Investment Contrarians

Crazy Socialist Ideas Are Not the Way to Economic Growth

By for Investment Contrarians |

The latest French election saw a rise in socialism, as new President Francois Hollande set out tough, left-leaning ideas on how to generate economic growth. The French president has some of the same misleading and erroneous ideas for how best to generate job creation and economic growth. The problem with socialists is that they prefer to punish success in the name of job creation, whereas I prefer to offer incentives to create economic growth. Be aware that this is not something that happens just “over there.” This weak level of job creation is causing politicians all over the world to think of all kinds of wacky ideas to try to stimulate economic growth. Most of them are completely insane and will serve only to damage the economy, possibly permanently.

Hollande thinks that part of the solution to all of the economic growth problems stems from rich payments to CEOs. His proposal is for French state-owned firms to have a salary cap in which the executive pay may not be higher than 20 times that of the lowest-paid employee. This will mean large pay cuts to most, if not all, of the state-run firms’ CEOs. Okay, you might say, why is this a bad thing? Economic growth comes from the incentive to work hard. This hard work should have rewards.

Will this new rule help average salaries? Nope—just the opposite, for several reasons. First of all, if this is enacted only on state-run firms, then all of the top people will leave and go to the private sector. This will leave only the worst managers to run these state-run firms, which will end up hurting everyone. If you were a highly qualified manager filled with good ideas, you would avoid these state-run companies like the plague. If the state-run firms are poorly run, this means that they are less profitable, which means less money available to be spread to all of the workers. In fact, most likely, they would be so poorly run financially that they might end up cutting jobs.

If this rule is enacted across the entire country, it would be suicide for economic growth and job creation. Any company that could move to another country would. No one in his or her right mind would stay and be under the thumb of a government bureaucrat telling him or her how to run a business. Even someone who isn’t an expert can figure out that if companies leave en masse, this is not a good thing for economic growth and is certainly a negative for job creation. The obvious net result of a crazy rule like this is massive unemployment as companies leave the country.

While everyone is worried about economic growth, the answer is not in these gimmicky socialist schemes. The answer to job creation is to try to offer as many incentives as possible for people to start businesses and bring companies to our shores. Economic growth comes from the fertile landscape of low regulation and ease of business. The less red tape companies have to deal with, the more they’re interested in doing business. This ends up being a virtuous cycle, as these businesses then push up job creation, which stimulates economic growth. The answer is in eliminating red tape and structural reforms to the labor market, in addition to helping train employees for jobs in new industries. The answer is not in gimmicky policies, which is obvious to anyone who’s read a history book.

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  • George

    Can we not function as a human race without currency?

  • Paul

    No George, I don't think we can–at least not without a major paradigm shift or mass "enlightenment." Modern "Civilization" is an idea based on synthetic behavior, and it is sustained through propaganda that reinforces control and manipulation. The common denominator between the controllers and the controlled is currency. This method of score-keeping (using currency), whether it is based on hours worked, profits earned, or less quantifiable qualities such as social status, divine blessings, or "good luck," is the method to the madness. People will accept unfair treatment and oppression as long as they can grasp the illusion and convince themselves there is fairness and equality within the system. Whenever the "truth" virous spreads and affects enough people, there is rebellion, revolt, revolution (historical fact; not my opinion). The Truth I refer to is the understanding that the system of currency is unbalanced, unfair, and biased towards those who control it. The system benefits those who created it–that's *why* they created it in he first place! I believe at the core of the issue is human nature. I do not believe human nature is inherently "bad," but when our survival instincts get mixed with this synthetic system, and we are forced to compete with one another for resources, it often brings out the worst in us.

  • Joseph Mama

    Think about the practical application of a world without currency and you'll see it's a place you don't want to live in.

    How would you pay for your food? Barter?

    What are the goods or services you produce now? What goods and services do you consume? Map out the structure of barter with everyone you know and I would almost guarantee that you don't have direct contact with anyone who produces the raw materials for any of your goods and services. This means you'll be dealing with a complex web of barter exchanges – and I'm talking actual goods exchanging hands and trucks being swapped with goods. Eggs exchanged for flour. Flour exchanged for milk. You call your massage therapist and ask for a massage, he tells you that he needs eggs. You go to the market and ask for eggs. The farmer says I need toilet paper. You don't have any toilet paper. The next farmer says I need toothpaste. You only have your own supply and don't want to give it up. You go back to the massage therapist who says she would be willing to accept some milk instead of eggs. You don't have enough to give her. See how ridiculous it can get?

    Currency eliminates this. The problem is the unequal education and destroyed education of our time. Search for those who destroyed education and you'll find those to blame.

  • Joseph Mama

    …and goods don't grow on trees, so I am certain you don't mean that food should arrive on the table for everyone without any work like those poor soon-to-be-enslaved people in France.