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In the last few months of 2013, Obamacare suffered a series of embarrassing setbacks dealing with everything from a clunky website to plan cancellations to the White House feeling compelled to arbitrarily ignore the law.

Since that time, though, people seem to have adapted to this new burden.

But adaptation doesn’t mean approval. There are still serious problems with Obamacare, as evidenced by the fact that the Obama Administration has postponed implementation of various provisions 38 times!

However, the White House wants us to believe the law is a success, even if that requires statistical contortions.

So let’s look at the record.

My Cato colleague Mike Tanner argues that Obamacare has been a disaster, writing for Townhall that “…in the last year we’ve also seen plenty of bad news for consumers, providers, employers and taxpayers.”

In his column, he looks at various groups and assesses whether Obamacare has succeeded or failed.

What about universal coverage?

…the best estimates suggest that roughly 8 million people gained insurance under ObamaCare, but roughly half of those were enrolled in Medicaid (outside of the exchanges), which isn’t really health-care reform so much as adding people to government welfare. And it still leaves 41 million American adults uninsured.

That doesn’t sound too impressive, particularly when you consider all the damage that Obamacare has imposed.

What about keeping your health plan?

…roughly 6 million Americans were kicked off their insurance because their plans failed to offer a lengthy-enough maternity stay, didn’t provide sufficient drug and alcohol rehabilitation benefits or otherwise fell short of the insurance that federal bureaucrats thought that they should have. …on average, ObamaCare plans were worse than the plans they replaced, in terms of both providers covered and cost-sharing. A new wave of cancellations is about to begin as well.  …In several states, insurers have dropped plans that they offered on the exchanges or even withdrawn from the market altogether. And if that was not bad enough, Americans with employer-based insurance may find out their insurance has to be changed starting next year.

So we pay more and get less, while also dealing with lots of uncertainty.

What about consumers?

If judged against President Obama’s promise that health-care reform would save us all at least $2,500 through lower premiums, ObamaCare deserves an F. …In states where the individual market was not already dysfunctional, there were significant premium increases.

So the President was lying? I’m shocked, shocked.

What about taxpayers?

This summer the Congressional Budget Office announced that it had given up trying to score the cost of ObamaCare, given the frequency with which the administration was making unilateral changes to the law. …roughly 85 percent of those enrolled through exchanges are receiving subsidies, higher than predicted. Overall, the best estimates suggest the law will cost $2.63 trillion over the next 10 years. That will be paid for by $1.38 trillion in new taxes and at least $1.25 trillion in additional debt.

Imagine that. A new entitlement is going to be a fiscal boondoggle. Who could have predicted that outcome?

What about jobs?

…surveys from Federal Reserve Banks in New York, Philadelphia and Atlanta confirmed that businesses are cutting employment and shifting workers to part-time positions because of ObamaCare. According to the New York Fed, 21 percent of manufacturers and 17 percent of service companies have reduced the size of their workforce because of the law. In addition, roughly 20 percent of both manufacturers and service companies said that they have shifted workers from full- to part-time jobs.

The overall impact on employment could be as high as two million workers.

But there is a tiny sliver of good news. Or, to be more accurate, there’s a tiny sliver of not-as-bad-as-we-thought news.

…some costs are lower because so many states have chosen not to expand Medicaid.

In other words, the Obama White House thought it could bribe states to expand the welfare program that provides health care.

And some statist governors, such as John Kasich, rolled over for Obama.

But many states realized it would be a long-term fiscal disaster to expand Medicaid, notwithstanding promises that Washington would pick up the tab in the short run.

Let’s close with a video on one of the more bizarre aspects of Obamacare. Apparently, people are getting screwed out of their healthcare plans because of strange rules that all plans have to fit within certain bands.

I can’t imagine why the politicians wanted the law to work this way, other than the statist instinct to micro-manage other people’s lives. You have to watch the video to grasp the inanity of the policy.

And if all this isn’t sufficiently depressing, keep in mind that the White House wants to use your tax dollars to bail out the big health insurance companies.

P.S. I’ve written several times about the horrifying practice of “civil asset forfeiture,” which happens when the government decides to seize the property of people without bothering to convict them of any crime.

Well, now we have a humorous – yet still outrageous – look at the practice from John Oliver.

If you want some additional (and more substantive) analysis of asset forfeiture, watch videos here, here, and here.

And if you want to increase your blood pressure, read horror stories about government theft here, here, here, here, and here.

No wonder even the people who first developed the program now want to shut it down. And it is encouraging that there finally is a backlash against this odious practice.

P.P.S. If you like Oliver’s humor, here’s his very funny analysis of how Obamacare is working in Oregon.

Does big government necessarily and automatically imply incompetent government?

Unfortunately, that seems to be the case. Robert Samuelson, for instance, has written that the federal government is so large that it breeds failure and disappointment.  I added my two cents, writing that:

…government is far more likely to have a “reverse Midas touch” when it is too big to manage.

I also posed a rhetorical question in another post from 2013.

I suppose a more interesting program would be to identify things that the government does intelligently and effectively. Any suggestions?

That wasn’t a throwaway line. There are some legitimate functions of government and I want those to be handled efficiently.

But I worry that effective government is increasingly unlikely because politicians are so busy intervening in areas that should be left to the families, civil society, and the private sector.

The response to the Ebola Virus is a sobering example.

Writing for The Federalist, David Harsanyi explains that the bureaucrats at the Centers for Disease Control are whining about not having enough money to contain and fight Ebola, yet there wouldn’t be any problem if the CDC wasn’t distracted by things that are irrelevant to its core mission.

CDC’s budget and purview have swollen over the past few decades as it has seen an infusion of funding due to temporary health scares and  trendy crusades that often go well beyond any mission it should be pursuing. …the CDC needs to rethink it’s scope. The CDC can’t afford to keep a aerial ‘bio-containment unit’ on retainer, but it does have museum, a massive staff and a lots of waste and fraud. In 2007, Senator Coburn’s office authored a 115-page report detailing things like the CDC budget gimmicks, the agency’s hundreds of millions of dollars of waste on junkets and elaborate digs and its institutional failures to actual ‘control diseases’ – and this includes AIDs prevention. …The CDC, an agency whose primary mission was to prevent malaria and then other dangerous communicable diseases, is now spending a lot of time, energy and money worrying about how much salt you put on your steaks, how often you inhale second-hand smoke and how often you do calisthenics.

To be fair, some of the blame should be shared with the politicians who divert resources away from disease fighting.

Though keep in mind that bureaucrats and politicians generally work hand-in-hand when budgets get approved and government power gets expanded.

With lobbyists and interests groups greasing the way, of course.

But today’s post isn’t about the corrupt machinations of Washington, so let’s get back to our main point.

Professor Glenn Reynolds of the University of Tennessee is similarly worried that mission creep undermines the government’s ability to accomplish important things.

While we’d be better off if the CDC only had one job — you know, controlling disease— the CDC has taken on all sorts of jobs unrelated to that task. …These other tasks may or may not be important, but they’re certainly a distraction from what’s supposed to be the CDC’s “one job” — protecting America from a deadly epidemic. And to the extent that the CDC’s leadership has allowed itself to be distracted, it has paid less attention to the core mission. In an era where new disease threats look to be growing, the CDC needs to drop the side jobs and focus on its real reason for existence. But, alas, the problem isn’t just the CDC. It’s everywhere. It seems that as government has gotten bigger, and accumulated more and more of its own ancillary responsibilities, it has gotten worse at its primary tasks. It can supervise snacks at elementary schools, but not defend the borders; it can tax people to subsidize others’ health-care plans but not build roads or bridges; and it can go after football team names but can’t seem to deal with the Islamic State terror group. Multitasking results in poorer performance for individuals. It also hurts the performance of government agencies, and of government itself. You have one job. Try doing it.

Amen.

For an amusing, yet insightful, look at the connection between government size and government competence, Mark Steyn nails it.

On the other hand, some columnists argue that more power for government is the way to deal with government incompetence.

Amazing.

P.S. I wrote a couple of days ago that Obama was right about the relative weakness of European economies, but then asked why on earth he wants to make America more like Europe with bigger government.

On a related note, here’s a blurb from an article in the Daily Caller.

Don’t allow big government to take over free market system, Italian journalist Matteo Borghi warns in his new e-book, “Italy, Where Dems’ Dreams Die: How Big Government Pauperized A Prosperous Country.” He outlines the “Italian situation” he says has resulted from government growth — soaring debt, high unemployment rates, burdensome tax rates and a corrupt and nearly bankrupt pension system. His goal is to convince Americans not to follow suit. “You are already better off, but if you will go on increasing big government and cracking down on entrepreneurs you could soon become like Italy,” Borghi told The Daily Caller News Foundation. “That’s why, in my book, I say: ‘You shouldn’t give up American Dream to follow Italian nightmare.’”

Or the French nightmare. Or the Greek nightmare. Or the Swedish nightmare. Or the German nightmare.  I could continue, but you get the point.

P.P.S. Though there is one deluded New York Times columnist who thinks we should emulate Italy.

I’m not a big fan of international bureaucracies.

Regular readers know that the Organization for Economic Cooperation and Development is the worst institution from my perspective, followed by the International Monetary Fund.

Some folks ask why the United Nations isn’t higher on the list?

My answer is simple. The UN has a very statist orientation and it routinely advocates bad policy, but it is too incompetent to do much damage.

The OECD and IMF, by contrast, have some capacity to undermine global growth by encouraging more statism.

That being said, the UN occasionally does something that is so obnoxious that I can’t resist commenting. Especially since my tax dollars pay a big share of that bureaucracy’s bloated budget.

What has me irked is that the United Nations Conference on Trade and Development just released its annual Trade and Development Report.

You would think an institution that focuses on trade and development would be advocating free markets and small government.

But UNCTAD takes the opposite approach.

Here’s how the bureaucrats frame the issue in the report. Keep in mind that “market liberalism” is their term for free markets (in other words, classical liberalism).

Back in 1964, the international community recognized that “If privilege, extremes of wealth and poverty, and social injustice persist, then the goal of development is lost”. Yet, almost everywhere in recent years, the spread of market liberalism has coincided with highly unequal patterns of income and wealth distribution. A world where its 85 wealthiest citizens own more than its bottom three and a half billion was not the one envisaged 50 years ago. …the past three decades have demonstrated that delivery is unlikely with a one-size-fits-all approach to economic policy that cedes more and more space to the profitable ambitions of global firms and market forces. …the moment is right to propose another international “New Deal” that can realize the promise of “prosperity for all”.

But not only does UNCTAD utilize class-warfare rhetoric, they also try to support their ideological agenda with historical illiteracy.

I’ve pointed out that the western world became rich when government was very small and markets were liberated.

But the statists at the UN want us to think that big government deserves the credit.

None of today’s developed countries depended on market forces for their structural transformation and its attendant higher levels of employment, productivity and per capita incomes. Rather, they adopted country-specific measures to manage those forces, harnessing their creative side to build productive capacities and provide opportunities for dynamic firms and entrepreneurs, while guiding them in a more socially desired direction. They also used different forms of government action to mitigate the destructive tendencies of those same market forces. This approach of managing the market, not idolizing it, was repeated by the most rapidly growing emerging market economies − from the small social democratic economies of Northern Europe to the giant economies of East Asia − in the decades following the end of the Second World War.

Wow. They even want us to think big government deserves the credit for prosperity in Hong Kong and Singapore.

So you know the bureaucrats are either very stupid or very dishonest. I suspect the latter, but it doesn’t matter. All we need to know is that they are willing to make very preposterous claims to advance their agenda.

And what is their agenda? Well, a major theme is that politicians in developing nations need “policy space” to enable bigger government.

For instance, UNCTAD doesn’t like free trade but does like industrial policy (aka, crony capitalism).

Policy space is…reduced by free trade agreements… Along with the proliferation of trade agreements and their expansion into trade-related areas, there has been a global revival of interest in industrial policy.

But a big focus of the report is that tax competition is a threat to the “policy space” of politicians.

Fiscal space goes hand in hand with policy space. …strengthening government revenues is key. …This…allows for higher growth-enhancing public spending… The need for reclaiming and expanding fiscal space faces particular challenges in an increasingly globalizing economy. …A major problem is that globalization has affected the ability of governments to mobilize domestic revenues. …the increased mobility of capital and its greater use of fiscal havens have considerably altered the conditions for taxing income − both personal and corporate − and wealth. The dominant agenda of market liberalism has led to a globalized economy that encourages tax competition among countries, at times pushing them to a “race to the bottom”.

Gasp, how horrible! Politicians don’t have as much “policy space” to impose punitive taxes.

That’s the best advertisement for tax competition I’ve ever read, even if it is unintentional.

So what do the UN bureaucrats want to solve this supposed problem? Simple, just destroy financial privacy and fiscal sovereignty so that politicians have carte blanche to expand taxes.

…a number of developments aimed at improving transparency and exchange of information for tax purposes have taken place. They include a declaration by G20 leaders to promote information sharing… an OECD Action Plan on base erosion and Profit Shifting (BEPS), increased monitoring by several national tax authorities…and numerous bilateral tax treaties (BTTs) and tax information exchange agreements (TIEAs). …these initiatives are steps in the right direction.

With BEPS, indiscriminate information sharing, and more power for national tax police, UNCTAD has put together a trifecta of bad policies.

And to add insult to injury, all the bureaucrats at the UN get tax-free salaries while they concoct schemes to enable higher taxes on the rest of us.

Geesh, no wonder I sometimes have perverse fantasies about them.

And I’m very grateful that Senator Rand Paul is leading the fight against their evil ideas.

P.S. On a more pleasant topic, the “Beltway Bandits” just played in the softball world series in Las Vegas. We competed in the 55+ grouping and finished with three wins and two losses.

Not bad, but not good enough to win any trophies. But we got to play in replica Major League stadiums, which was a fun experience.

I can now say I’ve hit home runs in Dodger Stadium and Wrigley Field, and also doubled off the Green Monster at Fenway. Sounds impressive so long as nobody asks any follow-up questions!

IMAG0135

P.P.S. Here’s something else that I found amusing.

Bill Clinton not only understands the inversion issue, but he’s also willing to publicly explain why Obama is wrong.

During an interview with CNBC on Tuesday, former President Bill Clinton called to cut corporate taxes and give companies a break on money stashed overseas, dinging President Barack Obama’s latest effort to combat corporate tax-dodging. When asked what should be done about corporate inversion transactions, Clinton responded with a host of GOP talking points about the tax burden on big business. “America has to face the fact that we have not reformed our corporate tax laws,” Clinton told CNBC, according to a transcript. “We have the highest overall corporate tax rates in the world. And we are now the only OECD country that also taxes overseas earnings on the difference between what the companies pay overseas and what they pay in America.”

But I guess we shouldn’t be surprised. This isn’t the first time he’s had sensible things to say on the issue of corporate taxation.

I’m not a big fan of Obamanomics.

I don’t like the President’s class-warfare mentality on taxes. I don’t like his support for Keynesian spending policy. And I don’t like his costly expansions of government such as Obamacare.

Indeed, I even like mocking his reflexive statism.

That being said, I fully agree (albeit with some important caveats) with his observation that the United States generally is doing better than other nations.

Here are some blurbs from a Bloomberg report about the President’s remarks on that issue.

A month before congressional elections, President Barack Obama is making an appeal to American pride in promoting his economic policies, arguing that the U.S. is outpacing the recovery in other nations. …“The United States has put more people back to work than Europe, Japan, and every other advanced economy combined.” Obama said. …economies in Europe and Japan are sluggish. The recovery for the euro area – including France and Italy – stalled, with gross domestic product unchanged, from the first quarter to the second, according to Eurostat, the European Union’s statistics office in Luxembourg. Japan contracted by the most in more than five years, with GDP shrinking an annualized 7.1 percent, data from the government Cabinet Office in Tokyo show. …Jason Furman, the chairman of the White House Council of Economic Advisers…called Obama’s emphasis on the relative strength of the U.S. economy “useful context to compare to other countries that are facing similar challenges.”

I don’t know if the White House is correct on every specific claim, but it’s definitely true that the United States is out-pacing Europe.

Here are a couple of charts I found with a quick search. We’ll start with one comparing GDP performance. It’s not as up-to-date as the one I shared back in June, but it does a good job of showing how our cousins across the ocean are falling behind.

And here’s another chart I found showing how Europe also is lagging on employment.

And I can also say from personal experience, based on my trips to various conferences, that Europeans look at the American economy with envy. Heck, they even think 1 percent growth is a reason for celebration!

Which should give you an idea of how bad the outlook is in Europe.

After all, the United States is experiencing the weakest economic expansion since the Great Depression. Yet compared to European nations like France and Italy, we’re a powerhouse.

And this isn’t even a new development. After World War II, the European economies were converging with the United States. In other words, they were growing faster, which is what conventional economic theory predicts should happen over time.

But then, thanks the Europe’s shift to more statism in the 1960s and America’s shift to more freedom in the 1980s, the convergence stopped and America began to enjoy better performance. The data from recent years is just the latest bit of evidence.

Let’s now return to the central thesis of today’s post. As I said above, Obama is right that America is doing much better than most other nations.

But here’s the catch….and it’s a big one.

The President wants America to copy the policies that have caused economic stagnation in Europe!

Does he want higher tax rates? Yup.

Does he want more spending? You bet.

Does he want additional regulation? Yes.

Does he want increased intervention? Of course.

Does he want expanded welfare programs? Naturally.

In other words, when I read the article in Bloomberg, it was a very surreal experience. Is the President clueless? Or does he think we’re clueless? How could he brag about America out-performing Europe without realizing that he was attacking Obamanomics?

It was like getting a lecture on the merits of exercise from a guy who wants you to buy a big-screen TV and a lifetime supply of fast food. Or, better yet, check out these cartoons from Michael Ramirez, Glenn Foden, Eric Allie and Chip Bok.

By the way, I feel guilty about saying so many bad things about Europe, so let’s close with some reasonably clever anti-American humor from our European friends.

Here’s an image regarding culture.

And here’s one regarding…um…style.

P.S. Okay, maybe the Europeans have more culture and style, but Americans are more genuinely compassionate.

You’re probably surprised by the title of this post. You may even be wondering if President Obama had an epiphany on the road to Greece?

I don’t mean to burst your bubble, but the leader we’re talking about isn’t the President of the United States.

Instead, we’re talking about the Prime Minister of Finland and he deserves praise and recognition for providing one of the most insightful and profound statements ever uttered by a politician.

He explained that the emperor of Keynesian economics has no clothes.

As reported by Le Monde (and translated by Open Europe), here’s what Alexander Stubb said when asked whether European governments should try to “stimulate” their economies with more spending.

We need to put an end to illusions: it’s not the public sector that creates jobs. To believe that injecting billions of euros [into the economy] is the key to growth is an idea of the past.

Amen.

You don’t make a nation richer by taking money from one pocket and putting it in another pocket.

Particularly when the net effect is to redistribute funds from the productive sector to the government.

I’m glad Mr. Stubb has figured this out. I just with some American politicians would look at the evidence and reach similarly wise conclusions.

The Obama Administration, for instance, still wants us to believe the faux stimulus was a success.

And speaking of our President’s views, this Gary Varvel cartoon isn’t new, but it’s right on the mark.

Any “job” created by government spending necessarily comes at the expense of the private sector.

And since I’m sharing old cartoons, here’s one that also is a nice summary of what happens when government gets bigger.

This cartoon definitely belongs in my collection (here, herehereherehere, here, herehereherehere, here, and here) of government as a blundering, often-malicious, overweight nitwit.

P.S. Other European policy makers have admitted that Keynesian economics is a farce.

P.P.S. Finland has the world’s 7th-freest economy, significantly better than the United States.

P.P.P.S. If you want some humor about Keynesian economics, click here.

P.P.P.P.S. If you prefer tragedy instead of humor, here are some horrifying quotes by Barack Obama and Hillary Clinton.

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.

What’s the relationship between the Rahn Curve and the Laffer Curve?

For the uninitiated, the Rahn Curve is the common-sense notion that some government is helpful for prosperous markets but too much government is harmful to economic performance.

Even libertarians, for instance, will acknowledge that spending on core “public goods” such as police protection and courts (assuming, of course, low levels of corruption) can enable the smooth functioning of markets.

Some even argue that government spending on human capital and physical capital can facilitate economic activity. For what it’s worth, I think that the government’s track record in those areas leaves a lot to be desired, so I’d prefer to give the private sector a greater role in areas such as education and highways.

The big problem, though, is that most government spending is for programs that are often categorized as “transfers” and “consumption.” And these are outlays that clearly are associated with weaker economic performance.

This is why small-government economies such as Hong Kong and Singapore tend to grow faster than the medium-government economies such as the United States and Australia. And it also explains why growth is even slower is big-government economies such as France and Italy.

The Laffer Curve, for those who don’t remember, is the common-sense depiction of the relationship between tax rates and tax revenue.

The essential insight is that taxable income is not fixed (regardless of the Joint Committee on Taxation’s flawed methodology).

When tax rates are low, people will earn and report lots of income, but when tax rates are high, taxpayers figure out ways of reducing the amount of taxable income they earn and report to government.

This is why, for instance, the rich paid much more to the IRS after Reagan lower the top tax rate from 70 percent to 28 percent.

So why am I giving a refresher course on the Rahn Curve and Laffer Curve?

Because I’ve been asked on many occasions whether there is a relationship between the two concepts and I’ve never had a good answer.

But I’m happy to call attention to the good work of other folks, so here’s a very well done depiction of the relationship between the two curves (though in this case the Rahn Curve is called the Armey Curve).

I should hasten to add, by the way, that I don’t agree with the specific numbers.

I think the revenue-maximizing rate is well below 45 percent and I think the growth-maximizing rate is well below 30 percent.

But the image above is spot on in that it shows that a nation should not be at the revenue-maximizing point of the Laffer Curve.

Since I’m obviously a big fan of the Rahn Curve and I also like drawing lessons from cross-country comparisons, here’s a video on that topic from the Center for Freedom and Prosperity.

Well done, though I might quibble on two points, though the first is just the meaningless observation that the male boxer is not 6′-6″ and 250 lbs.

My real complaint (and this will sound familiar) is that I’m uneasy with the implication around the 1:45 mark that growth is maximized when government spending consumes 25 percent of economic output.

This implies, for instance, that government in the United States was far too small in the 1800s and early 1900s when the overall burden of government spending was about 10 percent of GDP.

But I suppose I’m being pedantic. Outlays at the national, state, and local level in America now consume more than 38 percent of economic output according to the IMF and we’re heading in the wrong direction because of demographic changes and poorly designed entitlement programs.

So if we can stop government from getting bigger and instead bring it back down to 25 percent of GDP, even I will admit that’s a huge accomplishment.

Libertarian Nirvana would be nice, but I’m more concerned at this point about simply saving the nation from becoming Greece.

P.S. I’ve shared numerous columns from Walter Williams and he is one of America’s best advocates of individual liberty and economic freedom.

Now there’s a documentary celebrating his life and accomplishments. Here’s a video preview.

Given Walter’s accomplishments, you won’t be surprised to learn that there’s another video documentary about his life.

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