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…

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2 thoughts on “Running out of other people’s money, continued…

  1. There is a missing element of the French approach of economics: the power of demand. If you spend more, you produce more. So you can feel comfortable with redistribution at an individual level: you don’t really take money from others since if you spend it, they will benefit from your expenses (They could spend it too, so sometimes you need additional arguments at a macroeconomic level, like a higher part of revenue spent by the “poor”). It could also help to understand the existence of a persistent budget deficit, since you can create demand and then output freely.
    In this spririt, the French State is the fiction behind which each gets richer at the expense of nobody. It is some kind of philosophers’ stone.The game is not a constant sum game, and the global payoff rises with the individual claims. The more you redistribute, the more you produce. Moreoever, that’s fair because by the same way, the State produces “social justice”, whatever it means.

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