Can France Escape Its Pension Overhang?



In 2021, government spending accounted for 59 percent of GDP in France, compared with 45 percent in the United States. Spending on public pensions accounts for much of that gap: it’s 15 percent of GDP in France, but only 7 percent in the U.S. This greatly inflates associated payroll taxes, which alone took 28 percent of workers’ incomes in France, compared with just 11 percent in the U.S.

President Macron argues that the cost of financing pensions is dragging down the whole economy, and that reform is necessary to make France an attractive venue for investment and employment. Whereas workers’ incomes in 1975 were 46 percent higher than those of retirees, by 2016 they were 2 percent lower. Many economists see it as senseless to redistribute so much from the young to the elderly, who seldom have childrearing expenses and whose mortgages are often paid off.

Pension reform is seen as necessary by 61 percent of French voters, but only 32 percent support raising the retirement age. Macron argues that the only alternatives to his reforms would involve cutting benefit levels, hiking taxes, or cutting public spending on other items such as education, health care, or defense. France already has close to the highest taxes in the developed world.

Median incomes for French residents aged 65 and over ($20,116) are little different than those for Americans ($19,704). The main effects of France’s extra pension spending are to crowd out private savings for retirement (which amount to 12 percent of GDP versus 170 percent in the U.S), and to cause French citizens to retire much earlier (at an average age of 60.4, vs 64.9 in the states).

Author(s): Chris Pope

Publication Date: 28 Mar 2023

Publication Site: City Journal

The danger of high public debt is not what you think



At the start of 2020, the ratio of debt to gross domestic product surpassed 107 percent in the US — before any pandemic spending. In other words, our government debt now exceeds the total annual production of our economy.

The decline in Americans’ trust in government is roughly correlated with the rise in public debt over the same time frame (although data analysis can’t control for all the factors necessary to prove the point). In the mid-’60s, about 75 percent of people in the US said they trusted the government always or most of the time; by 2019 that number was down to 17 percent. 

Author(s): Edgar Kiser

Publication Date: 12 March 2021

Publication Site: Knowable Magazine

In Search of the New Debt Consensus




When economists like Larry Summers and Olivier Blanchard, who normally support more spending, balked at the size of the Biden stimulus plan, supporters of the plan said there was no reason to worry. Clearly markets are not worried about inflation or sustainable debt, just look at low bond prices and modest inflation expectations.  They argue if markets aren’t worried, maybe none of us should be. 

But we are in uncharted territory. The Debt-to-GDP ratio grew exponentially last year to once unthinkable levels, at least for a time of without a major military conflict.1 Piling on another $1.9 trillion (and possibly more later this year) risks higher rates in the future. The more leverage you carry, the less room you have to spend on the next disaster. 

So why aren’t markets more worried? Perhaps because for the time being there are not better, safer alternatives.  Also, the government has a captive buyer of its debt in the Federal Reserve, whose holdings of US government debt also reached unprecedented levels last year. Debt enthusiasts dismiss worries of an overheating economy by pointing out the Fed could raise rates and stop inflation if it takes off. But that would involve the Fed selling some of its debt and putting even more bonds on the markets, only this time there won’t be a single captive buyer. 

Author(s): Allison Schrager

Publication Date: 10 February 2021

Publication Site: E21