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Archive for the ‘Big Government’ Category

I periodically try to explain that there’s a big difference between being pro-market and pro-business.

Simply stated, policy makers shouldn’t try to penalize businesses with taxes, mandates, and regulations.

But neither should politicians seek to subsidize businesses. That’s why I’m against bailouts, subsidies, and other distortions that provide special favors for politically connected companies.

I have nothing against companies earning money, to be sure, but I want them to earn their profits in the marketplace rather than lining their pockets by using the coercive power of government to rig the rules of the game.

But I don’t just have disdain for companies that stick their snouts in the public trough. I also have little regard for the politicians that enable this sordid type of business by trading campaign cash for corporate welfare.

I realize that’s a strong assertion, but I can’t think of any legitimate reason to support handouts for big companies. And I get especially angry when giveaways are facilitated by politicians who claim to support free markets.

Let’s look at two examples, the Export-Import Bank and the Obamacare bailout for big insurance corporations.

I’ve previously argued that the Export-Import Bank is a squalid example of corruption and I’ve shared a video that explains why it’s economically foolish to subsidize a handful of big exporters.

To augment those arguments, here’s some of what Professor Jeffrey Dorfman of the University Georgia recently wrote in a column for Real Clear Markets. He correctly warns that certain GOP politicians are to blame if the Export-Import Bank stays alive.

The Export-Import Bank is everything that Republicans should stand against. It is crony capitalism at its worst. It is corporate welfare, taxing American families to boost corporate profits. It ever forces firms to potentially subsidize a competitor. There is simply no need for this government agency. Republicans in Congress should make a stand and show voters that Republicans believe in free markets and small government, even if some big businesses complain. The Ex-Im Bank should not be reauthorized. …Over the last decade or so, the Democrats have increasingly become the party of big business, stealing that crown away from Republicans because of the Democrats’ willingness to engage in crony capitalism and actively pick winners and losers in our economy. While Republicans are still thought of as the pro-business party, and other actions by the Democrats are clearly anti-business (Obamacare, environmental over-regulation), large multinational corporations like Boeing and GE have donated money to Democrats and generally profited from their political alliances with them. If Republicans want to make gains among (lower) middle-class voters, one of the things that could help is to convince voters that they are on the side of the people and not big corporations. The Ex-Im Bank reauthorization is a perfect opportunity to do just that. …Income redistribution is wrong especially when the money is going to big and profitable companies.

Ryan Ellis of Americans for Tax Reform agrees. Writing for Forbes, he looks at both the policy and politics of Export-Import Bank handouts.

The ExIm bank is an export subsidy program, giving money to certain companies…in the hopes that gives them a leg up in international trade.  It’s been criticized for decades by free traders and those who simply oppose corporate welfare spending out of Washington. …the ExIm bank will sunset on its own on September 30th.  All Congress has to do is let nature take its course, and this corporate welfare program simply goes away forever.

Sounds like we should have a guaranteed victory from free markets over intervention, right?

Don’t count your chickens before they hatch.  Ryan explains that Republicans may shoot themselves in the foot by trying to rescue this reprehensible example of cronyism.

Charging in at the last minute to save ExIm only makes the House GOP look beholden to K Street.  It also looks like they are flip-flopping from where they were back in the summer.  …ExIm reauthorization…is likely to take a GOP grassroots focused on President Obama’s failures and full of midterm election intensity, and turn them inward toward criticism of the House GOP leadership instead. If things go badly with this CR gambit, the House GOP will have given themselves a self inflicted wound just as they are trying to get out of town and not screw up what should be a good year for their candidates.

How nauseating.

I realize that the Export-Import Bank is a relatively minor issue and that I should mostly care about whether politicians do the right think on big topics such as entitlement reform. After all, that’s what really counts if we want to avoid fiscal catastrophe.

But I can’t stop myself from foaming at the mouth when self-proclaimed supporters of free markets undermine the argument for economic liberty with cronyist deals.

Obamacare is another example of big business being against free markets. We already know that the big pharmaceutical firms cut a special deal with the Obama White House.

The big insurance companies also had their snouts in the trough. Not only did they get legislation that mandated the purchase of their products, but they also got language that provides bailouts if they aren’t able to profit from Obamacare.

What’s really amazing, though, is that some Republicans are willing to go along with Obamacare bailouts for those major companies.

The good news is that Florida Senator Marco Rubio is in the right side. Here’s some of what he wrote about bailouts for health insurance companies for Fox News.

 …section 1342 of the ObamaCare law…established so-called “risk corridors”. According to this provision, taxpayers will make up the difference for health insurance companies whose plans lose money under ObamaCare. Last November, as it became clearer what this section of the law actually meant, I introduced legislation repealing it and protecting taxpayers from being forced to cover insurers’ ObamaCare losses. …In recent weeks, the public has learned that senior White House officials have been working closely with insurers behind the scenes to make sure that their earlier bailout deal, which helped assure ObamaCare’s passage in 2010, would stand and that a taxpayer-funded bailout was still, in fact, on the table. …On this ObamaCare bailout, as with so many issues, Washington politicians are misleading average Americans and planning to stick them with the bill. This is government favoritism and corporate cronyism at its worst. …It’s time to repeal and replace it, but at the very least, we should make it the law of the land that health insurers won’t be bailed out by taxpayers.

I’ll also add a moral argument.

As far as I’m concerned, I want the health insurance companies to suffer major losses. I want the business community to see that it’s a mistake to get in bed with big government.

Though I guess I’m actually making a practical argument. I may be motivated by morality, but the companies hopefully will do a cost-benefit analysis and decide that it’s too risky to strike deals with the political class.

By the way, Republicans often do the wrong thing because they’re afraid that voters favor the statist agenda of dependency.

But that’s not the case for Obamacare bailouts for health insurances companies. Here’s some polling data on the issue that showed up on my Twitter feed.

Let’s close by sharing some of what the editors at National Review wrote about both the Obamacare bailout and Export-Import Bank subsidies.

Congressional Republicans keep saying they oppose Obamacare. Yet they’re refusing to take the simplest and easiest action against it. …Some Republicans say that the insurance companies should not be penalized for the defects of the law. Why not? They have freely chosen to participate in the exchanges, and they should bear the risks of that decision — which include the risk that Congress might decide not to shovel tax dollars at them. The alternative, after all, is to punish taxpayers. …The debate over the Export-Import Bank is one test of Republican sincerity about ending corporate welfare. These taxpayer subsidies are another: If Republicans can’t take on corporate welfare when doing so advances one of their party’s most popular and basic commitments, when will they?

Amen. Both of these issues are tests for the GOP.

Actually, they should get added to a long list of issues that tell us whether Republicans have any sincerity (or brains) in the fight against statism.

o No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.

o To stop bailouts for Europe’s decrepit welfare states, no more money for the International Monetary Fund.

o Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.

o No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

P.S. If you’re in the mood for some dark humor, here’s the federal government’s satirical bailout application form.

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Maybe I’m biased because I mostly work on fiscal policy, but it certainly seems feasible to come up with rough estimates for the damage caused by onerous taxes and excessive spending.

On a personal level, for instance, we have a decent idea of how much the government takes from us and we know the aggravation of annual tax returns. And we tend to have some exposure to government bureaucracies, so we’re familiar with the concept of wasteful spending.

But how do you quantify the cost of regulation and red tape? Well, here are some very large numbers to digest.

Americans spend 8.8 billion hours every year filling out government forms.

The economy-wide cost of regulation is now $1.75 trillion.

For every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.

The Obama Administration added $236 billion of red tape in 2012 alone.

In other words, the regulatory burden is enormous, but I worry that these numbers lack context and that most of us don’t really grasp how we’re hurt by government intervention.

So let’s look at some additional data.

If nothing else, this video from the Mercatus Center will help you appreciate just how vast the regulatory state has become.

The video mentions a report with additional data. Well, here’s some of what’s in that report.

A recent study published in the Journal of Economic Growth found that between 1949 and 2005 the accumulation of federal regulations slowed US economic growth by an average of 2 percent per year. Had the amount of regulation remained at its 1949 level, 2011 gross domestic product (GDP) would have been about $39 trillion—or three and a half times—higher, which translates into a loss of about $129,300 for every person in the United States.

A 2005 World Bank study found that a 10-percentage-point increase in a country’s regulatory burdens slows the annual growth rate of GDP per capita by half a percentage point. Based on this finding, an increase in regulatory burdens can translate to thousands of dollars in lost GDP per capita growth in less than a decade.

Other economists have estimated that a heavily regulated economy grows two to three percent slower than a moderately regulated one.

According to a World Bank study, moving from the 25 percent most burdensome to the 25 percent least burdensome regulatory environment (as measured by the World Bank’s Doing Business index) can increase a country’s average annual GDP per capita growth by 2.3 percentage points.

Hopefully all those numbers drive home the point that our economy is weaker and our incomes are lower because of needless red tape.

And never forget that even small differences in growth add up to big differences in living standards after a few decades.

Want more evidence? This chart, also from Mercatus, gives us a good idea. Industries that are heavily regulated had far lower levels of productivity compared to industries with less red tape.

And remember that labor productivity helps determine wages, so both workers and investors suffer.

By the way, if you’re interested in the methodology, here’s some of the explanatory text that accompanied the graph.

Regulatory burden is measured using RegData, a text analysis tool that counts the number of binding words—“shall,” “must,” “may not,” “prohibited,” and “required”—that appear in the Code of Federal Regulations and cross-references those word counts with the industries to which they apply. Comparing this data to production-efficiency measures from the Bureau of Labor Statistics shows that industries that are subject to less regulation have significantly higher production-efficiency measures than industries that are subject to more regulation.

And here are some sobering numbers from the Competitive Enterprise Institute. They show that regulatory compliance costs are now larger than the costs – for both households and businesses – of obeying the income tax.

Maybe now you can fully appreciate this Nate Beeler cartoon.

Let’s close with some specific examples of regulation run amok.

First, Kevin Williamson of National Review writes about the deadly (no hyperbole) decision by the Food and Drug Administration to block additional patients from receiving a promising treatment for the Ebola virus.

When you are infected with Ebola, you are not very much worried about the possibility that you might get sick — you are sick, horrifyingly so, and mortally so in more than half of all cases. Worrying that your health might take an additional turn for the worse after you’ve been infected with Ebola is like noticing that your car’s check-engine light has come on a half-second after you’ve driven it over the rim of the Grand Canyon. And so the controversy over giving experimental Ebola drugs to two American aid workers, Kent Brantly and Nancy Writebol, and whether to extend the same option to dying people in Africa, is a strange one. …the drugs should be released, but the World Health Organization is hearing none of it. The experimental Ebola serum, which has shown promise in tests on monkeys but has not been through human trials, may very well have saved the two aid workers’ lives. The serum, called ZMapp, is a project of Mapp Pharmaceutical of San Diego — one of those wicked pharmaceutical companies that are a favorite whipping-boy of health-care reformers while they are quietly working to save the world — in collaboration with Dreyfus Inc. and U.S. and Canadian health agencies. Mapp seems ready and willing to get moving: “Mapp and its partners are cooperating with appropriate government agencies to increase production as quickly as possible,” the firm said in a statement. But use of ZMapp remains “under the regulatory guidelines of the FDA.” An American firm with a potentially life-saving drug is allowed to administer it to two Americans, while 1,600 or more Africans are denied… Ebola experts including Peter Piot, the discoverer of the virus, argue that African doctors and patients should be given the same choice that was given to Kent Brantly and Nancy Writebol. He’s right.

The Ebola episode, isn’t an isolated example.

It isn’t just Africa, of course. Every year, Americans in the late stages of terminal illnesses are denied access to experimental treatments by the FDA, on the theory that untested drugs might make these dying people sick. The agency’s “compassionate use” program, which gives some leeway in the use of unapproved drugs, is cumbrous and narrow, and, like most regulatory programs, is much more oriented toward the FDA’s institutional interests than those of the sick and dying people the program allegedly is there to serve. The FDA is not there to look after Americans’ health; the FDA is there to look after the FDA.

And that can have deadly consequences for sick people.

Here’s a story, from Washington’s Freedom Foundation, about the Forest Service using its regulatory power to abuse a disabled veterans.

The story began about four years ago, when a small rock slide covered the entrance portal to Nicholas’ mine and, based on Forest Service rules and bureaucratic obstruction, he was forbidden to clear the slide debris with heavy equipment.  In addition to inventing new excuses and red tape to delay Nicholas’ rightful access to his claim, the agency also decided to seize his trailer and related equipment located at his mine, valued at $68,000.  …The USFS managers were very capable of inventing new justifications, excuses and delays to pick on Nicholas, and they apparently had plenty of time and energy to do this.

Fortunately, we have a happy ending.

While the Forest Service was denying Nicholas the ability to access his equipment with a backhoe because it might disturb spotted owls or cause some other imaginary terrible event, they admitted they could not prevent Nicholas from removing the small debris slide by hand. The bureaucrats appeared to think this was amusing because they knew Tony was disabled, and he wasn’t physically able to move these rocks.  They never considered that his neighbors would come to Nicholas’ aid and move tons of rocks for him.  This is exactly what happened in late June when – led by Manweller, 50 volunteers showed up at the Liberty Café in Cle Elum, drove up to Nicholas’ mine claim and moved many of the rocks.

I’m glad things worked out, but who would have thought the Forest Service would behave so poorly?

Then again, we recently learned that the Park Service was filled with spiteful bureaucrats.

Here’s one final example of ludicrous regulation, this time from Nebraska.

Massage a horse, go to jail. That’s the absurd fate Karen Hough could face if she wants to continue her business in Nebraska. A certified instructor, Karen has been massaging horses for years. …Earlier this year, she applied for a license in equine massage but was told only veterinarians can become licensed. A 2007 memo from Nebraska’s Board of Veterinary Medicine and Surgery asserted that “no health professional other than licensed veterinarians and licensed veterinary technicians may perform services/therapies on animals.” This means Karen would need to spend thousands of dollars and seven years of her life just to acquire a government permission slip to do what she’s been doing for years. A few weeks later, she received a letter from Nebraska’s Department of Health and Human Services ordering her to “cease and desist” from the “unlicensed practice of veterinary medicine.” In Nebraska, continuing to operate a business without a license after getting a cease and desist letter is a Class III felony. So Karen could face up to 20 years in prison and pay a $25,000 fine. By comparison, that’s the same penalty for manslaughter in the Cornhusker State. What’s worse, under Nebraska state law, she can’t even give out advice on how to massage horses: “They told me I couldn’t give massages for money; I couldn’t do it for free and I couldn’t even tell friends how to do it. That last one really got to me. To me, that is restricting my free speech.”

I confess that horse massaging sounds as odd as getting a psychologist for your cat, but maybe I’m behind the times.

Regardless, it’s absurd that you could get thrown in jail for rubbing a horse!

Or for selling milk. Or transporting a bagpipe.

As Joe Biden said, it’s time to take back America.

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I’ve already shared a bunch of data and evidence on the importance of low tax rates.

A review of the academic evidence by the Tax Foundation found overwhelming support for the notion that lower tax rates are good for growth.

An economist from Cornell found lower tax rates boost GDP.

Other economists found lower tax rates boost job creation, savings, and output.

Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance.

And it’s become apparent, with even the New York Times taking notice, that high tax rates drive away high-achieving people.

We’re going to augment this list with some additional evidence.

In a study published by a German think tank, three economists from the University of Copenhagen in Denmark look at the impact of high marginal tax rates on Danish economic performance.

Here’s what they set out to measure.

…taxation distorts the functioning of the market economy by creating a wedge between the private return and the social return to a reallocation of resources, leaving socially desirable opportunities unexploited as a result. …This paper studies the impact of taxation on the mobility and allocation of labor, and quantifies the efficiency loss from misallocation of labor caused by taxation. …labor mobility responses are fundamentally different from the hours-of-work responses of the basic labor supply model… Our analysis builds on a standard search theoretic framework… We incorporate non-linear taxation into this setting and estimate the structural parameters of the model using employer-employee register based data for the full Danish population of workers and workplaces for the years 2004-2006. The estimated model is then used to examine the impact of different changes in the tax system, thereby characterizing the distortionary effects of taxation on the allocation of labor.

They produced several sets of results, including a look at the additional growth and output generated by moving to a system of lump-sum taxation (which presumably eliminates all disincentive effects).

But even when they looked at more modest reforms, such as a flat tax with a relatively high rate, they found the Danish economy would reap significant benefits.

…it is possible to reap a very large part of the potential efficiency gain by going “half the way”and replace the current taxation with a ‡at tax rate of 30 percent on all income. This shift from a Scandinavian tax system with high marginal tax rates to a level of taxation in line with low-tax OECD countries such as the United States increases total income by 20 percent and yields an efficiency gain measured in proportion to initial income of 10 percent. …a transition from a Scandinavian system with high marginal taxes to a system along the lines of low-tax OECD countries such as the United States. This reduces the rate of non-employment by around 10 percentage points, increases aggregate income by almost 20 percent (relative to the Scandinavian income level), and gives an efficiency gain measured in proportion to income of 9.9 percent. Thus, almost 80 percent of the efficiency loss from marginal taxation (9.7% divided by 12.4%) would be eliminated by shifting from a Scandinavian tax system to the system of a low-tax OECD country according to these estimates.

The authors also confirmed that lower tax rates would generate revenue feedback. In other words, the Laffer Curve exists.

We may also use the reform experiment to compute the marginal excess burden of taxation as described above. When measured in proportion to the mechanical loss of tax revenue, we obtain an estimate of 87 percent. …this estimate also corresponds to the degree of self-financing of the tax cut. Thus, the increase in tax revenue from the behavioral response is 87 percent of the mechanical loss in tax revenue.

Too bad we can’t get the Joint Committee on Taxation in Washington to join the 21st Century. Those bureaucrats still base their work on the preposterous assumption that taxes have no impact on overall economic performance.

Since we just looked at a study of the growth generated by reducing very high tax rates, let’s now consider the opposite scenario. What happens if you take medium-level tax rates and raise them dramatically?

The Tax Foundation looks at precisely this issue. The group estimated the likely results if lawmakers adopted the class-warfare policies proposed by Thomas Piketty.

Piketty suggests higher taxes on the wealthiest among us. He calls for a global wealth tax, and he recommends establishing a top income tax rate of 80 percent, with a next-to-top income tax rate of 50 or 60 percent for the upper-middle class. …This study…provides quantitative estimates of what his proposed tax rates would mean for capital formation, jobs, the level of income, and government revenue. This study also estimates how Piketty’s proposed income tax rates would affect the distribution of income in the United States.

Piketty, of course, thinks that even confiscatory levels of taxation have no negative impact on economic performance.

Piketty claims people (or at least the upper-income people he would tax so heavily) are totally insensitive to marginal tax rates. In his world view, upper-income taxpayers will work and invest just as much as before even if dramatically higher taxes reduce their after-tax rewards to a fraction of what they were previously. …Piketty’s vision of the world strains credulity.

When the Tax Foundation crunched the numbers, though, its experts found that Piketty’s proposal would be devastating.

Under Piketty’s 55 and 80 percent tax brackets, people in the new, ultra-high tax brackets will work and invest less because they will be able to keep so little of the reward from the last hour of work and the last dollar of investment. …As the supplies of labor and capital in the production process decline, the economy’s output will also contract. Although it is only people with upper incomes who will directly pay the 55 and 80 percent tax rates, people throughout the economy will indirectly bear some of the tax burden. For example, the average person’s wages will be lower than otherwise because middle-income workers will have less equipment and software to enhance their productivity, and wages depend on productivity. Similarly, people throughout the economy will have fewer employment opportunities and will lose desirable goods and services, because businesses will grow more slowly and be less innovative.

The magnitude of the damage would depend on whether the higher tax rates also applied to dividends and capital gains. Here’s what the Tax Foundation estimated would happen to the economy if dividends and capital gains were not hit with Piketty-style tax rates.

These are some very dismal numbers.

But now look at the results if tax rates also are increased on dividends and capital gains. The dramatic increase in double taxation (dwarfing what Obama wanted) would have catastrophic consequences for overall investment (the “capital stock”). This would lead to a big loss in jobs and a dramatic reduction in overall economic output.

The Tax Foundation then measures the impact of these policies on the well-being of people in various income classes.

Needless to say, upper-income taxpayers suffer substantial losses. But the rest of us also suffer as well.

…the poor and middle class would also lose. They would suffer a large, but indirect, tax burden as a result of the smaller economy. Their after-tax incomes would fall over 3 percent if capital gains and dividends retain their current-law tax treatment and almost 17 percent if capital gains and dividends are taxed like ordinary income.

And since I’m sure Piketty and his crowd would want to subject capital gains and dividends to confiscatory tax rates, the 17 percent drop is a more realistic assessment of their economic agenda.

Though, to be fair, Piketty-style policies would make society more “equal.” But, as the Tax Foundation notes, some methods of achieving equality are very bad for lower-income people.

…a reasonable question to ask is whether a middle-income family is made better off if their income drops 3.2 percent while the income of a family in the top 1 percent drops 21.0 percent, or their income plummets 16.8 percent while the income of a family in the top 1 percent plummets 43.3 percent.

Of course, if Margaret Thatcher is correct, the left has no problem with this outcome.

But for those of us who care about better lives for ordinary people, this is confirmation that envy isn’t – or at least shouldn’t be – a basis for tax policy.

Sadly, that’s not the case. We’ve already seen the horrible impact of Hollande’s Piketty-style policies in France. And Obama said he would be perfectly content to impose higher tax rates even if the resulting economic damage is so severe that no additional revenue is collected.

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The Export-Import Bank is noxiously corrupt example of crony capitalism.

It never should have been created. But that’s something we could say about most government programs.

So the real question is how to reverse the damage.

If we reform a big program such as Medicare, you can’t end it overnight. You have to deal with the reality that millions of people have made plans based on government policies. And even if those policies are wrong, you can’t pull the rug out from folks who did nothing wrong.

So it’s important to put in place appropriate and fair transitions when reforming a major program.

But that’s not an issue with the Export-Import Bank. It provides undeserved subsidies to big companies. Those big companies will be just fine without having their snouts in the public trough. The right thing to do, from both a moral and economic perspective, is to shut it down immediately.

Indeed, this should be a test as to whether supposedly pro-taxpayer politicians in Washington understand the critical difference between being pro-business and being pro-market.

But what about the argument that the Export-Import Bank is somehow a win-win for the American economy? I tend to automatically dismiss such claims for the simple reason that all sorts of companies in the private sector would do what the Ex-Im Bank is doing if it really was a money maker.

But with the issue heating up, it would be a good idea to examine this claim more closely. Fortunately, Matt Mitchell (no relation) of the Mercatus Center does an excellent job of explaining the dodgy economics of the Ex-Im Bank is this short video.

In some sense, Matt is channeling Frederic Bastiat, the great French thinker who said that a good economist looks at both direct and indirect consequences of policies (the “seen” and the “unseen”).

Matt shows that the negative indirect impact of the Ex-Im Bank is far larger than any putative benefits generated by handouts to politically well-connected firms.

Just like bailouts, s0-called stimulus, and green-energy programs all look bad when you examine all the costs and benefits.

For more information, I also recommend this superb video on why cronyism is so corrosive.

And if you want a humorous analysis, scroll to the bottom of this post and see what the Kronies have to say about the Ex-Im Bank.

Or just enjoy this Glenn Foden cartoon.

P.S. I shared six jaw-dropping examples of left-wing hypocrisy last month.

But maybe it’s time to create a special Hypocrisy Hall of Fame, because the Wall Street Journal reveals that we another member who would be a shoo-in for the award.

It seems that Warren Buffett was not being terribly sincere or honest when he said people like him should be paying higher taxes.

Now this is awkward for President Obama and Senate Democrats. …Warren Buffett’s Berkshire Hathaway is expected to help finance Burger King’s  pending acquisition of Canadian doughnut-chain Tim Hortons. The deal will allow Miami-based Burger King to claim Canada as its new legal home for tax purposes. Beltway Democrats had been hoping to use a recent wave of such corporate inversions as a campaign tool. The idea was to propose new taxes on the companies that move. Step two was to beat up Republicans who don’t agree to make the free world’s most punitive corporate tax system even more punitive. But now that Democratic tax hero Mr. Buffett has been spotted surfing on top of this wave, the political challenge has become more difficult.

Sort of makes you wonder whether Buffett endorses higher taxes for the self-interested reason that the political class will then give him a free pass on issues such as the Burger King inversion?

Shocking, just shocking, to think that rich leftists are hypocrites.

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Remember when Paul Krugman warned that there was a plot against France? He asserted that critics wanted to undermine the great success of France’s social model.

I agreed with Krugman, at least in the limited sense that there is a plot against France. But I explained that the conspiracy to hurt the nation was being led by French politicians.

Simply stated, my view has been that the French political elite have been taxing the nation into stagnation and decline and there is every reason to think that the nation is heading toward a severe self-inflicted fiscal crisis.

But it turns out I may have been too optimistic. Let’s look at some updates from Krugmantopia.

We’ll start with a report from the Financial Times, which captures the nation’s sense of despair.

…if the country’s embattled socialist president was hoping for some respite from what has been a testing year, he can probably think again. … the French economy barely expanded during the second quarter of this year after stagnating in the first. …the result will make it all but impossible to achieve the government’s growth forecast for 2014 of 1 per cent… Bruno Cavalier, chief economist at Oddo & Cie, the Paris-based bank, says one reason is the huge constraint on disposable income posed by France’s tax burden, which has risen from 41 per cent of GDP in 2009 to 45.7 per cent last year – one of the highest in the eurozone.

The government has responded by rearranging the deck chairs on the political Titanic.

French President Francois Hollande dissolved the government on Monday after open feuding among his Cabinet over the country’s stagnant economy. …France has had effectively no economic growth this year, unemployment is hovering around 10 percent and Hollande’s approval ratings are sunk in the teens. …Hollande’s promises to cut taxes and make it easier for businesses to open and operate have stalled, in large part because of the divisions among his Socialist party.

For what it’s worth, Hollande’s commitment to tax cuts and deregulation is about as sincere and genuine as my support for the Florida Gators.

After all, he’s the guy who imposed a new top tax rate of 75 percent (which he said was “patriotic”)

And that’s just the personal income tax. When you add other taxes to the mix, you get a system that is so onerous that more than 8,000 households paid more than 100 percent of their income to the French government!

No wonder successful people are escaping to other nations.

By the way, if you’re wondering why Hollande is appointing new people to his government, it’s because some of his ministers were complaining that so-called austerity was inhibiting Keynesian spending policies that would make government even bigger!

Austerity measures being pursued by France and elsewhere in the euro zone are quashing growth, FrenchEconomy Minister Arnaud Montebourg was quoted saying on Saturday… The outspoken minister, a fierce critic of budget austerity, is known for frequent attacks on big business and the European Commission, which he accuses of strangling economic recovery with its prioritization of deficit reduction. …While not as strident as the comments by Montebourg, French Finance Minister Michel Sapin similarly argued for moderated deficit reduction in an interview published in Italian newspaper La Repubblica. “The euro zone is at risk of getting stuck in a spiral of weak or negative growth. We absolutely must slow down the rate of deficit reduction,” Sapin was quoted as saying.

In other words, the French policy debate is between the far left and the crazy left.

Which is why this dour assessment from across the English Channel probably understates the depth of the problem.

Since Francois Hollande was elected President in 2012, French GDP per capita has fallen. Its economy is expected to grow by just 0.7 per cent this year. …the country now looks set for stagnation – with its unemployment rate entrenched above 10 per cent (and youth unemployment double that). …the problems are obvious. The French government accounts for a massive 57.1 per cent of the economy in state spending and transfers. The tax burden is so high at 57 per cent for French employees (the sum of income, payroll taxes, VAT, and social security contributions as a proportion of the gross employment cost)… The World Economic Forum says that France is near the worst performer on a host of measures: positioned 130 out of 148 countries for its regulatory burden, 134 for the tax rates on profits, 135 on cooperation in labour-employer relations, and 144 on hiring and firing practices. …No wonder investors have voted with their wallets. FDI into France is estimated to have fallen by 95 per cent in the last decade.

Wow. No wonder the French people are so glum about the economy, as reported by the EU Observer.

…in France, the eurozone’s second biggest economy, eight percent felt the country’s economy was good. …Only 34 percent feel the jobs crisis has peaked compared with 60 percent who are bracing themselves for a darker economic future.

Which raises a good question. If the French people are so pessimistic about the future, why do they keep electing socialists?!?

Particularly when they tell pollsters they support smaller government!

Last but not least, we have a story from the New York Times about the mind-boggling regulation and protectionism that , mostly because it illustrates the pervasive statism that is strangling France.

Alexandre Chartier and Benjamin Gaignault work off Apple computers and have no intention of ever using the DVD player tucked in the corner of their airy office. But French regulations demand that all driving schools have one, so they got one. Mr. Chartier, 28, and his partner, Mr. Gaignault, 25, are trying to break into the driving school business here… But they are not having an easy time. The other driving schools have sued them, saying their innovations break the rules. …their struggle highlights how the myriad rules governing driving schools — and 36 other highly regulated professions — stifle competition and inflate prices in France.

And what are these rules and regulations, other than the bizarre requirement to own a DVD player?

“The system is absurd,” said Mr. Koenig, who was a speechwriter for Christine Lagarde when she was the French finance minister. …he has been campaigning for changes, including calling for an overhaul of the written test, which he says goes far beyond making sure that a person knows the rules of the road. Instead, he said, it seems intended to trip students up with ridiculous questions, such as: If you run headlong into a wall, would you be safer if you were in a tank or in a car? (The answer: a car, because it has air bags.) …Some studies have concluded that the French are probably paying 20 percent more than they should for the services they get from regulated professions, which include notaries, lawyers, bailiffs, ambulance drivers, court clerks, driving instructors and more. …Francis Kramarz, an economist who has studied the French licensing system, says that barriers to getting a license are so high that about one million French people, who should have licenses, have never been able to get them. …Mr. Kramarz said that it often costs 3,000 euros, or about $3,900, to get a license. But others said the average was closer to 1,500 to 2,000 euros.

Gee, isn’t big government wonderful!

The statists say it helps the less fortunate, but it seems the poor are the ones most hurt by regulations that push the cost of getting a license to $2,000 or above.

P.S. In an uncharacteristic expression of mercy, President Hollande has announced that he wants to limit the fiscal burden so that no taxpayer has to surrender more than 80 percent  of their income to the government.

P.P.S. No wonder Obama will never make America as bad as France, regardless of how hard he tries.

P.P.P.S. Here’s the best-ever cartoon about French economic policy, though this cartoon deserves honorable mention.

P.P.P.P.S. Even the establishment, as indicated by stories in Newsweek and the New York Times (as well as The Economist and the BBC), is noticing that the French economy is dismal.

P.P.P.P.P.S. No matter how much I mock France, there are places in Europe with even worse economic policy.

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It’s remarkable to read that European politicians are agitating to spend more money, supposedly to make up for “spending cuts” and austerity.

To put it mildly, their Keynesian-based arguments reflect a reality-optional understanding of recent fiscal policy on the other side of the Atlantic.

Here’s some of what Leonid Bershidsky wrote for Bloomberg.

Just as France’s and Italy’s poor economic results prompt the leaders of the euro area’s second and third biggest economies to step up their fight against fiscal austerity, it might be appropriate to ask whether they even know what that is.

An excellent question. As I’ve already explained, austerity is a catch-all phrase that includes bad policy (higher taxes) and good policy (spending restraint).

But with a few notable exceptions, European nations have been choosing the wrong kind of austerity (even though Paul Krugman doesn’t seem to know the difference).

As a result, the real problem of bloated government keeps getting worse.

Government spending in the European Union, and in the euro zone in particular, is now significantly higher than before the 2008 financial crisis. …Among the 28 EU members, public spending reached 49 percent of gross domestic product in 2013, 3.5 percentage points more than in 2007.

Here’s a chart showing how the burden of government spending has become more onerous since 2007.

As you can see, all the big nations of Western Europe have moved in the wrong direction.

Only a small handful of countries in Eastern Europe that have trimmed the size of the public sector.

Bershidsky does explain that the numbers today are slightly better than they were at the peak of the economic downturn, though not because of genuine fiscal restraint.

The spending-to-GDP-ratio first ballooned by 2009, exceeding 50 percent for the EU as a whole, and then shrank a little… That, however, was not the result of government’s austerity efforts: Rather, the spending didn’t go down as much as the economies collapsed, and then didn’t grow in line with the modest rebound.

Here are some examples he shared.

I suppose France deserves a special shout out for managing to expand the size of government between 2009 and 2013. That’s what you call real commitment to statism!

The article also cites an example that is both amusing and tragic, at least in the sense that there’s no genuine seriousness about reforming hte public sector.

Even when spending cuts are made…, the whole public spending system’s glaring inadequacy is not affected. …The ushers at the Italian Parliament, whose job is to carry messages in their imposing gold-braided uniforms, made $181,590 a year by the time they retired, but will only make as much as $140,000 after Renzi’s courageous cut. If you wonder what on earth could be wrong with getting rid of them altogether and just using e-mail, you just don’t get European public expenditure.

I particularly embrace Bershidsky’s conclusion.

There is no rational justification for European governments to insist on higher spending levels than in 2007. The post-crisis years have shown that in Italy, and in the EU was a whole, increased reliance on government spending drives up sovereign debt but doesn’t result in commensurate growth. The idea of a fiscal multiplier of more than one — every euro spent by the government coming back as a euro plus change in growth — obviously has not worked. In fact, increased government interference in the economy, in the form of higher borrowing and spending as well as increased regulation, have led to the shrinking of private credit.  …Unreformed government spending is a hindrance, not a catalyst for growth.

Amen.

Politicians will never want to hear this message, but government spending undermines economic performance by diverting resources from the the economy’s productive sector.

Here’s my video on the theoretical evidence against government spending.

And here’s the video looking at the empirical evidence against excessive spending.

P.S. Other Europeans who have correctly analyzed Europe’s spending problem include Constantin Gurdgiev and Fredrik Erixon.

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I’ve shared horror stories about government thuggery and I’ve shared horror stories about government stupidity.

Thanks to Mark Steyn, we have a story that exemplifies both the brain-dead nature of the public sector and the nasty nature of our bureaucratic overlords.

You may have read about the federal milk police. Well, here’s some of what Mark wrote about the Kafkaesque legal regime the federal government maintains for people who want to cross the border with….drugs? no…weapons? no…biological agents? no, nothing like that. We’re talking about  bagpipes.

…17-year-old Campbell Webster and Eryk Bean, of Concord and Londonderry, New Hampshire – understood that if you go to a highland fling a couple of hours north in Quebec you’re now obligated to get your bagpipes approved by US Fish & Wildlife. …So Messrs Webster and Bean got their CITES certificate and presented it to the US CBP agent at the Vermont border crossing. Whereupon he promptly confiscated their bagpipes on the grounds that, yes, their US Fish & Wildlife CITES paperwork was valid, but it’s only valid at 28 ports of entry and this wasn’t one of them. Nor is any other US/Canadian land crossing.

Geesh, those poor kids. Their valuable instruments get stolen by the keystone cops simply because the feds arbitrarily decided that federal government paperwork is only accepted at certain federal government outposts.

By the way, bagpipes apparently get all this unwanted attention because some older instruments have components that are made of ivory, and that’s verboten under environmental laws.

Anyhow, you won’t be surprised to learn that the petty paper pusher who confiscated the bagpipes is also a total jerk.

When the CBP agent seized Messrs Webster and Bean’s bagpipes, he told them – with the characteristic insouciance of the thug bureaucracy – that they were “never going to see them again”. But thanks to the unwelcome publicity the Homeland Security mafiosi were forced to cough ‘em up.

But the story doesn’t end here.

The kids apparently are quite the experts with their bagpipes and they’ll be competing in a contest in Scotland.

Mark explains the preposterous steps they’ll have to go through when they return.

The two pipers are now heading to a competition in Scotland. So they’ll be flying back via Boston, which is one of those 28 valid ports of entry. They’ve called Fish & Wildlife to arrange for the mandatory “inspection” of the bagpipes upon landing at Logan Airport. Unfortunately, the official Fish & Wildlife bagpipes inspector is taking a day off that day…she won’t be available to inspect the pipes. So she’s told them they’ll have to drive back to New Hampshire and then drive back to Logan the following day for the Fish & Wildlife bagpipes inspection. So…the bagpipers will have to take a day off on Thursday – just to comply with the diktats of the Department of Paperwork. … Every time you take a bagpipe in and out of the United States it’s a $476* round-trip fee.

Why can’t the bagpipe police simply give them some piece of paper saying their instrument have been deemed kosher? This is sort of like having to apply for a passport each and every time you travel outside America.

And notice that the federal government is charging the kids an inspection fee for the privilege of being harassed!

Sort of like getting an “aviation security fee” added to your airfare to finance the TSA’s patdowns of grandmothers.

Mark has a very dour summary, basically saying that the bagpipe police are a depressing illustration of the loss of freedom to the regulatory state.

Demanding a CITES certificate for bagpipes is a burden upon free-born citizens. Restricting the paperwork’s validity to only 28 ports of entry is an unduly onerous burden. Requiring the bagpipers to come back on the Wednesday to those 28 ports of entry because the inspector’s washing her hair on the Tuesday is an even more onerous and insulting burden. And charging an American $476 to play his bagpipe in Montreal is a shakedown racket unacceptable in a free society. …America is economically sclerotic because it’s being hyper-regulated to death.

P.S. Excerpts from some of my other favorite Mark Steyn columns can be read here, here, here, here, here, here, here, and here.

P.S. On a completely separate topic, here’s a brutal example of anti-Obama humor.

Ouch. Sort of like the Obama-Putin humor at the bottom of this blog post.

But I also share Obama humor where I sympathize with the President.

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