The French in Denial

Robert Samuelson hits on an interesting nugget in today's takedown of the French anti-work riots.

The dilemma of advanced democracies, including the United States, is that they've made more promises than they can keep. Their political commitments outstrip the economy's capacity to deliver. Sometimes the commitments were made dishonestly. Sometimes they were made sincerely based on foolish assumptions. Sometimes they've been overtaken by new circumstances. No matter. The dilemma is the same. To disavow past promises incites public furor; not to disavow them worsens the country's future problems.

Samuelson hits on the key to government programs; they never die. Government programs create constituencies of people reliant on them. After these programs have served their purpose, they're still around and no one steps up and says we don't need this program any more. The furor over that would be extreme. Worthless programs like public broadcasting, Bureau of Indian Affairs and Tennessee Valley Authority won't die even though they serve no purpose (or no purpose that the government should be obligated to pay for them). The path of least resistance for politicians is to introduce new programs that will never go away. Who's going to repeal the prescription drug benefit? Look what happened when Bush tried to change Social Security (whether he was right or wrong, the vitriol the political establishment threw up in resistance was impressive).

Speaking of obsolete, France is coming up on some difficult problems financing their welfare state.

In a recent study, the Organization for Economic Cooperation and Development (OECD) in Paris reported:

· From 1994 to 2003 unemployment among prime-age adults, from 25 to 54, averaged 9.9 percent; for those 15 to 25, the average was 24 percent.

· In 2003 French workers spent an average of 1,431 hours on the job, the third-lowest among 26 advanced countries. Italy (1,591 hours) was 11 percent higher; the United States (1,822 hours), 27 percent; and South Korea (2,390 hours, the highest), 67 percent.

· Among those 60 to 64, only about one in six have jobs. In the United States, the comparable figure is about one in two.

This cannot continue. In 2005 France's labor force was 2.7 times as large as its 65-and-over population; by 2020 it's projected to be only twice as large. A shrinking share of France's population -- already working short hours -- would pay an increasing share of the country's rising pension and health costs. In 2004 the average retirement age was 59. Average taxes are already about 50 percent of national income; effective marginal rates (the rates on additional income) can hit 60 percent. How much higher could these go without crushing work incentives? Sooner or later France will have to adopt policies that lower unemployment, lengthen work hours, raise retirement ages and cut promised benefits.

Remember these riots are about taking a guarantee from workers in their first 2 years of work. Think of the French young people as the Major League Baseball Players Association (MLBPA), because the MLBPA is the only organization in America that would strike because their contracts aren't guaranteed. Except they allow their employer several years to decide to extend a guaranteed contract. The MLBPA is the most restrictive labor union in America and they allow this sort of treatment for their workers. In short, France's work rules are more restrictive than Major League Baseball's. France Fever. Catch it!