President
Emmanuel Macron
of
France
is attempting to push through legislation to raise the retirement age to 64 years from the current 62 years. Such legislation is the bare minimum of what is necessary. France’s
economy
is breaking under the weight of rising pension costs and a leviathan central government.
France is a democracy in which the people choose more public services and generous retirement benefits. Seemingly, however, the French also choose to be poorer rather than wealthier. Over the last 70 years, the average gross domestic product growth rate in France has been
under 1%
.
SORRY, HIGHER TAXES ARE NECESSARY
Macron at least recognizes some change is needed. But he also knows that retirement reform is very unpopular. Over
65% of voters
oppose reform. At the same time, France’s powerful unions are rushing to call national strikes. As with previous presidents who pledged major reform, the unions will aim to paralyze the nation and force Macron to back down. It is very much an open question whether Macron will succeed.
The unions are apparently unaware of two iron laws: demographics are destiny and the private sector is more efficient than the public sector.
Macron is right. Pension reform is necessary. The current retirement age of 62 years is far too young. France’s population is aging. Its population is growing at only
0.3%
a year. The dependency ratio is increasing: each year there are fewer workers to support the growing retired population. This is not sustainable. The French economy is sinking under the weight of retiree benefits and an ever-expanding state. Government spending on pensions is
14% of GDP
. Across the European Union, spending on pensions averages 8% of GDP. In the U.S., the comparable number is
5% of GDP
.
Other data points lend credibility to Macron’s reform agenda. On a purchasing power parity basis, for example, the per capita income in France is
$51,000
. In contrast, per capita income in the U.S. is
$78,000
. Put simply, the typical American is almost 50% wealthier than the average person in France.
What’s behind this malaise?
The size of the French government is certainly an important factor in explaining the relative poverty of the French nation. In France, government consumes
56%
of the country’s gross domestic product. In the U.S., after the expansion of government under President Joe Biden, the comparable figure is around
40%
of GDP. Compounding the fiscal nightmare France faces, its government routinely runs a budget deficit of 4-6%. France’s gross government debt to GDP ratio is
110%
. Every 1% increase in borrowing costs causes the cost to finance the deficit to rise by over 1.0% of GDP.
France is drowning and Macron is offering a lifeboat. The question is whether the unions and the French people will prefer the economic path of the Titanic.
Still, Americans should look at France with wariness. This summer, Congress will debate raising the debt ceiling. Rightly, the Republican Party wants to reform Social Security. The U.S. population is aging. The dependency ratio is becoming more burdensome. Without Social Security reform, raising the retirement age to 70 and means testing benefits, in ten years the Social Security Trust Fund
will not have
the resources necessary to pay full benefits to the country’s constantly-aging population.
Yet Biden and the Left constantly demagogue talk of Social Security reform.
Just ask MSNBC’s Joy Reid
. Moreover, one of the central goals of Biden’s Presidency is to increase the power of unions. He wants to create a European style social welfare state in the U.S.. Which begs a question: Why, looking at the experience of France, do Democrats want every American to be poorer?
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes
a daily note
on finance and the economy, politics, sociology, and criminal justice.
