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Archive for the ‘Rankings’ Category

Divided government is good for America’s economy.

Or, to be more specific, divided government is a net plus if the alternative is to have statists fully in charge of economic policy.

I made this point back in 2012 when I pointed out that the unemployment rate started falling after Republicans captured the House of Representatives, and we got further good results when gridlock led to an end to extended unemployment benefits, first in North Carolina and then the entire country.

We also see positive evidence in the new rankings from the Fraser Institute’s Economic Freedom of the World, which was published this week.

As you can see from this chart, the United States fell in 2010 to #18 in this global ranking of economic liberty, but now America has improved to #12.

That’s still far below our #3 ranking when Bill Clinton left office, so we’re still paying a high price for the statist policies of both Bush and Obama, but at least we’re finally moving back in the right direction.

If you look at the underlying data, you can see why America’s score has increased since 2010.

There was a slight improvement in the scores for trade and regulation, but that was offset by declines in the scores for monetary policy and property rights.

Fiscal policy is the area where there was a significant improvement for the United States, which matches with my data showing that sequestration and the Tea Party made a big difference by significantly slowing the growth of government spending.

But the improvement over the past two years, as noted above, is small compared to the decline in the previous 10 years.

Here’s how Economic Freedom of the World describes America’s fall.

The 7.81 chain-linked rating of the United States in 2012 is more than 8/10 of a point lower than the 2000 rating. What accounts for the US decline? While US ratings and rankings have fallen in all five areas of the EFW index, the reductions have been largest in the Legal System and Protection of Property Rights (Area 2)… The plunge in Area 2 has been huge. In 2000, the 9.23 rating of the United States was the 9th highest in the world. But by 2012, the area rating had plummeted to 6.99, placing it 36th worldwide. …the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case have weakened the tradition of strong adherence to the rule of law in United States. …To a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized, and heavily policed state.

Geesh, we’re becoming another Argentina.

Looking at the big picture, a falling score is not a trivial issue.

The decline in the summary rating between 2000 and 2012 on the 10-point scale of the index may not sound like much, but scholarly work on this topic indicates that a one-point decline in the EFW rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually (Gwartney, Holcombe, and Lawson, 2006). This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.

Amen. This is why I worry so much about the corrosive impact of big government.

Now let’s look at the overall ratings for all nations. The chart is too large to show all nations, so here are the nations with the most economic freedom.

You shouldn’t be surprised to see that Hong Kong and Singapore own the top two spots.

Other nations with very high scores include New Zealand, Switzerland, Mauritius, UAE, Canada, Australia, Jordon and Chile.

Getting a good score today, however, is no guarantee of getting a good score in the future.

I’ve already expressed concern about Australia moving in the wrong direction, but I’m even more worried about Chile. That nation’s socialist President is making very bad moves on fiscal policy, and also is trying to undermine her country’s very successful system of school choice.

But it would take a lot of bad policy for Chile to drop down to the level of Venezuela, which has the dubious honor of being in last place.

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My colleagues Chris Edwards and Nicole Kaeding have just released the biennual Fiscal Policy Report Card on America’s Governors from the Cato Institute.

The Report Card is one of the Cato Institute’s most impressive publications since developments on the state level help illustrate the relationship between good fiscal policy and economic performance.

The top scores were earned by Pat McCrory of North Carolina and Sam Brownback of Kansas. Both have taken steps to significantly reduce marginal tax rates and restrain the burden of state government spending in their states.

Here are all the scores. Paul LePage of Maine and Mike Pence of Indiana also earned high marks, while the governors of Minnesota, Oregon, Delaware, Washington, Illinois, Massachusetts, Colorado, and Calfornia all received failing grades.

Here some of what Chris and Nicole wrote for National Review about the results of their research .

Let’s start with the good news.

Pat McCrory of North Carolina signed a bill replacing individual-income-tax rates of 6.0, 7.0, and 7.75 percent with a single rate of 5.75 percent. He also cut the corporate-tax rate from 6.9 to 5.0 percent and repealed the estate tax. Sam Brownback of Kansas approved a plan in 2012 replacing three individual-income-tax rates with two and cutting the top rate from 6.45 to 4.9 percent. The reform also increased the standard deduction and reduced taxes on small businesses. Brownback cut income-tax rates further in 2013.

Now for the not-so-good news.

…all eight governors earning an “F” were Democrats. …Jerry Brown of California and Pat Quinn of Illinois, for example, earned “F” grades for their large tax hikes.

If you look at the data on state spending, Governor Brownback of Kansas and Governor Bentley of Alabama both got high scores of 85, largely because per-capita spending fell during their tenure.

Governor Kasich of Ohio did the worst job on spending (why am I not surprised), getting a low score of 16 (Governor Abercrombie of Hawaii and Governor Hickenlooper of Colorado were the next lowest, both “earning” a score of 22).

Interestingly, the left is very anxious to undermine the achievements of America’s best governors.

I’ve previously defended the pro-growth reforms to unemployment insurance adopted by Governor McCrory of North Carolina.

And now let me take this opportunity to defend Governor Brownback of Kansas.

The New York Times is desperately hoping he loses his reelection bid since that might dissuade other state policy makers from enacting good reforms.

Mr. Brownback’s proudly conservative policies have turned out to be so divisive and his tax cuts have generated such a drop in state revenue that they have caused even many Republicans to revolt. …it is unsurprising that many Kansas Republicans have turned on Mr. Brownback. This is a state that once had a tradition of centrist Republicans, like former Senator Bob Dole… More than 100 current and former Republican elected officials have endorsed Mr. Davis.

The Wall Street Journal, however, points out that the anti-Brownback GOPers are largely sore losers.

…many of the “Republicans” on the list are in fact independents who long ago defected from the GOP. …six state Senators whom tea-party groups ousted in 2012 for obstructing tax and government reforms are supporting Mr. Davis.

What really matters, though, is that Governor Brownback’s reforms are designed to rejuvenate a state economy that has lagged its neighbors.

Here are some details from another WSJ editorial.

By liberal accounts Kansas is experiencing a major fiscal and economic meltdown like well, you know, Illinois. …But some early economic indicators suggest they may be producing modest positive effects. The danger is that a coalition of Democrats and big-spending Republicans will pull out the rug before the benefits fully materialize.

What are those benefits?

Well, it’s still early, but the preliminary results are positive.

Kansas has long trailed its neighbors in private job and economic growth. …All of Kansas’s surrounding states save Nebraska had lower top tax rates, and most also had lower unemployment. …Since the tax cuts took effect, the gap in job creation between Kansas and neighboring states has shrunk. Kansas’s rate of private job growth between January 2013 and June 2014 averaged 167% of that in Nebraska, 105% of Iowa and 61% in Oklahoma. That compares to 61%, 85% and 42%, respectively, between 2004 and 2012. While Kansas added jobs at a slower pace than Missouri this year, its private economy grew more than twice as fast as its eastern neighbor last year.

Statists are grousing about lower-than-expected revenues, but their command of the facts leaves something to be desired.

Tax-reform critics complain that revenues (as expected) declined this year and that receipts were $235 million—or about 4%—below the state’s estimate last year. However, predicting revenues was particularly challenging this year because federal tax changes encouraged investors to shift income to 2012 from 2013. Revenues missed the mark in numerous states including Iowa ($185 million; 3%), Missouri ($308 million; 4%) and Oklahoma ($283 million; 5%).

And here’s some analysis from Reason.

While The New York Times denounces as “ruinous” the Kansas tax cut, it is sitting in a state, New York, with a top rate of 8.82 percent. If all the government spending paid for by those high taxes were the panacea that the Times claims it is, you might expect New York to have a lower unemployment than Kansas. But check the numbers, and Kansas’s seasonally adjusted unemployment rate for June was a low 4.9 percent, while New York’s was 6.6 percent. “Ruinous,” indeed.

Given the high stakes, it will be very interesting to see whether Brownback is reelected next month.

Same with Scott Walker of Wisconsin (who, by the way, earned a B), who got national attention for his efforts to rein in the privileged position of state bureaucrats and Pat Quinn of Illinois (who got an F), who attracted a lot of attention for his destructive tax hikes.

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I’ve complained over and over again that America’s tax code is a nightmare that undermines competitiveness and retards growth.

Our aggregate fiscal burden may not be as high as it is for many of our foreign competitors, but high tax rates and poor design mean the system is very punitive on a per-dollar-raised basis.

For more information, the Tax Foundation has put together an excellent report measuring international tax competitiveness.

Here’s the methodology.

The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures the degree to which the 34 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. …No longer can a country tax business investment and activity at a high rate without adversely affecting its economic performance. In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement. …The competitiveness of a tax code is determined by several factors. The structure and rate of corporate taxes, property taxes, income taxes, cost recovery of business investment, and whether a country has a territorial system are some of the factors that determine whether a country’s tax code is competitive.

And here’s how the United States ranks.

The United States provides a good example of an uncompetitive tax code. …the United States now has the highest corporate income tax rate in the industrialized world. …The United States places 32nd out of the 34 OECD countries on the ITCI. There are three main drivers behind the U.S.’s low score. First, it has the highest corporate income tax rate in the OECD at 39.1 percent. Second, it is one of the only countries in the OECD that does not have a territorial tax system, which would exempt foreign profits earned by domestic corporations from domestic taxation. Finally, the United States loses points for having a relatively high, progressive individual income tax (combined top rate of 46.3 percent) that taxes both dividends and capital gains, albeit at a reduced rate.

Here are the rankings, including scores for the various components.

You have to scroll to the bottom to find the United States. It’s embarrassing that we’re below even Spain and Italy, though I guess it’s good that we managed to edge out Portugal and France.

Looking at the component data, all I can say is that we should be very thankful that politicians haven’t yet figured out how to impose a value-added tax.

I’m also wondering whether it’s better to be ranked 32 out of 34 nations or ranked 94 out of 100 nations?

But rather than focus too much on America’s bad score, let’s look at what some nations are doing right.

Estonia – I’m not surprised that this Baltic nations scores well. Any country that rejects Paul Krugman must be doing something right.

New Zealand – The Kiwis can maintain a decent tax system because they control government spending and limit government coercion.

Switzerland – Fiscal decentralization and sensible citizens are key factors in restraining bad tax policy in Switzerland.

Sweden – The individual income tax is onerous, but Sweden’s penchant for pro-market reform has helped generate good scores in other categories.

Australia – I’m worried the Aussies are drifting in the wrong direction, but any nations that abolishes its death tax deserves a high score.

To close, here’s some of what the editors at the Wall Street Journal opined this morning.

…the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD). With the developed world’s highest corporate tax rate at over 39% including state levies, plus a rare demand that money earned overseas should be taxed as if it were earned domestically, the U.S. is almost in a class by itself. It ranks just behind Spain and Italy, of all economic humiliations. America did beat Portugal and France, which is currently run by an avowed socialist. …the U.S. would do even worse if it were measured against the world’s roughly 190 countries. The accounting firm KPMG maintains a corporate tax table that includes more than 130 countries and only one has a higher overall corporate tax rate than the U.S. The United Arab Emirates’ 55% rate is an exception, however, because it usually applies only to foreign oil companies.

The WSJ adds a very important point about the liberalizing impact of tax competition.

Liberals argue that U.S. tax rates don’t need to come down because they are already well below the level when Ronald Reagan came into office. But unlike the U.S., the world hasn’t stood still. Reagan’s tax-cutting example ignited a worldwide revolution that has seen waves of corporate tax-rate reductions. The U.S. last reduced the top marginal corporate income tax rate in 1986. But the Tax Foundation reports that other countries have reduced “the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today.”

This final excerpt should help explain why I spend a lot of time defending and promoting tax competition.

As bad as the tax system is now, just imagine how bad it would be if politicians didn’t have to worry about jobs and investment escaping.

P.S. If there was a way of measuring tax policies for foreign investors, I suspect the United States would jump a few spots in the rankings.

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I’ve posted more than 3,500 items since I started International Liberty. And if you look at the earliest posts, way back in April of 2009, you’ll find that one of the very first of them made the link between big government and big corruption.

My premise was very simple. When government is very large, with all sorts of power to provide unearned wealth via taxes, spending, and regulation, then you will get more sleaze.

Sort of like the way a full dumpster will attract lots of rats and roaches.

A story in Fortune reports that government corruption at the state level is very costly.

…corruption is everywhere, in one form or another. And it’s costing U.S. citizens big time. A new study from researchers at the University of Hong Kong and Indiana University estimates that corruption on the state level is costing Americans in the 10 most corrupt states an average of $1,308 per year… The researchers studied more than 25,000 convictions of public officials for violation of federal corruption laws between 1976 and 2008 as well as patterns in state spending to develop a corruption index that estimates the most and least corrupt states in the union.

Most Corrupt StatesHere’s the list of the 10-most corrupt states. At first glance, there doesn’t seem to be a pattern.

Southern states are over-represented, it appears, but that’s obviously not an overwhelming factor since Georgia, South Carolina, Arkansas, and Texas (among others) didn’t make the list.

But it turns out that there is a factor that seems to be very prevalent among corrupt states.

The researchers also found that for 9 out of the 10 of the most corrupt states, overall state spending was higher than in less corrupt states (South Dakota was the only exception).

The authors suggest an attack on corruption could lead to a lower burden of government spending.

Attacking corruption, the researchers argue, could be a good way to bring down state spending.

I don’t disagree, but I wonder whether there’s an even more obvious lesson. Maybe the primary causality goes the other direction. Perhaps the goal should be to lower state spending as a way of reducing corruption.

Returning to the analogy I used earlier, a smaller dumpster presumably means fewer rats and roaches.

That’s not the only interesting data from the study. Fortune also reports that infrastructure projects and bloated bureaucracies are linked to corruption.

The paper explains that construction spending, especially on big infrastructure projects, is particularly susceptible to corruption… Corrupt states also tend to, for obvious reasons, simply have more and better paid public servants, including police and correctional officers.

I’m not surprised by those findings. Indeed, I would even argue that a large bureaucracy, in and of itself, is a sign of corruption since it suggests featherbedding and patronage for insiders.

For more info on the size of government and corruption, here’s a video I narrated for the Center for Freedom and Prosperity. It’s several years old, but the message is even more relevant today since the public sector is larger and more intrusive.

P.S. Speaking of corruption, there’s actually a serious effort on Capitol Hill to shut down the Export-Import Bank, which has been a cesspool of corruption and cronyism.

P.P.S. Switching to a different topic (though it also fits under corruption), we have another member for our potential Bureaucrat Hall of Fame. Or maybe this person belongs in a politician-ripping-off-the-system Hall of Fame.

Here are some of the details from an Irish news report and you can judge for yourself.

Ireland’s outgoing European Commissioner, Maire Geoghegan-Quinn, is entitled to a total €432,000 EU pay-off over the next three years to help her adjust to life after Brussels. …EU commissioners leaving office are entitled, subject to certain conditions, to a “transitional allowance” over three years varying between 45pc and 65pc of salary. Mrs Geoghegan-Quinn’s entitlement amounts to 55pc of her salary, or €137,000 per year.

Huh?!? A transitional allowance? For what? That’s more than $500,000 in American money.

Is it really that difficult to end one’s term as an overpaid European Union Commissioner?

But what really makes Ms. Geoghegan-Quinn an inspiration to other bureaucrats (and a nightmare for taxpayers) is that she’ll also have her snout buried deeply in Ireland’s public trough.

And from this autumn, she can also resume collecting her Irish TD and ministerial pensions totalling €108,000 a year – giving her total pension entitlements worth over €3,000 a week.

Though to be fair, she’s simply doing what other politicians already have done. Not only in Ireland, but also in America.

Government has become a racket for the benefit of insiders.

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I wrote the other day that Americans, regardless of all the bad policy we get from Washington, should be thankful we’re not stuck in a hellhole like Venezuela.

But we also should be happy we’re not Europeans. This is a point I’ve made before, usually accompanied by data showing that Americans have significantly higher living standards than their cousins on the other side of the Atlantic.

It’s now time to re-emphasize that message. The European Commission has issued its annual report on “Taxation Trends” and it is – at least for wonks and others who care about fiscal policy – a fascinating and compelling document.

If you believe in limited government, you’ll read the report in the same way you might look at a deadly traffic accident, filled with morbid curiosity and fear that you may eventually suffer the same fate.

But if you’re a statist, you’ll read the report like a 14-year old boy with his first copy of a girlie magazine, filled with fantasies about eventually getting to experience what your eyes are seeing.

Let’s start by giving the bureaucrats some credit for self-awareness. They openly admit that the tax burden is very onerous in the European Union.

The EU remains a high tax area. In 2012, the overall tax ratio, i.e. the sum of taxes and compulsory actual social contributions in the 28 Member States (EU-28) amounted to 39.4 % in the GDP-weighted average, nearly 15 percentage points of GDP over the level recorded for the USA and around 10 percentage points above the level recorded by Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members for which recent detailed tax data is available, Russia (35.6 % of GDP in 2011) and New Zealand (31.8 % of GDP in 2011) have tax ratios exceeding 30 % of GDP, while tax-to-GDP ratios for Canada, Australia and South Korea (2011 data) remained well below 30 %.

Here’s a chart from the report showing that taxes consume about 40 percent of economic output in EU nations. And while Americans correctly view the internal revenue code as very burdensome, taxes “only” consume about 25 percent of GDP in the United States.

EU Report Total Tax

Other nations with comparatively modest tax burdens include Canada (CA), Australia (AU), South Korea (KR), and Switzerland (CH).

But it’s important to understand that not all nations in the European Union are identical.

Just as there are high-tax states and low-tax states in America, there are high-tax countries and low-tax countries in Europe. Surprisingly, France was not the worst nation.

…the ratio of 2012 tax revenue to GDP was highest in Denmark, Belgium and France (48.1 %, 45.4 % and 45.0 % respectively); the lowest shares were recorded in Lithuania (27.2 % of GDP), Bulgaria (27.9 % of GDP) and Latvia (27.9 % of GDP).

I’m surprised, by the way, that Sweden isn’t among the highest-taxed nations. I guess they’ve made even more progress than I thought.

Now let’s drill down into the report and look at some of the specific data.

But you may want to stop reading now if you get easily depressed.

That’s because it’s time to look at a chart showing what’s happened to income tax rates. Specifically, this chart shows the average top tax rate on personal income, both for Eurozone (nations using the euro currency) and European Union nations.

As you can see, the average top tax rate has jumped by almost four percentage points for euro nations and by about two percentage points for all EU nations.

EU Report Personal Income Tax

This is very unfortunate. Tax rates were heading in the right direction when there was vigorous tax competition inside Europe. But now that high-tax nations have been somewhat successful in forcing low-tax jurisdictions to become deputy tax enforcers, that positive trend has halted and policy is moving in the wrong direction.

But not in all regards.

Tax competition also has been compelling governments to lower corporate tax rates. And while that trend has abated, you can see in this chart that politicians haven’t felt they have leeway to push rates higher.

EU Report Corporate Income Tax

Though I am very concerned about the OECD’s campaign to undermine corporate tax competition.

If they’re successful, there’s no doubt we’ll see higher corporate tax rates.

Let’s now look at some more depressing data. This chart shows that a continuation in the trend toward higher rates for value-added taxes (VATs).

EU Report VAT

I’ve warned repeatedly that the VAT is a money machine for big government and the EU data certainly supports my position.

But if you want evidence from other parts of the world, there’s some IMF data that clearly shows how politicians use the VAT to expand the burden of government.

Last but not least, let’s now draw some conclusions from all this information.

At the beginning of the column, I mentioned that Americans should not copy Europe because bigger government translates into lower living standards.

Simply stated, there’s a negative relationship between the size of government and economic performance.

So let’s look at another piece of data to emphasize that point. The bureaucrats at the OECD just did a report on the U.S. economy and they produced a chart showing that the current recovery is very anemic. We haven’t recaptured lost economic output, which normally happens after a downturn. Indeed, we haven’t even returned to normal growth levels.

But that’s not news to regular readers. I’ve shared powerful data from the Minneapolis Federal Reserve showing the failure of Obamanomics.

What is noteworthy, though, is comparing Europe to the United States. As you can see from these two charts, euro nations have flat lined. And if you look at the vertical scale, you can see that they were growing a lot slower than the United States to begin with.

Dismal European Economy

In other words, we’re not doing very well in the United States.

But compared to Europe, we’re Hong Kong.

Two final caveats: First, I always like to stress that economic performance is impacted by a wide range of policies. So while I think that rising tax burdens and higher tax rates are hurting growth in Europe, there are other factors that also matter.

Second, any analysis of fiscal policy should also include data on the burden of government spending. After all, a nation with a low tax burden will still suffer economic problems if there’s a large public sector financed by red ink.

And one big warning: Obama wants to make America more like Europe. If he succeeds, we can expect European-style stagnation.

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Two years ago, there was a flurry of excitement because some guy named Rex Nutting crunched annual budget numbers and concluded that Barack Obama was the most fiscally conservative President since at least 1980.

I looked at the data and found a few mistakes, such as a failure to adjust the numbers for inflation, but Nutting’s overall premise was reasonably accurate.

As you can see from the tables I prepared back in 2012, Obama was the third most frugal President based on the growth of total inflation-adjusted spending.

And he was in first place if you looked at primary spending, which is total spending after removing net interest payments (a reasonable step since Presidents can’t really be blamed for interest payments on the debt accrued by their predecessors).

So does this mean Obama is a closet conservative, as my old – but misguided – buddy Bruce Bartlett asserted?

Not exactly. A few days after that post, I did some more calculations and explained that Obama was the undeserved beneficiary of the quirky way that bailouts and related items are measured in the budget.

It turns out that Obama supposed frugality is largely the result of how TARP is measured in the federal budget. To put it simply, TARP pushed spending up in Bush’s final fiscal year (FY2009, which began October 1, 2008) and then repayments from the banks (which count as “negative spending”) artificially reduced spending in subsequent years.

So I removed TARP, deposit insurance, and other bailout-related items, on the assumption that such one-time costs distort the real record of various Administrations.

And that left me with a new set of numbers, based on primary spending minus bailouts. And on this basis, Obama’s record is not exactly praiseworthy.

Instead of being the most frugal President, he suddenly dropped way down in the rankings, beating only Lyndon Baines Johnson.

Which explains why I accused him in 2012 of being a big spender – just like his predecessor.

But the analysis I did two years ago was based on Obama’s record for his first three fiscal years.

So I updated the numbers last year and looked at Obama’s record over his first four years. And it turns out that Obama did much better if you look at the average annual growth of primary spending minus bailouts. Instead of being near the bottom, he was in the middle of the pack.

Did this mean Obama moved to the right?

That’s a judgement call. For what it’s worth, I suspect that Obama’s ideology didn’t change and the better numbers were the result of the Tea Party and sequestration.

But I don’t care who gets credit. I’m just happy that spending didn’t grow as fast.

2014 Spending TotalI’m giving all this background because I’ve finally cranked the most-recent numbers.  And if we look at overall average spending growth for Obama’s first five years and compare that number to average spending growth for other Presidents, he is the most frugal. Adjusted for inflation, the budget hasn’t grown at all. That’s a very admirable outcome.

But what about primary spending? By that measure, we have even better results. 2014 Spending PrimaryThere’s actually been a slight downward trend in the fiscal burden of government during the Obama years.

This doesn’t necessarily mean, to be sure, that Obama deserves credit. Maybe the recent spending restraint in Washington is because of what’s happened in Congress.

I’ve repeatedly argued, for instance, that sequestration was a great victory over the special interests. And Obama vociferously opposed those automatic budget cuts, even to the point of making himself a laughingstock.

But don’t forget that TARP-type expenses can mask important underlying trends. So now let’s look at the numbers that I think are most illuminating. 2014 Spending Primary Minus BailoutsHere’s the data for average inflation-adjusted growth of primary spending minus bailouts.

As you can see, Obama no longer is in first place. But he’s jumped to third place in this category, which is an improvement over prior years and puts him ahead of every Republican other than Reagan. Given that all those other GOPers were statists, that’s not saying much, but it does highlight that party labels don’t necessarily mean much.

My Republican friends are probably getting irritated, so I’ll share one last set of numbers that may make them happy.

I cranked the numbers for average spending growth, but subtracted interest payments, bailouts, and defense outlays. What’s left is domestic spending, and here are the rankings based on those numbers.

2014 Spending Primary - Defense - Bailouts

Reagan easily did the best job of restraining overall domestic discretionary and entitlement outlays. Bill Clinton came in second place, showing that Democrats can preside over reasonably good results. And Richard Nixon came in last place, showing that Republicans can preside over horrible numbers.

Obama, meanwhile, winds up in the middle of the pack. Which is probably very disappointing for the President since he wanted to be a transformational figure who pushed the nation to the left, in the same way that Reagan was a transformational figure who pushed the nation to the right.

Instead, Obama’s only two legacies may turn out to be a failed healthcare plan and a tongue-in-cheek award for being a great recruiter for the cause of libertarianism.

P.S. Historical numbers sometimes change slightly because the government’s data folks massage and re-measure both inflation and spending. Though I confess I’m not sure why the 2013 calculation for Nixon’s primary spending minus bailouts is somewhat different from the 2012 and 2014 numbers. Perhaps I screwed up when copying some of the numbers, which has been known to happen. But since Nixon’s performance isn’t the focus of this post, I’m not going to lose any sleep about the discrepancy.

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With Crimea potentially breaking away from Ukraine and the ongoing risk of conflict, it’s time to revisit the topic.

I explained a few weeks ago that decentralization was one way of defusing the crisis.

Now Kevin Hassett of the American Enterprise Institute has a refreshing and important analysis explaining how bad economic policy has hindered Ukraine’s development.

He explains that Ukraine was one of the former Soviet Bloc nations that made the mistake of not copying the more market-oriented nations of Western Europe.

Prior to the breakup [of the Soviet Empire], Eastern Europe was underdeveloped relative to the West, mostly because of the failure created by central planning. When a market economy is unleashed in such a setting, “convergence” of the standard of living to that of the developed world can be quite rapid. …A large academic literature has emerged analyzing the impact of “going west.” The literature documents that those nations that assimilated into the EU saw dramatic economic growth. …The countries, like Ukraine, that failed to take that path have stagnated.

The impact is remarkable. Using EU membership as a proxy for nations that “went west,” Kevin put together a graph showing how the more market-oriented nations have dramatically out-performed the rest.

Hassett Putin Effect

He notes that per-capita income has climbed far faster in the western-oriented nations.

Income per capita has grown sharply since the mid 1990s, more than doubling for the former Soviet countries, and increasing about 50 percent for the Eastern Bloc countries (such as the Czech Republic) that have joined the EU. …The three lines on the bottom of the chart depict what has happened to those nations that have not joined the EU. Each of these countries has stagnated, seeing a standard of living that has barely budged since the fall of the USSR.

So what’s the moral of the story? Kevin bluntly writes that people who want to affiliate with Putin are traitors because they are condemning their fellow citizens to economic misery.

Vladimir Putin’s desire to maintain a zone of influence has had a dramatically negative effect on the economic well-being of citizens of the affected countries. It is hard to imagine how anyone could look at such data and not conclude that Putin supporters outside Russia are traitors, if not to their nations at the very least to their compatriots’ prospects of economic security and prosperity.

Now I want to build on what Kevin wrote by stating that “going west” is important because it is a proxy for more economic freedom.

Let’s take another look at his chart, but augment it with some numbers from Economic Freedom of the World.

I collected both the absolute ranking and relative economic freedom scores for the former Soviet Bloc nations, and then put together averages for each of the categories in Kevin’s chart. The first number is the average ranking and the second number is the average score. As you can see, the nations that have enjoyed more growth are the ones that have the most economic liberty.

EFW Putin Effect

Time for some caveats. Because of data limitations, the EFW Index does not have numbers for nations such as Kosovo. Moreover, Kevin didn’t include the former Soviet states that are in Asia, and I confess I don’t know for sure whether that means nations such as Armenia and Georgia are excluded.

But those issues only influence the green and red lines, and adding or subtracting those nations doesn’t change the look of the graph.

That having been said, the real moral of the story is that Ukraine needs economic liberty. It doesn’t have that now, and it almost surely won’t have that if it falls more under Putin’s influence.

Why? Because Ukraine already has been practicing Putinonomics (which is a sordid mix of cronyism, regulation, corruption, and weak rule of law), so more Russian control presumably will mean jumping from one frying pan to another.

Simply stated, if you want more prosperity, there’s no substitute for free markets and small government. The more nations move in that direction, the richer they will become.

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