France: The End of the Road, Again?

In 1964, a young Ronald Reagan, speaking on behalf of Barry Goldwater, said that France had “come to the end of the road,” referring to the cost of the French welfare state. Similar pronouncements have been made about the French economy in the years since. Yet, somehow France never seems to run out of road. If it is such an overregulated economy, why hasn’t France’s economy crashed?

Apparently, stifling regulations are probably not as binding in France as they would be in the United States because of both regulatory arbitrage (circumventing regulations through active exploitation of loopholes) and Gaelic disobedience. More important, the difference between the level off or mal regulations in France and America is only a matter of degree and this difference is smaller than generally believed.

Nonetheless, the French economy, while not bankrupt, is not doing well. There is less of a paradox than first meets the eye. Free markets, even when compressed, are resilient, in France as elsewhere, but there can still be a slow-motion collapse if no decisive reforms are successfully undertaken.

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