A Freer Place?

“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 Spencers, 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 raise 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…tomorrow.

Bill Bonner
Paris, France
May 31, 2001

Market Watch

This section of the Daily Reckoning is written by Eric Fry, editor of Grantsinvestor.com. Look for Eric on TV this week; he’s the guest host on CNN-FN, 9:30 – 11 E.S.T. My notes and letter follow, as usual.

*** The rally seems to have stalled. The Dow fell 166 points yesterday. The Nasdaq was down 91.

*** Consumers are still spending…but a closer look at the numbers reveals the weakness. Half of April’s 0.04% increase in consumer spending can be attributed to higher prices. And earnings, reduced for inflation, rose at only 0.01% during the month.

*** Looking more carefully at how consumers were spending their money, we find that they were still buying bread andbeer – but not big ticket items, such as cars and homes.

*** Bankruptcy filings rose 17.5% to a new record for a first quarter. Scylla and Charybdis must be closing in.

*** Will lower stock prices further reduce consumer spending? “The ups and downs of the stock market,” reports the Wall Street Journal, summarizing a Fed study, “don’t foreshadow where the economy is headed. They drive it directly.” Lower stock prices, less consumer spending. Less consumer spending, less business investment and lower profits. Lower profits, low stock prices.

*** We’re a long way from a major buying opportunity, opines Daniel Turov in Barron’s. “The Dow first reached the 100 level in January 1906,” he writes. “It traded above and below that level for more than 36 years; it wasn’t until May 1942 that the market left 100 behind for the last time.

“The Industrial Average first reached 1,000 in February 1966,” he continues. “It traded above and below that level for the next 17 years, leaving it for the last time inFebruary 1983.

“The Dow first reached the 10,000 level in March 1999. Considering the unprecedented gains of the past several years, would it be that unusual for this benchmark to take a decade or even two before leaving 10,000 in the dust for the last time?”

*** Investing in Latin America is risky. Argentina is on the verge of a financial crisis. But Argentina is always on the verge of some sort of crisis. Meanwhile, there are some good companies at bargain prices, Barron’s reports. I don’t know what Repsol does. But whatever it is, the Argentinian company gets little respect from investors for doing it. The $10 billion company is trading at 8 times earnings. Petrobras, the huge Brazilian energy business, can be bought for just 6 times earnings. And Mexico’s telecom, Telmex, can be yours for just 10 times this year’s earnings.

*** But a warning. There is no law that says things that are cheap can’t get cheaper. Gold closed yesterday at just $267 an ounce. Gold mining stocks fell 5%.

*** “I have seen 23 investment manias,” writes Ray Devoe, “ranging from uranium producers, to bowling companies, airlines and color TV. Four of them were high-technology (including space exploration and scientific instruments). With the possible exception of 1968’s ‘Great Garbage Market’ all of them were localized – so that when the bubbles burst, the impact on the economy was negligible.

“However, this time it is different in that the bubble in stocks was (and is) so widespread. This time bursting bubbles are much more likely to negatively impact the economy.”

*** “Accelerated Entropy,” is what Dan Denning of the Daily Reckoning Blue Team calls it. “Businesses suffer from entropy in the same way organic life forms do. Trouble is, the 21st century entropy – naturally built into the business cycle – is picking up speed… destroying some businesses faster than ever.”

And a few notes from Bill:

*** A friend sent me a copy of my horoscope for last week: “Keep your financial advice to yourself,” advised the stars. If only I had listened. I would not now be in the embarrassing position of trying to explain the depressing fall in gold prices – down $7.70 yesterday alone.

*** And the euro! At 85 cents – it only has a few mills to go before it hits a new all time low. But what can you expect from the euro? I dubbed it the “Esperanto currency” when it came out. Backed by neither a single government nor by gold, the euro is a monetary curiosity, a money based on good intentions…wishful thinking…and who knows what else… And, as James Grant points out, it is a paper currency that isn’t even available on paper. They don’t release the actual bills until next year. So far, it is just electronic ether.

*** Perhaps, as Grant suggests, I should do what Wall Street analysts do…and change my ‘buy’ recommendation for the euro to a ‘hold’… or a ‘market perform.’ And maybe gold should become an ‘accumulate,’ rather than an un- hedged long position.

*** Maybe I should just give up – and admit that gold and the euro may someday be decent places for your money…but their time has not yet come. But what’s the point? You don’t cancel a life insurance program just because you aren’t dead yet.

*** “The median corporate bond rating stands at BBB, or weak investment grade,” reports Grant in Forbes, “the lowest since 1981, the first year for which statistics are available. Also, just 28% of the junk-bond universe holds the top junk rating, according to Moody’s Investors Service. That’s the lowest proportion in at least 80 years, a span that includes the Depression.”

*** Last night, my friend Mark Skousen came to town. He is on a world tour, promoting his most recent book (about which more…after I’ve read it). Mark gave a lecture at the Democratic Liberal party headquarters in Paris – luring the biggest turnout of free-market supporters in many years. Yes, there were probably 15 of us there… at least. More below.

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