France and the limits of liberalism

Author: Noah Smith (Noahpinion) URL: https://www.noahpinion.blog/p/france-and-the-limits-of-liberalism One-line: France’s 2026 fiscal crisis — rioting, surging bond yields, and bond-market bets on sovereign default — exposes the three structural limits of European left-liberalism: the unsustainable welfare ratchet, the political impossibility of Keynesian austerity during booms, and mass immigration’s corrosive effect on social trust.

Key claims

• France’s government spending-to-GDP ratio is higher than almost any other rich country — significantly higher than Sweden or Denmark — and sovereign CDS prices have shot up more abruptly than interest rates, reflecting market doubts that France will ever close its structural deficit.
• France’s official retirement age was only 62 in 2023, and the average actual retirement age was lower than anywhere else in Western Europe; Macron’s attempt to raise it incrementally to 64 was blocked by both far-right and far-left parties.
• France’s taxes as a share of GDP are already the highest of any rich country, including Scandinavia — an earlier wealth tax raised only “a few billion euros at its peak, or about 1% of France’s total revenue from all taxes,” while causing at least 10,000 wealthy people to emigrate, costing roughly twice what the tax yielded in total revenue; a 75% supertax on incomes over €1 million raised only €160 million in 2014 before repeal.
• The current riots triggered demands for billions of euros in additional school spending, pension increases, and consumer fuel subsidies — but those demands caused bond markets to price in even higher borrowing costs, making the spending mathematically harder to deliver, in a self-defeating loop.
• The Keynesian prescription requires politicians to run austerity during booms to offset stimulus during busts; in practice neither happened — French government spending and debt sailed through the 2010s recession unperturbed, neither stimulating nor consolidating; Germany actually did austerity, France did not.
• Paul Krugman’s 2010s posts urging Euro-area stimulus are economically compatible with his 2026 warning that France is on an “unsustainable path” — both follow the same Keynesian logic — but Hanno Lustig’s viral tweet highlighting the apparent flip exposes the real problem: the “austerity during the boom” half of the prescription is politically undeliverable.
• France’s public is increasingly blaming immigrants for urban disorder, lifting anti-immigration candidate Marine Le Pen’s Polymarket odds while the left-wing Jean-Luc Mélenchon’s odds didn’t budge — mirroring the AfD surge in Germany and the broader European pattern of electorates gravitating toward whoever promises to reduce immigration.
• James Buchanan, cited by Smith, foresaw this failure: spending is more often determined by angry populaces than wise technocrats, making any Keynesian stabilization policy that requires politicians to voluntarily deliver pain during good times structurally unreliable.

Notable quotes

Fundamentally, the French riots show the limits of the European left-liberal welfarism that has been the region’s default approach to governance for the last half-century — and which American progressives want to emulate. The French populace — or at least a powerful chunk of it — simply doesn’t seem to be able to recognize the difference between a sustainable welfare state and an unsustainable one.

Social benefits seem to be a one-way ratchet — higher benefits raise expectations for even higher benefits, until even the most milquetoast and inadequate of austerity measures end up causing cities to burn.

That one-way ratchet also calls into question the viability of Keynesian fiscal stimulus — the main tool that left-liberals (including me) prefer to combat deep recessions… Keynesian policy requires that fiscal largesse during a bust be matched by fiscal austerity during a boom, so that deficits don’t grow unsustainably. The problem is that while “austerity during the boom” is easy to say, it’s politically very hard to enact.

When protesters demand increased spending, bond markets respond by charging higher rates on French government borrowing. That increases interest costs for the government, which makes it harder to raise social spending — the exact opposite of what the protesters wanted.

The wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium.

It suggests — as James Buchanan foresaw — that spending is often less likely to be determined by the wise judgement of technocrats, and more likely to be determined by angry ignorant people burning down government buildings.

How it connects

• Noah Smith — author; Noahpinion
• Paul Krugman — central figure; his 2010s stimulus advocacy vs. 2026 austerity warning is the Keynesian paradox the article turns on
• Immigration — third pillar of left-liberalism under stress; France’s public blaming migrants for urban disorder regardless of actual ethnic composition of rioters
• Welfare — the one-way ratchet dynamic at the center of France’s fiscal unsustainability