comes to convincing voters that a bad economy is the best they can realistically hope for. The French at least seem to have copped on to their president’s ineptitude.