France’s New Socialist Policies are pushing France back into Recession

Posted by PITHOCRATES - March 24th, 2013

Week in Review

The French brought back the Socialists to power in France with their election of Francois Hollande.  And they voted for him because he was going to stick it to the rich.  Raising the top marginal tax rate to 75%.  All the Keynesian economists said this would solve all of France’s problems.  It would reduce the deficit.  And increase confidence in the business sector.  Boosting the economy.  When critics of the move said this would drive the wealthy and their money out of France they said pish tosh.  They are patriots.  And will simply whistle a happy tune and pay this new high tax rate.  Time has passed.  And now we can see the economic results of the new Socialist policies (see Recession stalks France as business slump hits crisis levels by Leigh Thomas posted 3/21/2013 on Reuters).

French business activity shrank in March at the fastest pace in four years, defying expectations for an improvement and probably plunging the euro zone’s second-biggest economy into a recession, a survey showed on Thursday…

Separate figures for the services and manufacturing sectors showed that business activity was retreating even faster than economists polled by Reuters had forecast…

That would mean that France, which has already abandoned its 2013 deficit target due to the lack of growth, has entered its third recession since the financial crisis…

The increasingly dire state of French business is all the more alarming as consumers, traditionally a major driver of the economy, are in no place to pick up the slack.

Unemployment is above 10 percent and there is no sign that it will fall any time soon, which is weighing on consumer spending.

It also explains in large measure why President Francois Hollande’s approval ratings are at record lows less than a year into his term in office, which he won on promises to revive growth and boost jobs.

Apparently the Socialists and the Keynesian economists were wrong.

You don’t create economic activity by increasing the cost of business.  And lower the rate of return on investment.  You create economic activity by lowering the cost of business to making it attractive to expand business.  You increase the rate of return on investment capital to encourage investors to take more chances on new startup companies.  It’s not rocket science.  If you increase the price of groceries people buy less groceries.  If you increase the cost of gasoline people by less gasoline.  Because people have limited disposable income.  And the higher the prices are the less that disposable income can buy.

If you increase the cost of business it raises the prices on the goods and services they sell.  The higher prices cause people to buy less.  And if you raise the cost of investment capital by taxing rich people more that will increase the cost of financing for businesses.  Which they will pass on to the consumer in higher prices.  Somehow Keynesian economists just don’t understand this.  But people living under their bad economic policies do.  Because they are always getting by on less because of these rising tax rates.

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