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On the Horizon

Thoughts, musings, and a little bit of entertainment from the world of personal finance.

Tour de France

7/30/2019

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Bonjour mis amis!  Cette newsletter arrive du France, ou est cette auteur pour deux mois pour regard le clime economique et political de l’Europe...mais est comme ca truque de “Flight of the Conchords”.  Parlez-vous Frances? Eh...no.
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So fear not, that will be the end of the French.  Language, anyway. The French themselves will be around for a while still.  Despite themselves. 

We managed to catch part of the Tour de France last week...and by “catch”, I mean there was a parade of...floats?  But they weren’t really floats, they were decorated cars. One was a giant chicken. And they going at a solid 20mph, too, not your leisurely float pace.  And people were harnessed in to the top/back/sides throwing knick-knacks at you as they whizzed by.

After accumulating a big pile of free loot, you wait and wait and then watch some cars go by with about three times the value of the car in bikes on the roof rack, and then BAM!  The riders fly by and are gone in about 10 seconds.  There wasn’t even time to look for the different jersey colors, though in hindsight we got a good picture of Peter Sagan and whoever was king of the mountains in Stage 15.  There’s probably a nice, drawn-out analogy there between cycling strategy and investing...teamwork, pacing, endurance, and so forth. But that’s not where we’re going with this.  No. Instead, we are going to take you on our own little tour of France, and try and discern what makes the French so, well...French.
France is the sixth-largest economy in the world (the US is first, and is about 7.5 Frances).  It’s second in the Eurozone behind Germany, so is a major player on the European stage.  

The first thing one notices when driving in France is that the lane discipline on highways is unbelievable.  The second thing is that very little consideration is ever given to another driver, and for whatever reason that lane discipline disappears completely when not on highways.

There is a certain perception of the French among most Americans that seems to involve some degree of...haughtiness?  Arrogance? That reputation doesn’t seem fully deserved, but there is a certain...entitlement, perhaps? And a definite sense of “not-my-problem”.  It’s reminiscent of an entitlement we have witnessed growing back in the US as well, all of which got us to thinking - where does that attitude come from?  

Is it all the wine?

Vineyards dot the French landscape like cornfields do in the US.  Well, not quite to the same extent, but it sure feels that way. Corn, however, is useful.  Here are things that are done with the corn in the US: Actual human food, food for other actual human food (livestock feed), industrial products (ethanol, recyclable plastics)...and it turns out that even a waste product from the corn separation process is used to grow penicillin.

Here are things that are done with the grapes in France: Wine.  More wine. 7-8 billion with a “b” bottles of wine per year.  Then maybe a little jam.  Perhaps what comes across as entitlement is just a prioritization of self-pleasure then - a certain joie de vivre.

Is it inherent in socialism?

Sure, you don’t necessarily associate France with Che Guevara and Karl Marx.  But it’s not exactly a hotbed of capitalism and startup innovation. As of earlier this month, polls give French President Emmanuel Macron a 26-31% approval.  (For reference, Donald Trump has been around 40% for the last year or so. Even newly non-elected Boris Johnson is at 31%.) Apart from the occasional anti-Macron/pro-Yellow Vest graffiti, rural France seems to be mostly apolitical.  Paris, on the other hand, seems to riot at least once a month.

France, like the US and every other developed country in the world, has a looming pension crisis.  It’s simple math. Or rather, it’s the combination of demographic decline, aging populations, longer retirements, and chronic underinvestment in pension funds.  The assumptions and math can actually get a little complex, but the simple version is “there’s not enough money in pension funds to meet future obligations”. We wrote about this last year in Silver Tsunami.  In the US, a while back we raised the retirement age from 65 to 67.  We’ve also moved more to direct contribution retirement plans rather than pension plans.  We have a lot more to do yet - and it’s a travesty that entitlement reform is nowhere in the current election conversations - so expect the retirement age to get pushed back, again, along with other less-straightforward changes.  But back to France. At the moment, Macron is trying to make similar adjustments, but against a backdrop of much stronger union opposition. The current proposal, met with shock and outrage, is to raise the retirement age in France from 62 to *gasp* 64.  Mon Dieu!  

It was raised from 60 to 62 over 10 years ago...but apparently most public sector employees still retire earlier.  So we’ll probably see a bunch of strikes come September as the unions try to shut the country down in order to force the government to back down.  Why wait until September? Because the entire country is apparently on vacation during July and August.

France also has 42 different public retirement schemes (one for each profession, pretty much), and Macron wants to unify them all into one single plan.  The National Bar Council has chimed in saying that the reforms effectively kill the legal profession in France…because apparently losing the lawyers-only pension plan is the same as losing the “financial independence” of their profession, which “means condemning a profession to economic death and the death of public access to the law”.  No joke.

If you want to be a farmer in the US, you plant some crops and call yourself a farmer.  Yeah, if you want to be a successful farmer you probably want some experience and knowledge, but pretty much anybody can start farming if they feel like it.

In France, it’s more like a video game where you have to level-up to Farmer.  There are certain criteria about income and working time given over to farm activities.  You have to buy in to the Farmers Health Insurance at the Mutual Agricultural Association - the Farmer’s Association that is combination insurance/subsidies/pensions/tax authority on farmers (one of those 42 separate retirement plans mentioned earlier).  You may need Professional Agricultural Qualifications, since you have to apply for authorization to farm.

So maybe that’s part of it - maybe socialism carries with it so much System and Bureaucracy around everything that people get a little bit anarchic when left to their own devices?

Is it the taxes?

Or maybe it’s the opposite.  Less Lord of the Flies and more...Matrix.  Look at taxes. Under current monetary philosophy, if you want to provide a lot of social services as a government, you need a lot of money, which you raise through taxes.
There used to be an Elizabeth Warren-style confiscatory wealth tax (thankfully removed by Macron two years ago, despite the riots).  There’s an inheritance tax - even if you’re just leaving everything to your spouse! If you leave money to your siblings when you die, the State takes 35-45%.  An inheritance of any amount to a niece or nephew results in a 55% tax. Make that 60% to the State if you’re not related to whoever you’re leaving your money to.

And income you ask?  Anything more than a part-time job will be taxed at 30-45%.  You make $30k a year? Great, you’re in the 30% tax bracket and pay $9k of your $30k to the State in taxes.  Make $80k? Say goodbye to $33k of it. (That’s a 41% tax bracket for those keeping track. At only $80k in income.)  

There’s a VAT instead of a sales tax, but you’re paying 10% for most food and drink and 20% for pretty much everything else, which means things are just expensive.

Gas is $7/gallon - of which about 64% is taxes (for comparison, the US taxes you 18 cents/gallon and the various states add on another 15-57 cents/gallon depending on the state for an average fuel tax burden of 20-25%).

Roaster chickens are $10, a 4’ x 8’ sheet of MDF is $50, and you can’t even find a 2x4.  Lunch is pretty much the same price no matter where you go, even the smallest of small-town villages, which means that your local populations can’t afford to go out to eat.  In fact, it seems like most of the South of France economy is entirely supported by UK expats buying summer homes (which does pose a bit of a problem in the future if Brexit actually happens.  But we’ll get to that if and when).

Maybe it’s that there’s such resignation to the government taking so much of your day-to-day life that you purposefully try and subvert the system whenever possible.  In which case it does kind of make sense that any government proposal is met by riots.

So while on the whole France gives off a massive “not my problem” vibe - not my problem you can’t speak the language; not my problem we close at 2:30 for whatever the French word for “siesta” is; not my problem the train is actually a bus today; not my problem my three-year-old kid takes half an hour to walk up these castle steps in front of you; not my problem you like beer, France makes wine - there are some absolutely wonderful, helpful people; some stunning rolling hill landscapes filled with sunflowers and lavender and vineyards beneath a medieval castle town; and perhaps not “some”, but at least one decent IPA.  The wine is cheap and mostly good. The cheese is cheap and mostly great. The sausage is not cheap but is almost uniformly great (and one of the few things that is well-seasoned...for having some of the best salt in the world, they really should use it more in their cooking).

So what’s the moral of the story here - is it eat well, drink well, and just trust (resign yourself?) to the State for everything else?  Eh, ceci n’est pas ma problem.
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