Boiling Frogs

“They would be the shepherds over us, their sheep. Certainly such an arrangement presupposes that they are naturally superior to the rest of us. And certainly we are fully justified in demanding from the legislators and organizers proof of this natural superiority.” – Frederic Bastiat

I really don’t know how the French came to be known as “frogs” – and when I say “I don’t really know” I mean “I looked briefly on the internet and other folks don’t know for sure either.” I’m sure it is often a derogatory term, though I don’t really intend to use it that way here. I just couldn’t rest the pull of the “boiling frog” allegory for what is happening to the French people just now. Or, for what is not happening … see shortly.

The boiling frog story is simple. If you throw a frog into boiling water he’ll jump out, shocked by the dramatic change in temperature (and the pain); but if you put a frog into room temperature water and slowly bring it to a boil, he’ll sit right there and cook to death. While the “internet” is unclear on the origins of “frog” as a derogatory term for Frenchmen, snopes does point out that the slow-boiling frog story is, in fact, false. So be it, the point of the moralist is clear: slow degradation into the abyss will be tolerated far more than fast degradation.

Now, on to the Frenchmen. When socialist Francois Hollande took power in France he promised to dramatically increase taxes on the high wage earners. His top tax rate of 75% sent a number of wealthy Frenchmen fleeing the country (including Gerard Depardieu). Somewhere along the way a French court struck down the 75% tax rate as unconstitutional. I have no idea how French law works, but it seems to be something like “we disagree with this policy, and it’s obviously causing damage, so we’ll save you from yourself and simply call it ‘unconstitutional’ – giving you the necessary cover to change course.”

Having realized that the 75% rate is lost, the French government has changed course and is now looking to implement a 65%-66% top tax  rate. Sorry guys, but you’ve already thrown the frog into boiling water – and he’s jumped out. Turning the water down “just a bit” will not entice him to stick around. Does anyone think Depardieu (or the others), having already made the hard choice to leave the homeland, will come back because the tax rate is only 65% instead of 75%?

I think not. The French government has already lost the benefits of “static friction” here – the resistance to move or change. Now they are in the land of “kinetic friction” and the other countries have gained the benefit of static friction. All other things being equal they’d likely have to drop their tax rates lower than the surrounding countries to draw the ex-patriots home.

Now, I can’t speak for the general patriotic feelings of the average super-rich Frenchman. Maybe they do want to go home. But I suspect not. My guess is that the damage has been done and is likely irreversible. Hollande is highly unlikely to employ a low-tax regime to bring people back. The dream of plundering the wealthy has been squandered because (i) he moved to fast and too aggressively, and (ii) they still have freedom of movement. One wonders what machinations the Hollande government will go through to try to deal with these issues – even (ii) if they can find a way.

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