Running out of other people’s money, continued…

The French newsmagazine Challenges recently released a very interesting poll. It asks people what kind of reforms of the welfare state they are willing to go ahead with. Most of the reforms proposed in the poll are cost-saving, and a number of them should have some effects on incentives.

The results match closely what a cynical believer in Homo Oeconomicus would have predicted. The fraction of French people who support a given reform is very close to the fraction of people who do not lose from it upon impact. For example, 80 % of the French support a means-tested child benefit system — and the proposed means-tested system, just implemented, actually concentrates the savings on the top 20 % of claimants. Some 65 % do not oppose a reduction in the length and/or generosity of unemployment benefits. This is more or less the fraction of the workforce employed with stable jobs; the remaining 35 % are either  unemployed or with temporary contracts (and therefore are exposed to unemployment). At the other end of the spectrum, there is a wide consensus against reforms whose burden is widely spread throughout the population, even though the burden is small on paper. Hence the vast majority opposes a 100 Euros per year franchise on health spending; raising the workweek by a couple of hours without a corresponding raise in income is also strongly opposed.

We learn three things from this poll.

First, the French are completely self-interested. For all the talk about solidarity, there is none. Solidarity is generally used as a codeword for “you pay, I keep my entitlement”.  The pretense that French society is more altruistic than its ugly Anglo-Saxon counterparts is a lie that nobody believes

The truth is closer to Bastiat’s aphorism that the State is the fiction behind which each gets richer at the expense of everybody.

Second, the French do not understand incentives. The savings that a 100 Euro Franchise would deliver are, in all likelihood, much higher than those 100 euros. (In fact, experiments with a sheer delay in reimbursement of drugs, as well as the preceding government’s policy of a 1 day franchise for the civil servants’ sick leave, suggest that such methods have large effects. Incidentally, we note that the current government has eliminated that franchise and does not remotely consider reintroducing it as part of its current package of structural reforms. Those reforms are carefully targeted to spare its traditional constituency). Therefore, each French person would have a tax rebate of more than the 100 Euro franchise they have consented. Of course, it does not help that, given the state of public finances, these savings will look more like a lower than expected tax hike than an actual rebate.

More generally, people do not consider the general equilibrium effects of a policy when evaluating its gains and losses. This is clear from the opposition to lengthening the work week, despite our blatant competitiveness problem. People ignore the fact that in the medium run, this policy will eventually boost employment and investment, and eventually living standards would have gone up.  (Unfortunately, the teaching of economics at the high school level is not keen on simplistic conservation laws such as “on average, one can only consume what one produces”; instead, they insist on impressionistic  debates  on great issues, such as “inequality”, “globalization”, and so on. High school students are not equipped to think by themselves on such complex issues, and this opens the door to all kinds of ideological manipulations.)

Third, the French are confident that they can outplay other French people in the zero-sum game of allocating the burden of fiscal adjustment.  Nobody thinks that making concessions now could avoid more painful cuts in the future (for example because rates are going up and the fiscal situation has further deteriorated). Of course, not everybody can be right at the same time…


Running out of other people’s money

There is much agitation in France concerning a number of cost-cutting measures the government is trying to implement in order to comply with the budgetary targets associated with our European commitments. Especially notable are the increase in a tax on pensions and the reform of maternity leave, whereby one is moving from a system where mothers can have up to 36 months of maternity leave, to a system where each parent has 18 months.

It is generally thought that this new system will, under a pretense of “gender equality” actually reduce spending, because most fathers will not take advantage of their eighteen months, while mothers will be compelled to halve their leave relative to the preceding system. It is also believed that the system will increase congestion in publicly-funded daycare centers, unless more slots are created there, which, as day-care centers cost more than 1000 euros per month per child, will wipe out any savings from the shorter maternity leave.

Angry middle class mothers contemplate being forced to separate themselves from their babies at a very early age, and, to add insult to injury, also being forced to fight against competitors for those coveted and rationed day care slots. Resentment builds up in anticipation of the suspicions of corruption, favoritism, and political and ethnic bias in the future allocation of this increasingly congested socialized resource. Ms Le Pen cannot believe her luck and is celebrating.

Generous maternity leave was implemented a couple of decades ago as a joint venture between “Santa Claus socialism” and “old-style feminism”. Old-style feminism recognizes that women are different from men, and concludes that taxpayers’ money should be used in order to promote the formers’  “work-life” balance. In the society that prevailed before the rise of the welfare state, women’s maternity leave was funded by their husbands; this was regarded as a form of exploitation. In order to free women, “society” had to pay for maternity leave. This meant that taxes had to be increased and consent withdrawn from the workers who had to finance those benefits regardless of their own personal choices and marital status. As for Santa Claus, his agenda was to collect votes from naive people by promising them freebies. Who could say no to 20 to 40 years of holidays (aka pensions) or to the dream of taking care of one’s kid at home while being paid an “allocation” and having her job kept warm at the office?

The problem was that as Santa Claus was pounding the population with benefits and entitlements,  costs inevitably soared, while the economy was nearing asphyxia under the burden of taxes and regulations. As people were more and more encouraged to participate in the zero-sum game of claiming benefits, and more and more discouraged to participate in the positive-sum game of voluntary exchange, the cake began to shrink. Santa Claus started realizing that the size of the cake was not sufficient to fulfill each kid’s Christmas list. Some of the children had to be reluctantly informed that there is no Santa Claus.

This is all the more painful than the poor people, after decades of being spoon-fed, can no longer take care of themselves. For one thing, they lost the habit; they cannot conceive that now that the government says they should stop work for eighteen months instead of thirty-six, they might remotely consider disobeying. But we can hardly blame them. The evil husband is no longer in a position to provide for his wife’s maternity leave. Half of his earnings are confiscated before they even land on his bank account, in order to fund, among other things, other people’s parental leave. The woman that the government has freed from the patriarchy has no other choice than organizing her life according to the government’s prescription, which means that the baby will stay with his mother for eighteen months, no more. Enjoy your freedom from the patriarchy!  Unless, of course, the family has enough money left, despite the heavy taxation…

So, in this society obsessed with egalitarianism and the fight against the “reproduction of elites”, we will observe that the children of the lower middle classes will be abducted from their homes at the age of eighteen months, to be taken care of by bureaucrats; at the same time, the children of the upper middle classes (among whom, conveniently, the apparatchiks who impose the Theory) will enjoy the benefits of staying with their mothers, or selected nannies, for much longer. Meanwhile, the boundary between those two social classes moves up, due to the swelling of the Tax Moloch.

Nobody in the establishment, though, will pay attention to that.

For one thing, the establishment is convinced that “professional” public servants do a better job at taking care of children than their mothers. I remember participating in a meeting of officials very concerned about “equality”, and they were brain storming about how to design schemes so as to prevent kids from the lower classes from spending school holidays with their family ( a number of representatives from NGOs which supposedly cared much about families, were nodding in approval). Their general prejudice was that kids from “privileged” families were spending those holidays taking intensive math and language lessons, while those from “disadvantaged” families were at best watching TV.  There was no mentioning of the inherent contradiction between subsidizing fertility at the lower end of the skill distribution and devoting public resources to separate the offspring of those subsidies from their “disadvantaged” environment.

But, more importantly, the Theory has changed. Old-style feminists have been replaced by Gender feminists. Now there is no difference whatsoever between women and men. In fact, there is no longer any presumption that the two parents should be of opposite sexes (actually those parents do not even have a sex, only an ectoplasmic “gender identity”). There is no longer a mother and a father, only a parent 1 and a parent 2. Surely, then, it would be unfair if parent 1 had a different parental leave from parent 2? So why don’t the people just obey and combine eighteen months of parent 1’s with another eighteen month of parent 2’s parental leave? Why does it matter to them? Don’t they know the Theory says it does not?

Now you may object that since — according to the Theory itself — parent 1 and parent 2 are interchangeable, one day of parental leave by parent 1 is interchangeable with one day of parental leave by parent 2. Therefore, why not give a total of 36 months to both parents, and let these two people decide on how to split it between themselves? Remember they are free. What does free mean? Or maybe “free” in “free from the patriarchy” has  a specific, unusual meaning, as in, say, “freedom is slavery“?

Now I am not familiar enough with the apparatchiks who apply the Theory to figure out why this obvious remark has escaped them. But I suspect they believe that Parent 1 and Parent 2, if left free to choose, would decide that the parent with the least stable and/or least paying job would take the maternity, sorry, parental leave.

This has two big drawbacks. First, it is what people want. Second, it is efficient. A Theory which would let that happen would be useless — it would make no difference if the Theory was not around. A Theory which makes a difference is one which compels people to do what they do not want.

The Theory is especially useful when the cake shrinks. It tells you who should have their piece, and who should be denied a piece. Households who prove the theory should have their piece. Households who disprove the theory should have nothing. Households who apply the theory will have 36 months of parental leave. Households who do not will just have 18 months.

You do not know how much you should bend human nature for the Theory to be true.  Lyssenko found out that he could not bend the nature of wheat by enough for his theory to be true. Others died. Our Theory is much more humane than Lyssenko’s; we just impose a little tax on those who do not conform to it. They are welcome to pay it and contribute to the consolidation of public finances; they are also welcome to dutifully take turns in child care between Parent 1 and Parent 2 and show that the Theory works.