A Freer Place?

A DR Classique, originally aired May 31, 2001

"What’s the difference," Benoit asked me, "between America and France?"

We were painting shutters on Sunday afternoon. Painting is not my favorite past-time, dear reader. It is tedious and repetitive. But it has one virtue – it lends itself to conversation.

If I have any advice to give to the families of America, it is this: throw out the television and pick up painting brushes. The family that paints together, sticks together. Well, at least their hair sticks together.

Jules, Maria, and Sophia each had an answer for Benoit. But none could offer a convincing explanation of why or how the two countries differ. All agreed, however, that America is a ‘freer’ place.

Even the Frenchman, Alexis de Tocqueville, noticed it – early in the 19th century. Americans were unrestrained…bound neither by law, custom, taste or dignity. The frontier was especially wild, he noted, as uncivilized as the people who inhabited it.

Since Tocqueville took his famous tour of America, much has changed. The frontier has been tamed. So have its inhabitants. As noted here many times, since America gained its freedom from Britain, America’s citizens have become the serfs of their own government. Americans worked from January 1st until January 8th each year, roughly, to pay their obligations to George III. Today, successful Americans work from January 1st to June 1st to pay their tribute to George W’s government.

Still, my children – as well as most of the world’s people – are convinced that America remains a ‘freer’ place than France.

An article in Forbes reports that it takes just 7 days to start a business in the U.S., as opposed to 66 days in France. In its ranking of the "best places in the world to start a business," Forbes places the U.S. as #1. France is #25.

I’ve begun businesses in both countries. The numbers may be technically correct, but they focus on the wrong part of the story. The big difference between France and America is not the difficulty of starting a business, but the trouble of getting out of an unsuccessful one. Marks and Spencer’s, the British retailer with a store around the corner from my office, decided to close its doors in France after losing money for years.

Uh…not so fast. The employees kicked up a fuss, and a French court ordered M&S to stay in business until a settlement was reached. Operating stores’ reduced hours and empty shelves has added millions to the firm’s losses.

Several investment strategists – including our own Steve Sjuggerud and Steve Hanke – conclude that you should always invest in countries that are moving towards more commercial liberty. But if you followed that advice literally, you would have taken your money out of the U.S. 150 years ago. And you would miss the benefits of investing in socialism. France is a more demanding and unforgiving place than America. The schools are harder. Teachers do not worry about a child’s self-esteem. If wrong answers are given, or untidy work is handed in, the poor children are scolded and, often, insulted.

Children are expected to stand up straight, look guests in the eye and offer their cheeks for a kiss. People are expected to dress properly when they go out and always move to the right hand lane when driving…leaving the left lanes open for speeders. Husbands may have mistresses, but they are expected to be discreet about it.

Rigidity is not without its benefits. Women are prettier and the cheese is generally better. In the business world, it is hard to get started – eliminating the casual entrepreneurs – but once you are established, government regulations rise up behind you like a drawbridge to block potential competitors. Conduct your affairs in the proper way – and all of French society will conspire to keep you in business.

France is a socialist country, with a very expensive national health care system, subsidized transportation, and regulations governing almost every aspect of life (just like America!)

Workers enjoy a 35-hour work week…with 4 weeks of vacation. But this puts pressure on enterprises to make sure their employees are productive. And while French workers tend to work fewer hours (no one works as many hours as Americans) it is rare to find workers as incompetent as those you routinely encounter in the U.S.

"But the real difference between the U.S. and France," observed one of the attendees at Mark Skousen’s lecture last night, "is that the intellectual tradition of economic liberty never really caught on in France."

In Anglo-Saxon countries, Adam Smith popularized the notion of an "invisible hand" guiding individual market transactions for the benefit of all. How come those ideas never took root in France?

Neither Mark nor any of the attendees had a good answer. In fact, the discussion merely deepened the mystery.

Because it was in France that the idea of "laissez- faire" economics was first developed. Montesquieu, Say, Tocqueville, Bastiat – they elaborated the ideas of financial liberty long before Ayn Rand or Milton Friedman. "In fact," added Henri Lepage, host of last night’s meeting, "Bastiat anticipated what is now known as ‘public choice theory’ long before James Buchanan was born."

But what happened? "They died," said one attendee.

"A similar phenomenon occurred in America," Mark pointed out. "The New England colonies, especially Massachusetts, were the most radical, liberty-obsessed part of the nation in 1776. But, today they are the most socialist states."


An explanation…on Monday.

Bill Bonner
August 16, 2002

Uh oh…dear reader, we’re missing out. There’s a big rally going on and we’re not part of it.

We’ll never get rich! We’ll never drive a Porsche or live in one of the mock-mansions they seem to be putting up everywhere.

"I live near St. Louis," said a DR reader who passed by the office to visit. "Who would have thought there would be a real estate bubble in the St. Louis area? But there is. They’re tearing down $200,000 houses in order to build these $1 million mansions. I don’t know who’s buying these things, but I wouldn’t want to be paying their mortgage."

But Mr. Bear is tricky, underhanded and deceitful. It would be just like him to stage a big rally. Then, just about the time the rubes and patsies are ready to get back into stocks and buy a big house in the suburbs… he’ll come out of the woods in the backyard!

As Eric points out below, investors who believe the economy is recovering quickly may not be paying attention. Industrial production is slowing, jobless claims are rising, and bankruptcies are hitting records. Last year’s bankruptcy total for publicly traded companies was surpassed on Sunday, when U.S. Airways crashed and burned. Personal bankruptcies, too, are beating previous levels.

And now, Stephen Roach tells us that "a little less than half of the U.S. economy is now in the throes of outright deflation."

"Most people believe it’s too much of a Japan-like scenario to happen in America – that the U.S. is unique. But is it?…Post-bubble economies always have one thing in common – they are far more deflationary-prone than most people think. America is closer to the brink of outright deflation than at any time in the past 48 years."

"Deflation, yes it could happen," agrees a headline in the International Herald Tribune.



Eric Fry, our man on Wall Street:

– It almost feels like a bull market again…almost. The Dow gained another 75 points yesterday to 8,818, while the Nasdaq added nearly 1% to 1,345. The stock market is quickly distancing itself from the dark days of late July.

– The Dow has gained an astonishing 1,328 points from its low on July 24th. Call it a bear market rally; call it a new bull market; call it whatever you want, that’s a lot of points. But despite the happy interlude on Wall Street, the folks on Main Street aren’t feeling quite so chipper.

– "For the 5th week in a row," observes Joseph F. Kalish, Economic Strategist with Ned Davis Research, "the Consumer Comfort Index dropped, slipping two points to -15, its lowest level since April 1996."

– I hadn’t heard of the Consumer Comfort Index. But I must admit, I felt a little uncomfortable learning that this touchy-feely index had fallen to a six-year low.

– "The continuing decline in this index is not good news," Kalish continues, "since it does correlate well with other measures of consumer sentiment. And ultimately, declines in confidence do not bode well for consumption in the long run." – Meanwhile, the bond market is getting very comfortable with the idea that the economy is not recovering. Long- term interest rates have been falling ever-lower, as if anticipating a slowing economy or deflation or both. While the stock market is attempting to "signal" recovery with its latest rally, the bond market remains steadfastly in the slow- or no-growth camp. For example, yields on the 10-year Treasury bond dipped below 4% Wednesday, for the first time since 1963. – Maybe the rallying bond market isn’t signaling anything other than the fact that investors are buying bonds because they don’t know what else to do. After all, there are only so many 1960s-era "muscle cars" that one can prudently buy for one’s self-directed retirement plan.

– Furthermore, the huge rally in the bond market is especially curious, given the fact that oil is also rallying strongly. Crude oil jumped nearly one dollar yesterday to $29.06 a barrel – a new closing high for 2002. Normally, the bond market and the oil market don’t stroll arm-in-arm. In other words, when oil is rising, bond prices usually fall. But not this time.

– Speaking of petroleum, there’s some good news this week for the oil refiner, Valero (NYSE: VLO), a stock pick favored by both Dan Denning’s Strategic Investments and Lynn Carpenter’s Fleet Street Letter. Gasoline inventories plunged by 3.9 million barrels in the latest week – the largest drop in the last 12 months. At the same time, gasoline demand continues at a record- breaking pace, exceeding 10 million barrels per day for the first time this year.

– Falling supplies and rising demand usually adds up to rising prices, which would mean rising profits for Valero. "Short of another recession," says Joseph Kalish, "we remain extremely concerned that gasoline supply will not be able to keep up with demand over the next couple of years, a bullish condition for refiners."

– "Salomon Smith Barney economist Steven Wieting looked at what would happen if the market, which has thus far followed the pattern of 1929, would proceed to recover from here in like fashion," writes Randall W. Forsyth in a recent issue of Barron’s. (Preview: The results aren’t pretty). "After the Great Crash, it wasn’t until 1954 that the market regained its ’29 levels. So, Wieting cheerfully notes, it’ll be only another 23 years until the S&P 500 gets back to its 2000 peak, if the market follows the same script. To get there from here, he calculates, would take about a 5% annual total return (including reinvested dividends that provide an assumed 2% yield)."

– But maybe it won’t be that bad. Wieting notes that if the market manages to achieve Warren Buffett’s forecast of 6%-7% per year, the S&P would return to its prior record high in a mere 13 years. There is an alternate scenario, of course. It has been 13 years since the Japanese stock market bubble burst, and the hapless Nikkei Index is nowhere near its record high. In fact, it languishes nearly 75% below the record level it reached in 1989.

– That couldn’t happen here, could it?


Back in France…where your editor is on vacation…

*** "Well, what’s wrong with that?" Elizabeth wanted to know.

*** I was telling her about Mr. Jared Taylor’s speech in Aspen. Mr. Taylor, as I think I told you, believes the country needs to protect itself from non-white immigration. He points out that large numbers of Blacks, Latinos or Asians change the character of neighborhoods, cities…and eventually, he believes, the entire nation.

*** "I didn’t much care for the suburbanites moving into rural Maryland either," I replied to Elizabeth. "I liked it as it was – full of rednecks and yokels. The suburbanites changed everything. But it never would have occurred to me that I had the right to tell them they couldn’t come."

*** "Most people who grew up in America want to grow old in America, not in some bustling outpost of Mexico or Southeast Asia," Taylor writes in his American Renaissance newsletter.

*** Taylor proposes halting non-white immigration in order to keep minorities from becoming majorities.

*** Of course, a hundred years ago, people had the same worries. But then, it was Irish and Italian immigrants that worried the Jared Taylors. The new immigrants drank too much and got into scrapes with the law. They were usually poor and ill-mannered. And they were Catholic! But they kept coming. Instead of closing the gates, the public school system was created to force everyone to speak the same language and make sure they all believed the same myths…and the pledge of allegiance was made a requirement…and alcohol was banned, for a time.

*** But the nation prospered; the new immigrants usually became Democrats, voted for Roosevelt…and the nation went downhill, just as people had feared.