Over the last three weeks, the world has watched over a million protestors clog the streets of Paris and other French cities and – more recently – storm the headquarters of luxury conglomerate LVMH Moët Hennessy Louis Vuitton.
The protestors are angry that French President Emmanuel Macron has forged ahead with plans to raise the country’s retirement age from 62 to 64 by 2030.
Throughout history and in many parts of the world today, the word retirement and the concept of public pensions have been unknown.
But once an entitlement is widely enjoyed, it becomes difficult if not politically impossible to change it.
Even when reform is badly needed.
This is especially true in France, where national law mandates a maximum 35-hour workweek and a minimum of five weeks’ vacation per year.
And that is indeed the bare minimum. Most French workers get six to 10 weeks of annual leave on top of paid public holidays.
This is one way the French achieve their much-prized “work-life balance.”
It is also how the country is rapidly losing the race for global competitiveness, as well as many of its wealthiest citizens.
More on the latter in a moment…
The problem France faces – as well as the United States and most Western countries – is that people are living longer and the ratio of workers to retirees keeps getting smaller.
In other words, the numbers don’t add up.
Macron is trying to save France’s pension system for future generations. But the protestors – and a majority of French citizens – don’t care.
They want their benefits. They don’t want to wait until age 64 to collect them. And it’s not their problem if the money to provide them won’t be there.
That’s why Macron – in his second and last term – used his constitutional powers to ram the legislation through Parliament without a vote.
French legislators (like all politicians) are afraid of paying the ultimate price – failure to win reelection – by doing the right thing and reforming the system.
Instead, they peddle the belief that all that’s necessary to save the system is heavier taxes on the citizens that are already the most heavily taxed.
That’s why protestors stormed the headquarters of LVMH.
The company – which offers everything from luxury fashions to fine wines and high-end hotels – is headed by Bernard Arnault, the world’s richest man.
Protestors carried mock “Wanted” posters with his image and chanted, “There is money in the pockets of billionaires!”
According to Forbes, there are 43 billionaires in France. But there are more than 68 million French citizens.
It’s a stretch to believe those 43 individuals could make it possible for tens of millions of people to spend 30-plus years in retirement.
Yet this has become a dominant theme with populist political parties throughout the Western world.
“Don’t raise my taxes. And don’t cut my benefits. Tax the undeserving rich instead.”
A quick head count shows that this is a political winner, as the lower and middle classes greatly outnumber millionaires and billionaires in every country.
There’s only one problem. Millionaires and billionaires have feet.
If they don’t like the tax regime where they live, they can leave. And they will.
(As they have in droves in the U.S., leaving high-tax states like New York and California for low-tax states like Texas and Florida.)
The same thing has happened in Europe. Financially successful individuals give up their citizenships to avoid confiscatory tax rates on income and assets.
That’s why Macron abolished his country’s wealth tax, as have most other nations that tried them.
However appealing it may sound to some folks, wealth taxes are deeply counterproductive.
Yet the “soak the rich” narrative is also dominant in the U.S.
Both parties pledge not to touch Social Security, Medicare or Medicaid benefits – or planned increases to those benefits.
Democrats promise not to raise taxes on anyone making less than $400,000. While Republicans try to hold the line on raising anyone’s taxes period.
Meanwhile, U.S. debt held by the public has grown from $9.7 trillion at the turn of the century to more than $30 trillion in a little over two decades.
The ratio of debt to economic output – the single best measure of the debt burden – has tripled.
And worse is yet to come.
The Congressional Budget Office projects that we will add nearly $20 trillion to the debt in just the next decade.
In other words, we will not grow our way out of this. So what are our national leaders offering in terms of entitlement reform?
Nothing. Nada. Zilch.
Politics today are not about principles or platforms or policies. They’re about winning – better defined as gaining, holding and wielding power.
And politicians understand that you don’t win by promising to raise voters’ taxes – unless it’s the top 2% – or cut their benefits.
Especially since the metastasizing federal debt doesn’t even show up in polls of voters’ top 10 concerns.
As a result, leaders in both major parties simply kick the can down the road.
The problem, of course, is that eventually we’ll run out of road.
Then the piper will have to be paid, in the form of dramatically reduced benefits, sharply higher taxes, higher inflation and/or even more massive deficits.
This is playing out in France now. But the show is coming to a theater near you.
If you needed an additional reason to save and invest, this is a good one.
People are living longer, while the ratio of workers to retirees shrinks. That’s a threat to the health of public pensions.
And a powerful incentive to keep building and managing your own personal one.