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Source link: http://archive.mises.org/14349/french-students-should-celebrate-pension-reform/

French Students Should Celebrate Pension Reform

October 25, 2010 by

That students are in the streets demonstrating against this pension reform suggests professors and politicians have failed to explain what economists call the lump-of-labor fallacy. Jobs are not fixed and do not depend exclusively on the supply of labor. FULL ARTICLE by François Melese

{ 27 comments }

boniek October 25, 2010 at 7:59 am

“That students are in the streets demonstrating against this pension reform suggests professors and politicians have failed to explain what economists call the lump-of-labor fallacy.”
If professors and politicians started to explain every fallacy there is there would be no state pension system. Heck there would be no state (as in monopoly over certain services) at all!

dewind October 25, 2010 at 9:12 am

What is more striking about this is how many workers are dependent on the whims of the government and their fiscal aptitude. A worker cannot choose when they retire because their investments are through a state pension program; rather than private investments of their own.

gene October 25, 2010 at 9:58 am

French students are in the streets because they like all citizens, are being robbed by the state.

But, yeah, be good little students, go back to your desks and behave. don’t worry, the french government will take care of you.

Sante October 25, 2010 at 10:02 am

Lead by example. If Sarcozy is truly interested in getting people on side with his policies then he and his governement would take a pay cut which would show the masses that he is sincere.

“There are a number of reasons young people should instead be celebrating France’s pension reform. Although they may work longer, young people need to realize they will live longer. The net effect is that their retirement years are likely to at least match those of their parents.”

Your assumption that the young people will live longer while we see diminishing incomes, further privatization and rising cost of healthcare (i.e. fewer people being able to afford proper healthcare) is optimistic at best.

Rôti de Beauf October 25, 2010 at 11:20 am

French reasoning detected!

It seems to somehow be an Image d’Epinal that “privatization” means less jobs. Thus “nationalization” can only mean “more jobs” (il faut que l’Etat fasse quelque chose). Where will the money for this come from? Well, it is commonly assumed that as long as there are “rich people” then there are resources that the state can grab to pay the workers and institute make-work schemes. The inference being that if the pension age is heightened, then the state refuses to grab these resources and people are being unjustly exploited.

André October 25, 2010 at 10:15 am

actually those students have all the rights and interests to protest…

Obviously it would be better to have a completely privatized pension system. But you see, here we are talking about paying the same percentage of income and then retire some years later. It costs more for everybody, period. Of course it would have been better not to start such a monopolistic system – but, as long as I cannot CHOOSE freely whether to subscribe it or not, of course I have all the interest in collecting my retirement checks the soonest possible.

So, I really hope they will succeed with their protests, so it this whole Ponzi-scheme (I mean, this mandatory, state-run pension system) can collapse sooner.

thierry October 25, 2010 at 10:35 am

French students are demonstrating in the streets, though they don’t have an hint of economic culture, because they understand that welfare state is over.

It’s just withdrawal symptons.

Vive la Liberté

Soonerliberty October 25, 2010 at 3:08 pm

How I wish that were true. I”m a displaced American in Germany, and there is absolutely zero chance that the welfare state ends here. Germans are too enamored of planning and rules to ever let it go. Even if it did fail, they’d blame capitalism somehow. They suffer under the “better king syndrome,” just like many European leftists (which is almost everyone) I have met. I hope for my French friends that the end comes, though I am highly skeptical of any pro-market changes coming from Europe. The main problem is that they misidentify the system we have as capitalism, instead of the corporatist/socialist/fascist system it really is. Though I have met a few Austrians here, which is encouraging.

Joe October 25, 2010 at 10:51 am

It remains to be seen if the welfare system in France is over. The people have been brought up with the fantasy that you don’t have to be responsible and the government will take care of you. This philosophy does not go away overnight. Since socialism is not fact based but based on emotions and fear there will be a lot of pain and suffering. The same thing is happening in this country. Look at the Public Employee Pensions in California and other states. These people were promised unrealistic, sustainable retirements. The taxpayers in California have to make up the difference for the unfunded mandates. So human nature is the same all around the world. Like my mother use to tell me, ” money doesn’t grow on trees” unless you are a Public Employee or a citizen of France.

thierry October 25, 2010 at 11:04 am

I agree with every word in your comment. Welfare state end is not a reality yet in France but, up to now, just an hope. And Welfare state death could be the only advantage of the world economic crisis.

DanOnTuba October 25, 2010 at 10:54 am

I understand that there is, deep down, an element of dissatisfaction with the privileges enjoyed by the French political class – the state bureaucracy – some of whom can apparently retire at 50 with high pensions. All animals are equal, but some animals are more equal than others….

Rôti de Beauf October 25, 2010 at 11:23 am

Hell yeah. I hear that parliament unanimously refused to do anything about their early retirement age. Profiting from your château at 60 is not on!

thierry October 25, 2010 at 11:43 am

The french deputies finally did it and decreased their pension by 8 %. But they keep a lot of advantages.

Capt. A. October 25, 2010 at 12:01 pm

@boniek October 25, 2010 at 7:59 am,

You are a person after my own independence!
**********
France, as with so many, many other nation-states (America included) is merely a continuing example of what happens when you sacrifice your freedom, liberty, privacy (both personal and financial), private property and freedom of/to contract without state interference. Shunning personal responsibility … seemingly a thing of the past will usher in more human tragedy. You can count on it. There can be no happy ending for those involved in collectivism. The end-price is ALWAYS dear and tragic to the Voting booboisie—excluding the elite that jump ship and flee, with your wealth in hand. The rest? Well … they get screwed … big time!

People relying on the State will not get exactly what they want or what they think they want or are bargaining for. In the end they will get exactly what they deserve … because, sacrificing, selling, and voting away their souls and independence, it only leaves self-sacrifice at or on the altar of the State. So, what’s new? Do you want truth? I just gave it to you.

The State is the problem … not the solution.

C’est la guerre,

Capt. A.
Principaute de Monaco
UTC +2:00 CET

Joe October 25, 2010 at 3:31 pm

@Capt. A.,
I agree with you. So now all we have to do is educate the people so they understand that capitalism and self responsiblity is the way to go. Then the power of the state will eventually dwindle to nothing. Won’t see it in my lifetime but you have to start somewhere. My only surprise is how the young people still want to gravitate towards socialism. They recognize that something is wrong with the status quo but can’t seem to make the leap to liberty, capitalism and a diminished state.

Capt. A. October 26, 2010 at 10:37 am

@ Joe,
Thanks for taking the time to comment. I understand precisely what you are saying. It’s a seething conundrum how far this entire debacle will travel throughout the world and how it will ultimately pan out. As you too note about your age, I’m also on the backside of the power curve, just not enough time left. H.L. Mencken had it right: “ … Liberty is not a thing for the great masses of men…” I’ll drink to that! Be that as it may…

There are very few individuals willing to become PTs. (Perpetual travelers, that “three-flag” and live their lives to the greatest possible extent in this world, free!) Education is by far, only of real value if it teaches the antithesis of the state, tribal indoctrination, religion, citizenship etc. I, on occasion do stumble in to other PTs when I travel. Monaco has a fair number of PTs. These are some of the wealthiest value-producing individuals worldwide. They would agree that essentially ALL governments ultimately “grow” and like a boa constrictor, then squeeze and stifle the life of free enterprise. Again, the rara avis, and believe me they are rare, individuals that not only talk the talk … but also walk the walk, become PTs! PTs, as a group refuse to surrender freedom, liberty and privacy. The “collective,” (France, et al.) destroys individualism, only to become a ward of the state, by degree. Tax slaves submitting to the master’s lash and yoke, those choosing to live in subjugation. I can’t think of anything worse than to spend the only life you will ever have … a slave to/of the collective democracy! Oy! I shudder to even think such poppycock!

It can be done. The price is high. I only wish I had become a PT much earlier in life. There’s NOTHING quite like it!

Again Joe, take care and the very best to you.

*********
About ALL government(s):

To trust is to bust,
To bust is hell.
No trust, no bust, no hell.

To France and other world collectives: welcome to hell.

Regards,

Capt. A.
Principaute de Monaco
UTC +2:00 CET

pietro October 25, 2010 at 3:07 pm

This is my first issue and I’m so glad I subscribed!
Here the email I sent to mr. Melese:

Bravo!
Sir,
No need to use words to compliment you.
Please keep up the good work. Even if just a few of your countrymen see the light ( and possibly some other Europeans young men) it will be a net gain for all.
Sincerely

Gu Si Fang October 25, 2010 at 4:06 pm

How do you say this in English? “Turkeys voting for an early thanksgiving” ;)

GSF from Paris

P.M.Lawrence October 25, 2010 at 8:43 pm

There is also what we might call the lump-of-labour fallacy fallacy – the idea that, because the amount of labour is not fixed, that we cannot ever use the lump-of-labour concept. In fact, for many purposes we can and should treat it as fixed, e.g. in looking at instantaneous effects (the short term and very short term) or when the elasticity of labour demand is low. In each case, you use the concept to work out a first approximation, then you relax the requirement to get a more realistic description and a better approximation.

Here’s how you use that approach to describe electric motors:-

- Pretend that the mechanical side is steady, i.e. a constant angular velocity, even though you know perfectly well that it isn’t.

- Work out what current would flow from that, using resistances, input voltages and frequency, reactive volt-amps, etc.

- Work out how much mechanical power is being developed.

- Use the inertia, friction, etc. to work out what the angular acceleration is after all, as a function of the electrical inputs.

- Solve for the mechanical behaviour in terms of the electrical behaviour, which you now have as a function of the inputs and of the mechanical behaviour.

This mathematical trick works for the motor because the electrical changes happen on a much shorter time scale than the mechanical ones, so you can safely make the simplifying assumption of steady mechanical behaviour during the intermediate stages on the way to the full description. And you can do the same in economics, using the lump-of-labour concept. To see where Francois Melese is being led astray by the lump-of-labour fallacy fallacy, consider the following:-

At first glance, students’ fears also seem warranted. If an older worker is forced to work an extra couple of years, it seems obvious this would delay a young person’s entry into the labor force. If we assume there are a fixed number of jobs, the net effect would be to crush employment opportunities for young people. With youth unemployment already absurdly high — over 20 percent — it’s no wonder students spilled out onto the streets to protest.

But this is a pretty accurate description of what would happen, over the brief period just after the policy change. Sure, after that it wouldn’t be – but, with that 20% plus level of unemployment for the young, it matters for this lot of young people getting a start on their careers in this particular brief period. Later, they have to compete with a later lot of even younger people with even more recent education, so for this lot even a brief setback would have much more enduring effects (the early 1990s recession in Australia had an enduring cost like that for the job and career prospects of young people and recent immigrants).

As a result of the French government’s decision not to raise taxes and instead to postpone retirement, young people face lower future taxes than they otherwise would. This also ensures they will enjoy greater job opportunities since businesses also benefit from no new taxes.

No, it doesn’t. Because of the poor labour market policies he previously mentioned, that doesn’t flow through to greater job opportunities (it would if the suggested tax cuts were linked to employee levels – but they aren’t). And we know perfectly well that the government wouldn’t actually cut the taxes anyway; they never do.

Sandwichman November 4, 2010 at 1:44 am

You are absolutely right, P.M. Lawrence! The so-called “lump-of-labor fallacy” claim is itself a fallacy. All of the long-term “good stuff” outcomes are hypothetical and abstract. They don’t necessarily apply to the people protesting. So why shouldn’t they protest a change that is likely to disadvantage them, at least in the short run?

But wait! There’s more. The fallacy of the fallacy claim was demonstrated by an ECONOMIST, Charles Beardsley, back in 1895 (“The Effect of an Eight Hours’ Day on Wages and the Unemployed,” Quarterly Journal of Economics 9 (4) 450-459). Beardsley was refuting the claims of John Rae, a JOURNALIST. In fact, the earliest instance of a lump-of-labor type claim I can discover was by a New York Times Correspondent, “F.H. J.” on October 6, 1871, writing about the Newcastle Engineers’ strike for a nine-hour day.

“Their theory is that the amount of work to be done is a fixed quantity, and that in the interest of the operatives, it is necessary to spread it thin in order to make it go far.”

A little context is in order. The Times’ London correspondent is here editorializing on what HE thinks is the “real question at issue” after conceding the plausibility of the workers’ own arguments. He is saying, in effect, that the workers would have a good case, if they actually were sincere about what they said were their motives and objectives. “But I find it very difficult to take this view,” he says. He suspects they have ULTERIOR motives and it is those undisclosed, ulterior motives that are based on the alleged theory (and fallacy).

Fortunately, we also have available an indirect “reply” to the Times report/editorial in the form of a comprehensive 77-page pamphlet documenting the strike by the leader of the Nine Hour League, John Burnett. In that pamphlet, Burnett comes across as an articulate,moderate, conciliatory and skilled politician and negotiator. He also exhaustively documents the positions of the workers, the employers, mediators and the press. The title of this primary source is “NIne Hour Movement. A History of the Engineers’ Strike in Newcastle and Gateshead,” and it is available through JSTOR ttp://www.jstor.org/stable/60203519

Unless anyone can come up with a bona fide prior source for the “fixed amount of work” fallacy claim, consider it BOGUS and anyone who propagates the bogus claim as either ignorant or a cynical propagandist.

michel moinecourt October 26, 2010 at 4:48 am

L’alternative 3 n’est pas raise taxes(augmenter les impots) mais augmenter les cotisations .le système de Sécurité Sociale en Frnce n’appartient pas à l’Etat mais aux entreprise et aux salariés.Si la durée de vie augmente ,à quoi sert ce progrès humain et social,si on ne peut profiter de cet allongement que vieux et malade?Bismark,le chancelier allemand inventeur de la retraite à 65 ans aviat fixé ce chiffre après avoir constaté queles salariés allemande de l’époque mouraient en moyenne à 65 ans et 6 mois!Après cette initiative de bismark ,les allemands ont continué à émigrer en masse aux U.S.A;Les paysans français qui avaient été la risée de toutr l’europe par leur Révoluton de 1789 sont restés chez eux ,en France au 19 ème siècle.Ouétait le progrès humain et social àla fin du 18 eme siècle,chez ceux qui manifestaient dans la rue ou chez ceux qui courbaient la tete et subissaient?

Gabriele October 26, 2010 at 5:11 am

Seems to me that both the alternatives compared in the post are wrong: the state should not prevent people to retire to the same extent that it should not raise taxes.
The right choice is b): a public pension system – if such a thing still makes some sense – should be limited to the minimum. I.e., all and every benefit should be equal and limited to a minimum.
Beside – still relevant – demographic and contingent factors, all the pension systems are pushed in bankruptcy also by the unrealistic expectation a worker should maintain the same or a comparable income once retired. How that is supposed to be possible?

guard October 26, 2010 at 7:00 am

“France faces limited options”? Just where are those limits coming from? Having stolen the money from the populace, giving it back just never seems to be an option. It is precisely this limited option scenario that the populace is objecting to.

Stefan Popovic October 29, 2010 at 4:24 am

Exactly! The attempt to implement the Wall Street “philosophy” on Europe is rather scandalous.

Mika J October 26, 2010 at 8:35 am

Good article indeed!

We have a similar situation in Finland currently. (Even though no-one is rioting here!)

The (former)prime minister of Finland was taking steps forward to raise the pension age and people furiously attacked towards his aims. So, the result was that raising the pension age was cancelled and (former) prime ministers popularity plunged. People were so angry about the reform.

But no-one here was thinking about younger people to get work more quickly – no. It was more like taking away something that elder generation was achieved and should belong to younger people as well! It seems that younger generation don’t seem work itself as achievement. Why would they? Pays are below EU average, taxes are above EU average, prices are above EU average. Social benefits are high, like in many european (scandinavian?) countries. The people think that’s a achieved benefit – I mean the social benefits. They don’t want those to be touched.

The idea of raising the pension age is great – atleast in theory. But you lost your job when you are in your 50′s, who would hire you? Not to mention the situation when you are near the pension age! You can’t get anyone to hire you more willingly if you tell them that the state has raised the pension age – NO. That’s for sure.

In Finland, they are thinking about options 1,2,3 and 4. (again 5th is out of the question because the financial crises, that didn’t hit Finland that hard – by the way)
1. They will do it, but does it help?
2. They don’t want to do it, but eventually they have to
3. Raise taxes.. The current government don’t necessarily want to do it, but they will, and they have tried this already..more to come! (I just can’t wait!)
4. They have trying to do this aswell. The problem is that there isn’t that many people with eductaion willing to come to work in Finland. It’s just not that simple. They are taking refugees from Africa, thinking that they will fill in the gap when the elder generation are rushed on pension… These people mostly don’t even speak english, nor finnish of course. They are more for the social benefits than work. So, I don’t think that this is going to work at all. Besides of my thoughts, more and more people are against “social benefit immigration”, so there’s going to be very interesting elections coming in 2011!

That’s why, I believe, that they should try to lower the taxes, reduce the social benefits. Reduce the immigration(for social benefits!) Just take a look carefully were they want to spend the tax payers money and what social benefits are really needed. But I don’t think this will happen.
What comes to work – I do believe that my possibilities (I’m 31) are much better to get work than they are today, since there might be a certain lack of employees here in the future. (after the post-IIWW generation is out of the working scene)

They are after my pay check!

Thoughts from Finland

Stefan Popovic October 29, 2010 at 4:17 am

People used to work 12 hours per day, even 16. In some countries they still do. Isn’t the idea of technological progress less working hours? One of the strikers putted it plain and simple – I’m here to protect the French way of living! Although some countries have philosophies that the point of life is work, other do not. The idea of life is to have a decent quality of life, and the salary is just a tool to achieve that. The other being leisure time. Some of the people still ponder free time better than bigger bank accounts. Instead of mathematically explaining the idea of prolonged working time, one can also raise philosophical question – why do we work in first place? If we work to increase county’s GDP or we work to increase the quality of our own lives? Even if the idea of longer life time (which I found to be one of the greatest fallacies of our time – cancer, heart failures, stress…) is true, isn’t that just one more opportunity to enjoy life even better, or it’s an opportunity to work longer?

Speaking of mathematical explanations, what does the longer working time means to pension funds? That side of the coin has left in deep shade while we are arguing about crisis, deficits (where they were with calculations/estimations before – what really caused it) and so on.

Sarkozy’s policy obviously inclines toward American interpretation of free market idea, which oppose the continental European tradition.

oblomov October 30, 2010 at 8:00 am

Sarkozy’s real motives for destroying the state pension system ?
Corporate family greed !

http://www.oblomov.fr/?p=1938&lang=en

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