Thursday, April 13, 2006

Throw the drowning man a brick.

I am in perpetual amazement at how France manages to consistently do the wrong thing. This is a nation where they would throw bricks to downing men and fight fires with gasoline.

After the French government gave in to violent threats --- the French are not exactly the most stout-hearted of people --- over the deregulation of labour laws that have made France an economic disaster, the National Assembly has passed a new law to replace the old law.

The old law was a very timid step in the right direction. The new law is just more of the same old policies that created the employment disaster in France. The government has already told every greedy special interest group that the way to get what they want is through violence. It's like the millionaire who unhesitatingly pays a ransom the moment someone threatens to kidnap his kids and then can't figure out where all his money went. No doubt he assures himself the plan worked since no one is now threatening to kidnap his kids but then why would they since has no wealth left to pay?

In France the law punishes people for hiring employees. If you hire someone who is lazy, uncooperative, destructive, bad at his job, etc., you are pretty much stuck with him. In France a job is not a co-operative agreement between two parties both of whom are free to enter it or leave it as they wish. It is a one sided agreement. The employee can bugger off when he pleases but the employer is stuck with the individual for eternity. Of course that means employees know that their keeping a job is not based on productivity, reliability, etc. So they have zero incentive to do their job well. And employers have every incentive to avoid hiring workers when ever possible.

And if he does hire he will be extremely careful in regards to whom he offers employment. So workers that are high risk get ignored. Who is considered high risk? Well, young, untried, inexperienced workers for one. All things equal it is better to hire a worker with a proven track record then one of the spoiled brats that the French universities turn out. So youth unemployment is high. And if the youth have no higher education that makes them even less valuable. So the system not only punishes the young but young people with no education. Hence the third world employment rates for immigrants in France.

The French politicians believe they are the deity with the omniscience necessary to centrally plan all aspects of the private sector --- a sector that many of them have studiously avoided themselves. They can not escape the fact that their tampering with the machinery of the economy caused problems. In fact they created massive problems. And like any good bumbler they decide that the way to solve the problem is not to undo the tinkering they did on one part of the machine at all. Instead they tinker with the workings someplace else in the vain hope that two wrongs will make a right.

In this case they decide to throw money at the problem. As if they haven't tried that solution before. French employers will receive subsidies if they hire "youngsters aged between 16 and 26 experiencing the greatest difficulties in gaining access to the labour market." Not a single word about how they, the National Assembly, built all the roadblocks preventing these youths "experiencing difficulties" from finding employment. Jean-Louis Borloo (emphasis on the "loo" I think) is the Employment (sic) Minister. He says that the new law "establishes the principle of state aid to employers taking on young people in difficulties..." Establishes the principle? The French are notorious for subsidising that which doesn't work and punishing that which does.

The term "laissez-faire" for markets did not come into existence hundreds of years ago because the French practised economic freedom. It was coined in France because they did not!

They estimate the subsidies will cost 150 million euros this year and 300 million next year. I would lay odds it will cost more than that. But the fallacy the French are committing is the same one that they were entertaining almost two centuries ago. At the time a member of the Assembly exposed the fallacy of such short-term thinking. His name was Frederic Bastiat and his essay on That Which is Seen and That Which is Not Seen ought to be required reading.

If the French today do read Bastiat it is so that they can learn how to do the completely wrong thing. Bastiat would note that the 300 million euros thrown at this program will no doubt appear to create some jobs for these youths. The politicians will crow at the tiny number of jobs so created and suggest the program be expanded. No one will bother to ask about the jobs the program will destroy. How? The 300 million euros have to come from somewhere.

So the government will confiscate 300 million euros from the productive sector of the economy. It has no other choice you can't confiscate the money from the sector of the economy that produces no wealth. Somewhere 300 million euros worth of jobs will have to be destroyed. Of course the cost of destroying the one set of jobs, which is that which is not seen, doesn't come free either. To distribute 300 million euros to that which is seen the government will accrue costs as well. So perhaps the 300 million euro distribution process will cost 400 million in all, maybe less, maybe more. But when politicians hand out 300 million euros it there are additional costs as well. Even if we assume that the 300 million creates 300 million worth of jobs we know that elsewhere it destroyed the same value in jobs plus the additional jobs that were destroyed in order to pay for the transfer process itself.

Now here is what is also forgotten. The jobs created are not worth the money that the employees are being paid. How do we know that? Simple. If it was worth hiring these employees at these wages it would have been done already. So what will be created, if created at all, will be jobs that do not produce enough to justify their costs. If they justified their costs no subsidies would be needed.

And that which is not seen --- those jobs which are destroyed by the confiscation of 300 million euros of productive capital --- well, we know those jobs are productive. If they did not generate 300 million euros, or more, worth of productivity they would not exist. So by the time the keepers of the asylum finish their meddling they will have destroyed productivity, increased unemployment, and made their entire mess even messier. But they will congratulate themselves profusely for having averted a disaster and for finding a "solution" to the crisis that they created. Meanwhile the problem will not be solved and, if anything, will grow worse. And if past history is any indication they will lament the new problems, blame the markets for failing, and demand new interventions guaranteed to make it worse yet again.