Jean-Luc Melenchon is a candidate for president in France’s upcoming election. He is popular with the young people, just like Bernie was in the U.S. The younger generation prefers sitting in café’s, sipping espresso, getting a weekly check from the government, rather than working. Can’t blame them!
Melechon is supported by the Communist party of France. He advocates a 100% tax on any income above €400,000 (around $425,000) per year. Confiscation of earnings results in lower earnings. But a communist doesn’t know that. Yet, its amazing that he has gained a good size following. It’s a sign of the times: the pendulum is still swinging to the left.
Under the current president Francois Hollande, top tax rates were already hiked substantially, leading to high income earners to move out of the country. One even became a citizen of Russia. Imagine, Russia is considered more friendly to capitalism than France. One institution put the number of multimillionaires fleeing France at 10,000.
But Melechon basically says, “let them leave. We don’t need them.” Really?!
Who will create new companies that hire people? Thinking about it, if no one wants to work, no jobs will be needed. But then, who will pay for the welfare of those who don’t want to work? Oh, the printing press of the central bank.
The French should read some French history, the era of John Law in the early 1700’s, as a Scottsman who in effect created the Bank of France and a fractional reserve banking system. That produced a temporary boom and speculative frenzy, extremely high inflation, followed by a collapse.
Melenchon also wants to limit pay for CEOs to 20 times the salary of their lowest-paid employee. Melechon says this would force CEOs to lift the pay of workers if they wanted to make more for themselves.
He argues that such a law would force executives to increase the wages paid to workers before boosting their own.
Many Americans, including us, would argue that something has to be done about excessive executive pay. However, the free market might do that more efficiently. Why not have a vote of shareholders, excluding institutions who have a conflict of interest, to vote on executive comps?
Shareholder meetings are not very good for this. We attended a shareholder meeting of a large oil company some years ago. A shareholder asked a question about the extremely high compensation for the CEO. He was escorted out by security.
An important French election takes place on April 23. There is one more election after that on May 7. One of the leading candidates is Marie LePen. She will probably get France to leave the EU. That would collapse the fragile EU mess.
Melechon also advocates getting rid of the euro, nationalizing some large French companies, leaving the IMF, WTO, and Nato.
Investors are getting nervous about France. The yield of French bonds is rising, confirming the assessment of higher risk.
Yet, the analysts on financial TV talk about how much cheaper European stocks are than those in the US and therefore, are better investments.
Our view is that when something is cheap, you should always ask why? It’s hardly a secret that they are cheap. So why aren’t the trillions of dollars of investment capital from around the world piling into these cheap assets?
Because of the much higher risk of those cheap assets!
Always beware of ‘free’ advice! It can be very expensive.
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