French Model of Economy Allows Meddling from the State

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The French think they were right about everything. Iraq, for example. The French have deep ties to the Arab world. They knew Iraq would be a tar baby for the US – just like Algeria had been for them. You pick it up…you can’t put it down.

But Congress and the administration not only ignored the French (as they had when Charles DeGaulle advised against intervention in Vietnam in the early ’60s – it was a “rotten country,” he said) they accused France of cowardice, dumped good bottles of Bordeaux down the drain and renamed French fries ‘freedom fries.’

Remember the jokes? When a bomb blew up a Spanish train, France raised its color-coded Terror Alert system…from mauve for “Collaborate” to chartreuse for “Run and Hide.”

And remember what Anglo-Saxon economists said about the French economy? It was ‘sclerotic’…it was a ‘museum’…first, it was tied up by labor unions and then the socialist politicians did kinky things to it.

But every dog has his day, and now the French are enjoying a delicious moment of schadenfreude.

The frogs stayed out of Iraq…avoided a housing bubble…and side- stepped a credit crisis.

And now, the “French model” for managing an economy is the envy of the world. At least, that’s what you might think if you read The Economist. A recent issue has Sarkozy on the cover…looking confident and pleased with himself. By contrast, Britain’s Gordon Brown and Germany’s Angela Merkel look as though they needed a drink.

What’s the ‘French model?’ It’s a system where the state meddles heavily in the economy. Health care, education and public transport are all government enterprises. And political cronies, rather than entrepreneurs, run key businesses.

Heck the French don’t even have a word for “entrepreneur,” as George W. Bush pointed out.

It seems to work fairly well. The health care system functions fairly well – while taking a smaller percentage of GDP than in the US. The trains run on time (except when there is a strike). Grammar and secondary schools are probably better than in the US; the universities are probably worse. And many of France’s private businesses are world leaders – Air Liquide, Danone, LVMH, to name just a few that come to mind.

And so far, France has suffered less from the worldwide financial meltdown than any of its rivals. The last time we were in Paris, the restaurants seemed as full as ever; taxi cabs were as hard to get as ever; and Paris property had barely come down at all – at least, officially.

“I’m not so sure…” said a colleague in Paris. “I’ve been looking for an apartment for the last year. A year ago, there was almost nothing available in my price range. Now, I’m seeing lots of places. I looked at one last week. It is listed at $340,000 – about what it would have been a year ago. But the agent told me that the seller would probably take $275,000. If they’re telling me that right off-the-bat, I figure it might go for $250,000.”

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. …the wealthy pool together in schools of self-interest, then they cultivate politicians in the manner of race horses which they run in elections, winner take all…they do this to help maintain their health and to keep the crowds amused…it should be mordantly supposed as less than possible for an unbacked horse to even enter the race…although…it is rumoured that obama sarkozy merkel brown harper rudd key…and a kitchen sink did just THAT….

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  2. In the past, the rich have certainly been more articulate in their lobbying than the poor! As the number of those suffering economic hardship increases, that may change. Not suggesting anything in the order of eighteenth century France, but Obama’s election might indicate a great deal more than evolution… .

    On the question of the overseas property market, which Bill queries, above, this morning’s (US) Daily Reckoning includes a very detailed and perceptive property analysis which helps explain why you can’t really compare the Australian property market to those in Europe and the US. Doug Hornig’s historical recount even goes so far as to timeline a ‘second crash’ for US housing within twelve months. Nothing really new there, other than the simplicity with which it’s all explained. Apart from the probable demise of the FHB scheme and possible rising unemployment here, property seems a far less risky business. Very weak US and UK property foundations make ours look quite substantial.
    Kinda hope Bill might be right. I’ve always fancied an apartment on the canal adjacent the Marne! :)

    Biker Pete
    June 4, 2009
    Reply
  3. Biker Pete: I think Michael Pascoe also wrote a very good article about Australian property prices yesterday on the SMH website. See: http://business.smh.com.au/business/house-prices-not-tipped-to-slide-20090603-bv6p.html

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  4. Greg: To quote Mr. Pascoe’s article regarding economic modelling “To provide some context, assuming a normal distribution, a 7.26-sigma daily loss would be expected to occur once every 13.7 billion or so years.” .. what he’s saying (to save time) is that the economic model used by Goldman Sachs in 2007 was wrong. But why was it wrong? It was probably a better model than my wet-finger-in-the-air approach. In other areas of statistical analysis, if you get a one in a 13.7 billion event, you have to assume the system is not natural – that it’s not a normal distribution, and that you’ve missed something: confounding, bias… something fundamental. And if a patient dies immediately after you give them a sugar coated placebo in a study, it’s not an accident, it’s a crime scene.

    The reason economic models don’t work is because the system is corrupted and the corrupt individuals in it know what the models predict and how to twist the knife in the trusting investors when they sabotage the economy in various ways. So Mr. Pascoe is right to doubt economic models, but it’s not because they fail to predict nature; it’s because we are not talking about nature. Sure, a trillion people will on average behave in a certain way, but a few dozen have too much power and their activity cannot be predicted by ordinary means. Hence I think we have to be wary of housing market predictions in this environment, where, economically, it is now the fog of war.

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  5. Dan..when are economic models and predictions not in the “fog of war”? :) I mean economists with their models get forecasts so wrong so often that perhaps they should put the models away for a while? Let’s face it, if models actually worked with any reliability the world’s richest people list would be stacked full of model using economists.

    I agree with you regarding predictions about the housing market, but this goes for everything from stocks to gold. Sometimes we just have to accept that we cannot see into the future, the best we can do is make some well thought out assumptions and be ready to be wrong. Sad but true.

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  6. Greg, thanks for that reference. Certainly helped put the whole thing in perspective. I knew nothing of the Keen/Robertson bet, but enjoyed reading about it… . I appreciated this particular point made by Pascoe: “Indeed, the rivers of gold flowing from residential mortgages to the banks is one of the key ingredients in our financial system’s present stability.” I also noted his comments on unemployment.

    Behind the most current of our building projects, a young family whose second earner has just lost her job up north, has just commenced building. They appear to not have a worry in the world. As Pascoe suggests, many Australians have built up significant cash reserves. As the wife commented “Rents here are high and we’re ahead building.” That remains our perspective, too… .

    Biker Pete
    June 4, 2009
    Reply

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