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Posts Tagged ‘Government Spending’

I’ve complained many times about government intervention in the financial sector.

The financial and housing crisis, for instance, was largely a consequence of the Federal Reserve’s easy-money policy, combined with the system of corrupt subsidies put in place by Fannie Mae and Freddie Mac.

But there’s another government-imposed cost that burdens the financial sector.

Writing for the Wall Street Journal, Paul Kupiec of the American Enterprise Institute reveals some very sobering – and disturbing – data on pay levels for both the financial industry and its regulators.

Most banks in this country are small businesses and pay employees modest salaries. The Bureau of Labor Statistics reports that the average annual salary of a bank employee was $49,540 in 2012, not much higher than the average annual across all occupations, $45,790.

In other words, there are some very well paid people working for big banks, but most employees in the financial sector earn modest incomes.

But notice that I wrote “most employees.” That’s because there is a big group that is very well paid.

But they aren’t in the business of making loans, allocating credit, and helping to finance future growth.

That’s because these highly compensated folks aren’t in the private sector. They are regulatory bureaucrats.

…one group in banking stands out as highly paid—federal bank regulators. Before the Dodd-Frank Act, the average employee of a federal bank regulatory agency received 2.3 times the average compensation of a private banker. By 2013 this ratio increased to more than 2.7—and in some cases considerably more.

Kupiec provides details on how these bureaucrats get paid much more than wealth creators.

The average compensation at the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB) exceeded $190,000 in 2012. The staff at the Federal Reserve is likely even better compensated, but the Fed refuses to release employee salaries. You might think high-paying jobs at these agencies require special skills. Not so. At the OCC, secretaries make on average $79,182 per annum. Motor vehicle operators (the agency’s limo drivers) at the FDIC earn $82,130. Human resources management trainees at the CFPB make $110,759 a year. Averages tell only part of the story. In 2012, 68% of FDIC and CFPB staff—and 66% at the OCC—earned above $100,000 a year. Nearly 19% of the CFPB and OCC staff earn more than $180,000 a year. At the OCC, 10.5% of workers earn above $200,000 a year, at the FDIC 9.3%. Fewer than 7% of employees in any of these regulatory agencies earned less than $50,000. In other words, 93% of the employees in these federal bank regulatory agencies earned more than the average banker’s salary in 2012.

So what’s the rationale for overpaid bureaucrats?

Defenders of the status quo claim that high pay is necessary to attract skilled professionals.

Needless to say, that’s not true.

Instead of raising salaries to attract and retain employees for specialized, hard-to-fill jobs, federal bank regulatory agencies have increased the salaries of all employees. Ironically, the hard-to-fill jobs that require substantial education or professional experience—such as attorneys and economists with banking experience—have the smallest premiums over comparable private positions. Salary premiums are especially large for easy-to-fill jobs that require no specialized, hard-to-hire skills.

But here’s the bottom line. Consumers and taxpayers are paying higher fees and receiving fewer benefits because so much money is being diverted from the industry to finance the bureaucracy.

Who pays for these generous salaries? Bank shareholders pay directly through insurance premiums on deposits and examination fees levied by the bank regulatory agencies. These costs are passed on in higher customer fees and loan rates. The high compensation of CFPB employees is funded by taxpayers through the Federal Reserve. The runaway labor costs of these regulator agencies are not subject to congressional control, and they add up. Employee compensation accounts for about 80% of the operating costs of bank regulatory agencies. If the average regulatory employee’s compensation were equalized between bankers and regulators, the direct cost of bank regulation would fall by more than 50%.

At the risk of adding more bad news, the numbers for the financial sector are just the tip of the iceberg.

This video explains how the people who pay taxes get far less compensation than America’s bureaucrat class.

P.S. Lest I leave people a bit depressed, I want to share some good news.

I wrote back in 2011 about a motorist getting nailed for flashing his headlights to warn other drivers about a speed trap.

Here is an excerpt from a report in the Atlanta Journal Constitution about a Judge throwing out a similar charge.

Chris Hill noticed a sheriff’s deputy behind him and flashed his lights to warn a UPS driver coming the other way. The deputy pulled over Hill on U.S. Highway 140 in White City and handed him a $260 ticket for improperly using his headlights, saying another deputy had seen the flashing lights from behind the UPS truck and alerted him to stop the log truck because of the signaling. Outraged, Hill decided to fight the ticket, and on Wednesday, a Jackson County Justice Court judge dismissed the citation, finding that motorists flashing their headlights amounts to speech protected by the Oregon Constitution.

I’m in favor of being tough on crime, but only when laws are just.

So kudos to the Judge in this case. And hopefully jurors around the nation will use their nullification power to block similar cases of government over-reach.

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About one year ago, I decided to create a “Moocher Hall of Fame” to highlight how certain people went above and beyond the call of indolence in their efforts to sponge off taxpayers.

This award isn’t for ordinary deadbeats. You have to do something really special (the bad kind of special) to get recognized.

* Like convincing a government to give you “disability” benefits so you can satisfy your diaper-wearing fetish.

* Such as cutting off your own foot to maintain handouts from the state.

* Or trying to impregnate 12-year old girls to increase household welfare payments.

* And how about plotting to kill the people who are subsidizing your laziness.

We have a new candidate for the MHoF.

Or perhaps I should say candidates. Our contestants are a husband and wife who enjoyed a first class lifestyle at taxpayer expense. Here are some passages from a Fox News report.

A Minnesota couple who allegedly lived in expensive homes and owned a yacht while taking more than $160,000 in state welfare benefits has been arrested. …Court documents allege the pair illegally obtained food stamps and other benefits from 2005 to 2012. According to the criminal complaints, over the years, the Chisholms received medical assistance, welfare payments and food stamp benefits. …When they first applied for welfare benefits, the couple allegedly listed their residence as Andrea Chisholm’s mother’s home in Minneapolis. Shortly after getting approved, they moved to Florida, according to court documents. They remained in that state for at least 28 months, first on their $1.2 million yacht, and then moving to a house, officials said. They collected welfare from Florida, as well as Minnesota during that time, which is prohibited, according to court documents.

So why should the Chisholms win an award?

Well, I thought it was supposed to be difficult for married adults to sponge off taxpayers, particularly if there was an able-bodied male in the household, yet that didn’t stop the Chisholms from raking in the cash.

I guess you could consider them to be the older – and American – version of Danny and Gina (though I don’t know if that deadbeat couple is/was married).

But that’s not why the Chisholms deserve to be in the MHoF. What caught my attention is that they financed a yacht with welfare payments. That’s going above and beyond the call of indolence.

P.S. I have to confess that Mr. Chisholm reminded me of Rand Paul, at least at first glance.

Separated at birth?

Though I feel like apologizing for implying any connection. After all, Senator Paul has been kind enough to give me credit for jokes I steal from other people. More important, he defends taxpayers.

Whereas Mr. Chisholm likes to steal from taxpayers.

That’s a big difference.

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Last year, I conducted an informal poll at a conference in Paris.

I explained to the audience that the public sector consumed about 57 percent of the French economy and I asked them whether they got more services and better government than the people of Germany (where government consumed 44 pct of GDP), Canada (41 pct), or Switzerland (34 pct).

Unsurprisingly, not a single hand went up.

But maybe we should ask the same question in America. Are we getting the government we want?

That’s the message of this clever video.

I have a couple of editorial comments.

1. The video made a very good point about health insurance not being real insurance in a world of government intervention.

2. I also agree that much of the federal government is illegitimate, but that point is irrelevant since we have Justices on the Supreme Court who don’t care that the federal government is supposed to be limited to those functions listed in Article I, Section 8, of the Constitution.

3. The system is based on coercion. If you don’t pay taxes, you go to jail. If you resist, they shoot you. Only in Washington is that type of system known as “voluntary compliance.”

4. The video is absolutely correct that the nation did just fine for most of our nation’s history with no income tax.

But enough of my commentary. Let’s think for a few minutes of what would happen if we could use our tax returns to allocate our tax dollars. How many people would voluntarily finance the waste at places such as the Department of Housing and Urban Development or Department of Agriculture?

Reason Waste Poll But even the legitimate parts of government are riddled with waste. I believe in national defense, for instance, but that doesn’t mean I want to pay for stupid statues, subsidize green fuel, or prop up Europe’s welfare states by keeping outmoded military alliances.

That’s why I’m not surprised to see that Americans think, according to a new Reason-Rupe poll,  that 50 cents out of every tax dollar is wasted.

My leftist friends, when confronted with this type of polling data, are generally dismissive. They say ordinary people are misinformed and stupid because fraud rates for government programs (as shown in the P.S. of this post) tend to be far lower than 50 percent.

But their definition of “waste” is far too narrow. I don’t care if every single dollar of food stamps goes to people who are “eligible” or if the rules are followed for every mass transit subsidy. Those are not legitimate and proper functions of Washington.

When government is taking money from some people and using those funds to buy votes from other people, every penny is being wasted.

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My tireless (and probably annoying) campaign to promote my Golden Rule of spending restraint is bearing fruit.

The good folks at the editorial page of the Wall Street Journal allowed me to explain the fiscal and economic benefits that accrue when nations limit the growth of government.

Here are some excerpts from my column, starting with a proper definition of the problem.

What matters, as Milton Friedman taught us, is the size of government. That’s the measure of how much national income is being redistributed and reallocated by Washington. Spending often is wasteful and counterproductive whether it’s financed by taxes or borrowing.

So how do we deal with this problem?

I’m sure you’ll be totally shocked to discover that I think the answer is spending restraint.

More specifically, governments should be bound by my Golden Rule.

Ensure that government spending, over time, grows more slowly than the private economy. …Even if the federal budget grew 2% each year, about the rate of projected inflation, that would reduce the relative size of government and enable better economic performance by allowing more resources to be allocated by markets rather than government officials.

I list several reasons why Mitchell’s Golden Rule is the only sensible approach to fiscal policy.

A golden rule has several advantages over fiscal proposals based on balanced budgets, deficits or debt control. First, it correctly focuses on the underlying problem of excessive government rather than the symptom of red ink. Second, lawmakers have the power to control the growth of government spending. Deficit targets and balanced-budget requirements put lawmakers at the mercy of economic fluctuations that can cause large and unpredictable swings in tax revenue. Third, spending can still grow by 2% even during a downturn, making the proposal more politically sustainable.

The last point, by the way, is important because it may appeal to reasonable Keynesians. And, in any event, it means the Rule is more politically sustainable.

I then provide lots of examples of nations that enjoyed great success by restraining spending. But rather than regurgitate several paragraphs from the column, here’s a table I prepared that wasn’t included in the column because of space constraints.

It shows the countries that restrained spending and the years that they followed the Golden Rule. Then I include three columns of data. First, I show how fast spending grew during the period, followed by numbers showing what happened to the overall burden of government spending and the change to annual government borrowing.

Golden Rule Examples

Last but not least, I deal with the one weakness of Mitchell’s Golden Rule. How do you convince politicians to maintain fiscal discipline over time?

I suggest that Switzerland’s “debt brake” may be a good model.

Can any government maintain the spending restraint required by a fiscal golden rule? Perhaps the best model is Switzerland, where spending has climbed by less than 2% per year ever since a voter-imposed spending cap went into effect early last decade. And because economic output has increased at a faster pace, the Swiss have satisfied the golden rule and enjoyed reductions in the burden of government and consistent budget surpluses.

In other words, don’t bother with balanced budget requirements that might backfire by giving politicians an excuse to raise taxes.

If the problem is properly defined as being too much government, then the only logical answer is to shrink the burden of government spending.

Last but not least, I point out that Congressman Kevin Brady of Texas has legislation, the MAP Act, that is somewhat similar to the Swiss Debt Brake.

We know what works and we know how to get there. The real challenge is convincing politicians to bind their own hands.

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I’m a supporter of a single-rate tax regime, especially if there’s no double taxation of income that is saved and invested.

That’s why I like the flat tax.

But I’ve expressed concern about the national sales tax, even though it’s basically the same as a flat tax (the only real difference is that the flat tax takes a bite out of your income when it is earned, while the sales tax takes a bite of your income as it is spent).

The reason for my skepticism is that I don’t trust politicians. I fear that they will adopt a sales tax, but never replace the income. As a result, we’ll wind up like Europe, with much bigger government.

And also much more red ink – even though politicians claim tax hikes and new taxes will lead to balanced budgets.

I’m not just being paranoid. Not only is this what occurred in Europe, the same thing is now happening in Japan.

Here’s some of what the Wall Street Journal has to say about “reforms” to the value-added tax in the land of the rising sun.

Japan on Tuesday increased its consumption tax to 8% from 5%. An increase to 10% is written into the law for next year, and don’t imagine for a minute that this will be the last. Welcome to the value-added-tax ratchet, which only goes in one direction—up. Tokyo first imposed a 3% consumption tax in 1989, after politicians had tried for a decade to enact one. …The new tax was billed as part of a tax reform, but the reform never materialized.

And as I warned in a prior column, the VAT has become a recipe for bigger government in Japan.

The new tax didn’t solve Japan’s deficit woes, as the debt to GDP ratio climbed to 50%, so in 1997 politicians increased the rate to 5%. Again politicians promised the increase would be offset by income-tax reforms. Again the reform proved illusory. …The additional revenue still didn’t satisfy Tokyo’s spending ambitions, and debt has since climbed well above 200% of GDP despite the VAT increase. …So now the rate is going up again in the name of, you guessed it, shoring up government finances as the population ages.

The OECD likes this development, which is hardly a surprise, but it’s bad news for those of us who favor growth and opportunity.

Japan’s experience points up the broader political problem with a value-added tax wherever it has been imposed. Economists tout the VAT for generating revenue without creating disincentives to work and invest. But in practice the consumption levy merely becomes one more tax in addition to current taxes and thus one more claim by the political class on the private economy. …The lesson for tax reformers elsewhere, not least in America, is to beware the VAT because once it is imposed it is only going up.

And it’s worth noting that the Europeans also have been increasing the VAT in recent years.

Simply stated, this is a levy to finance bigger government.

I elaborate in my video on the VAT.

P.S. You can see some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.

P.P.S. I also very much recommend what George Will wrote about the value-added tax.

P.P.P.S. I’m also quite amused that the IMF accidentally provided key evidence against the VAT.

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Congressman Paul Ryan, the Republican Chairman of the House Budget Committee, has unveiled the GOP’s latest budget plan.

Is this proposal deserving of applause or criticism? The answer is yes and yes, with a bit of emphasis on the former.

Let’s start with some depressing news. The Ryan budget has gotten weaker each year.

Three years ago, he put forth a budget that limited spending so that it grew 2.8 percent per year.

Two years ago, he put forth a budget that limited spending so that it grew 3.1 percent per year.

Last year, he put forth a budget that limited spending so that it grew 3.4 percent per year.

His latest budget continues this slide in the wrong direction. Here are the numbers from the new budget, showing that the burden of government spending will rise by an average of 3.5 percent annually over the next 10 years.

And this is during a time when inflation is projected to be about 2 percent per year!

Ryan FY2015 Budget

Since it would be foolish to ever expect perfection from the political process, let’s now look at the positive features of the Ryan budget.

1. Spending may be growing, but it would grow at a slower rate than the President’s proposed budget.

2. Spending may be growing, but it would grow at a slower rate than nominal economic output, thus satisfying Mitchell’s Golden Rule.

3. Perhaps most important, the budget contains genuine and structural reform of both Medicare and Medicaid, so it at least partially solves the long-run fiscal crisis.

4. The budget also foresees tax reform, including lower tax rates for households, a 25 percent corporate tax rate, and a move toward territorial taxation.

Now let’s close with some hard-to-judge news.

The tax reform would be “revenue neutral,” so it’s difficult to accurately assess the proposal without knowing the “revenue raisers” that would offset the “revenue losers” listed above (particularly since lawmakers would be bound by static scoring).

If lower tax rates are financed by getting rid of distortions such as the healthcare exclusion, the net effect is very positive.

But if lower tax rates are financed with increased double taxation (a major shortcoming of the Cong. Camp tax plan), then it’s unclear whether policy has improved.

One final comment. I’m disappointed that the House Budget Committee’s report approvingly cites Congressional Budget Office analysis to suggest that the Ryan budget would boost economic performance.

I think that’s a tactically and morally dubious approach. It’s tactically misguided because the Ryan budget supposedly hurts growth from 2015-2017 according to CBO’s short-term Keynesianism.

And it’s morally dubious because it’s wrong to use bad arguments to advance good policy. The supposed added growth beginning in 2018 is based on the assumption that interest rates are the significant determinant of economic growth – which is the same thinking displayed in the left-wing debt video I shared yesterday.

Paul Ryan and the House GOP can legitimately claim that the proposed budget is good for growth. But improved economic performance would be the result of a smaller burden of government spending and a potentially less destructive tax system. Those are the policies that free up labor and capital for the productive sector and boost incentives to utilize those resources efficiently.

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Based on what’s happened in Greece and other European nations, we know from real-world evidence that even nations from the developed world can spend themselves into debt trouble.

This has led to research that seeks to pinpoint when debt reaches a dangerous level.

Where’s the point where investors stop buying the debt? Where’s the point when interest on the debt becomes too much of a burden?

Most famously, a couple of economists crunched numbers and warned that nations may reach a tipping point when debt is about 90 percent of GDP.

I was not persuaded by this research for two reasons.

First, I think it’s far more important to focus on the underlying disease of too much government, and not get fixated on the symptom of too much borrowing. If I go see a doctor because of headaches and he discovers I have a brain tumor, I want him to address that problem and not get distracted by the fact that head pain is one of the symptoms.

Second, there are big differences between nations, and those differences have a big effect on whether investors are willing to buy government bonds. The burden of debt is about 240 percent of GDP in Japan and the nation’s economy is moribund, for instance, yet there’s no indication that the “bond vigilantes” are about to pounce. On the other hand, investors are understandably leery about buying Argentinian government debt, even though accumulated red ink is less than 40 percent of economic output.

So what about America, where government borrowing from the private sector now accounts for 82 percent of GDP? Have we reached a danger point for government debt?

According to Matthew Yglesias (who says I’m insane and irrational), the answer is no.

I have several comments on this video.

1. Some people have complained that the video is deceptive because it focuses on debt held by the public rather than the gross federal debt. The video could have been more explicit and explained why that choice was made, but I have no objection to the focus on publicly-held debt. After all, that’s the measure of what government has borrowed from the private sector. The gross federal debt, by contrast, also includes money the government owes itself (such as the IOUs in the Social Security Trust Fund), but that type of debt is merely a bookkeeping entry.

2. The video asserts that inflation is low and therefore we don’t have to worry that government might have to “print money” at some point to finance additional debt. I don’t think there’s any immediate danger that the Fed will be put in a position of financing the federal government, but I nonetheless don’t like this logic. It’s sort of like saying it wouldn’t be a problem to start eating ten pizzas per day because you currently aren’t heavy. The simple truth is that low inflation now doesn’t mean low inflation in the future.

3. I also reject the assumption in the video that interest rates drive the economy. Indeed, it’s probably more accurate to say that the economy drives interest rates, not the other way around. Suffice to say that the video is based on the same thinking that led the Congressional Budget Office to imply that you maximize growth by putting tax rates at 100 percent.

4. The video also warns that politicians shouldn’t raise taxes or reduce government benefits since either policy would “take money out of people’s pockets.” This is Keynesian economic theory, which I’ve explained many times doesn’t make sense. No need to regurgitate those arguments here.

5. Which brings us to the main problem of the video. It ignores the problem of unfunded liabilities. More specifically, it doesn’t address the fact that politicians have made commitments to spend far too much money in the future, largely because of poorly designed entitlement programs. And it is these built-in promises to spend money that give America a very grim fiscal future, as show by this BIS, OECD, and IMF data.

Here’s the video, produced by the Center for Prosperity, that accurately puts all this information together (the data is now several years out of date, but the analysis is still spot on).

Remember, the problem – both today and in the future – is the burden of government spending.

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As much as I condemn American politicians for bad policy, things could be worse.

We could be Greek citizens, which would be very depressing. Indeed, you’ll understand why I put Obamaland in the title after you read today’s column.

Simply stated, Greece is a cesspool of statism. The people seem to be wonderful (at least outside of polling booths), but government intervention is pervasive and atrocious.

Here’s an example. As I was coming in a taxi from the airport to the city yesterday, we passed some sort of protest. There were a couple of hundred people at the rally and probably about 50 riot cops.

I naturally wondered about the situation, expecting that it was radical statists or some of the crazies from Golden Dawn. But the cab driver explained that it was pharmacists.

So why are pharmacists protesting? I found out from some of the locals at the Free Market Road Show that this is a heavily regulated and protected sector of the Greek economy.

The government has rules, for instance, that products such as aspirin and other painkillers can only be purchased at pharmacies. The bureaucracy also rigs all the prices to preclude competition. And there are even government policies that make it very difficult for new pharmacies to compete against the established firms.

When special interests have that much power, no wonder Greece is in trouble.

Thought there are some sectors of the business community, such as online entrepreneurs, that are treated like crap. Literally.

Here’s another example from a Wall Street Journal report, albeit one where a modest bit of progress has been achieved.

For the first time in more than a hundred years, Greece is sacking public servants. In 1911, Greece introduced jobs for life under Prime Minister Eleftherios Venizelos. Now, a century later, his descendant, Kyriakos Mitsotakis, Greece’s minister for administrative reform, is faced with the delicate task of slimming down the massive public sector this law helped create. …In exchange for…aid, Greece has promised to cut the government workforce by at least 150,000 by 2015 through attrition, and to lay off an additional 15,000 outright by the end of this year. Another 25,000 would be placed in the temporary labor pool. Of those goals, the first has been reached: Greece had 713,000 government workers at the end of 2012, down 122,000 from the end of 2010. …But the labor pool is still a work in progress. Last July, the first 4,000 employees were put in that pool, while another 8,000 or so followed a few months later. Few of them are expected to be rehired. And with Greece’s unemployment rate already close to 30%, few expect to find jobs in the private sector.

I actually feel a bit sorry for some of these people.

They probably took jobs in the bureaucracy without ever thinking about who was paying their salaries and without giving any thought to the featherbedding and waste that accompany most public sector positions.

But I bet they voted for the politicians that dramatically expanded the number of bureaucrats, so it’s hard to feel too much sympathy.

In any event, they’re understandably worried now that the gravy train is being derailed.

Or maybe the gravy is still there, but in different forms.

It appears that there’s still taxpayer money floating around that can be wasted in interesting ways.

Here are some excerpts from the Guardian about EU-funded “anger management” for some of Greece’s senior tax bureaucrats.

Until Greece’s economic meltdown, anger management was an alien concept at the country’s finance ministry. …Today these are the buzzwords flying around the ground-floor training room at 1 Handris Street. For tax inspectors attending mandatory seminars at the government building, anger management, like patience and politesse, are now seen as essential prerequisites of an increasingly stressful job. “Today, in Greece, everyone is either unhappy or angry when they have to go and pay at the tax office,” Fotis Kourmouris, a senior official at the finance ministry’s public revenues department said. “There is a lot of negative emotion … in the framework of better customer service, classes in psychological and emotional intelligence had become necessary.”

I wouldn’t call it “negative emotion.”

This is a long-overdue revolt of the Greek tax slaves.

…inspectors have found themselves at the sharp end of popular rage. In recent months visiting auditors have been chased out of remote villages, hounded out of towns and booted off islands by an increasingly desperate populace. “We’ve had multiple cases of violence at tax offices by angry members of public, including physical assaults; shots were fired in one case, and one attacker came with an axe,” said Trifonas Alexiadis, vice-chairman of the national association of employees at state financial services.

But when you read how the Greek government is trying to rape and pillage taxpayers, you can understand the anger.

A series of new tax laws has further fuelled public anger. Since the outbreak of the crisis, close to 30 new levies have been introduced by governments desperate to augment empty state coffers. “Too much pressure is being put on people who can’t pay,” said Alexiadis, who suggested that in such circumstances the classes were not only ill-conceived but “juvenile and unnecessary”. …accountant Heracles Galanakopoulos agreed. “They produce a law that nobody understands and then produce another three to explain it. By the time people get here they are really very angry,” he lamented… “I spend at least five or six hours a day reading up on all these new laws and still can’t keep up. Anger management is a nice idea but in a system that is so absurd it’s not going to make a jot of difference.”

Amen. As I’ve argued before, Greece’s problem is high tax rates. Evasion is simply a function of a bad tax code.

Let’s close with some Greek-related humor.

I very much recommend this very funny video from a Greek comedian and this politically incorrect map of how the Greeks view the rest of Europe.

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Back in 2010, I shared a video that predicted a catastrophic end to the welfare state.

I said it was an example of “Libertarian Porn” because:

…it is designed for the dark enjoyment of people who think the government is destroying the nation. If you don’t like bloated government and statist intervention and you think that the policies being imposed by Washington are going to lead to hyperinflation and societal collapse, then you will get a certain level of grim satisfaction by watching the video.

While I also stated in that post that I thought the video was far too dour and pessimistic, I don’t automatically reject the hypothesis that the welfare state will lead to societal chaos.

UK RiotsIndeed, I’ve specifically warned that America might experience European-type disarray because of big government and I even wrote about which nations that might be good escape options if the welfare state causes our country to unravel.

Moreover, I’ve speculated about the possible loss of democracy in Europe and specifically said that people should have the right to be well armed just in case society goes you-know-where in a handbasket.

So I’m definitely not a Pollyanna.

I’ve given this background because here’s another video for those of you who revel in the glass being nine-tenths empty. It’s about the United Kingdom, but these numbers from the BIS, OECD, and IMF show that the long-term spending problem is equally severe in the United States.

Be warned, though, that it’s depressing as well as long. And I gather it’s also designed to sell a magazine, so you can ignore that (particularly if you’re not British).

Now that I’ve shared the video, I’ll add a couple of my own observations.

First and foremost, no country is past the point of no return, at least based on the numbers. It doesn’t matter whether we’re talking about the United Kingdom, the United States, Greece, or France. Politicians always have the option of reforming entitlements and restraining the burden of government spending. So long as they follow Mitchell’s Golden Rule over an extended period of time, they can dig out of the mess.

That’s why I’m a big fan of Switzerland’s spending cap, That policy, technically known as the debt brake, imposes a rolling cap on budgetary growth and has been very effective. Colorado also has a spending cap that has been somewhat effective in restraining the cost of the public sector.

My second observation, however, is that some nations may be past the psychological point of return. This is not easy to measure, but it basically means that there’s good reason to be pessimistic when the majority of citizens in a country think it’s morally acceptable to have their snouts in the public trough and to live off the labor of others. When you have too many people riding in the wagon (or riding in the party ship), then it’s difficult to envision how good policy is implemented.

Indeed, the video includes some discussion of how a growing number of people in the United Kingdom now live off the state. And if you add together the votes of people like NatailijaTraceyAnjem, Gina, and Danny, perhaps the United Kingdom has reached a grim tipping point. Especially since welfare spending has dramatically increased in recent years!

A third and final point about the video. I think it focuses too much on deficits and debt. Red ink is a serious issue, to be sure, but it’s very important to understand that too much borrowing is merely a symptom of too much spending.

P.S. On a totally separate matter, everyone should read the USA Today column by Glenn Reynolds. He explains how government is perverting our criminal justice system.

Here are some of the most important passages, but you should read the whole thing.

Here’s how things all-too-often work today: Law enforcement decides that a person is suspicious (or, possibly, just a political enemy). Upon investigation into every aspect of his/her life, they find possible violations of the law, often involving obscure, technical statutes that no one really knows. They then file a “kitchen-sink” indictment involving dozens, or even hundreds of charges, which the grand jury rubber stamps. The accused then must choose between a plea bargain, or the risk of a trial in which a jury might convict on one or two felony counts simply on a “where there’s smoke there must be fire” theory even if the evidence seems less than compelling.

This is why, Glenn explains, there are very few trials. Almost everything gets settled as part of plea bargains.

But that’s not a good thing, particularly when there are no checks and balances to restrain bad behavior by the state.

…although there’s lots of due process at trial — right to cross-examine, right to counsel, rules of evidence, and, of course, the jury itself, which the Framers of our Constitution thought the most important protection in criminal cases — there’s basically no due process at the stage when prosecutors decide to bring charges. Prosecutors who are out to “get” people have a free hand; prosecutors who want to give favored groups or individuals a pass have a free hand, too.When juries decide not to convict because doing so would be unjust, it’s called “jury nullification,” and although everyone admits that it’s a power juries have, many disapprove of it. But when prosecutors decide not to bring charges, it’s called “prosecutorial discretion,” and it’s subject to far less criticism, if it’s even noticed.

Here’s the bottom line.

…with today’s broad and vague criminal statutes at both the state and federal level, everyone is guilty of some sort of crime, a point that Harvey Silverglate underscores with the title of his recent book, Three Felonies A Day: How The Feds Target The Innocent, that being the number of felonies that the average American, usually unknowingly, commits. …The combination of vague and pervasive criminal laws — the federal government literally doesn’t know how many federal criminal laws there are — and prosecutorial discretion, plus easy overcharging and coercive plea-bargaining, means that where criminal law is concerned we don’t really have a judicial system as most people imagine it. Instead, we have a criminal justice bureaucracy that assesses guilt and imposes penalties with only modest supervision from the judiciary, and with very little actual accountability.

Glenn offers some possible answers.

…prosecutors should have “skin in the game” — if someone’s charged with 100 crimes but convicted of only one, the state should have to pay 99% of his legal fees. This would discourage overcharging. (So would judicial oversight, but we’ve seen little enough of that.) Second, plea-bargain offers should be disclosed at trial, so that judges and juries can understand just how serious the state really thinks the offense is. …And finally, I think that prosecutors should be stripped of their absolute immunity to suit — an immunity created by judicial activism, not by statute — and should be subject to civil damages for misconduct such as withholding evidence. If our criminal justice system is to be a true justice system, then due process must attach at all stages. Right now, prosecutors run riot. That needs to change.

Amen to all that. And you can read more on this topic by clicking here.

The Obama years have taught us that dishonest people can twist and abuse the law for ideological purposes.

Obamacare rule of law cartoonWhether we’re talking about the corruption of the IRS, the deliberate disregard of the law for Obamacare, or the NSA spying scandal, the White House has shown that it’s naive to assume that folks in government have ethical standards.

And that’s also true for the law enforcement bureaucracy, as Glenn explained. Simply stated, people in government abuse power. And jury nullification, while a helpful check on misbehavior, only works when there is a trial.

Indeed, I’m now much more skeptical about the death penalty for many of the reasons Glenn discusses in his column. To be blunt, I don’t trust that politically ambitious prosecutors will behave honorably.

That’s why, regardless of the issue, you rarely will go wrong if you’re advocating fewer laws and less government power.

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When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I even, much to my surprise, wrote a column in 2012 stating that it’s “Time to Follow Sweden’s Lead on Fiscal Policy.”

More specifically, I’m impressed that Swedish leaders have imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

Swedish Fiscal Restraint

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress.

It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

Swedish Spending+Deficit as % of GDP

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

It’s also worth noting that Sweden hasn’t fallen off the wagon. Spending has been growing a bit faster in recent years, but not as fast as overall economic output. So the burden of spending is now down to about 48 percent of GDP.

And for those who mistakenly focus on the symptom of red ink rather than the underlying disease of too much spending, you’ll be happy to know that spending discipline in the 1990s turned a big budget deficit (right axis) into a budget surplus.

Now let’s get the other side of the story. While Sweden has moved in the right direction, it’s still far from a libertarian paradise. The government still consumes nearly half of the country’s economic output and tax rates on entrepreneurs and investors max out at more than 50 percent.

And like the United Kingdom, which is the source of many horror stories, there are some really creepy examples of failed government-run health care in Sweden.

Though I suppose if the third man grew new legs, maybe we would all reassess our views of the Swedish system. And if the first guy managed to grow a new…oh, never mind.

But here are the two most compelling pieces of evidence about unresolved flaws in the Swedish system.

First, the system is so geared toward “equality” that a cook at one Swedish school was told to reduce the quality of the food she prepared because other schools had less capable cooks.

Second, if you’re still undecided about whether Sweden’s large-size welfare state is preferable to America’s medium-size welfare state, just keep in mind that Americans of Swedish descent earn 53 percent more than native Swedes.

In other words, Sweden might be a role model on the direction of change, but not on the level of government.

P.S. On a separate topic, regular readers know that I’m a fan of lower taxes and a supporter of the Second Amendment. So you would think I’d be delighted if politicians wanted to lower the tax burden on firearms.

This is not a hypothetical issue. Here’s a passage from a local news report in Alabama about a state lawmaker who wants a special sales tax holiday for guns and ammo.

Rep. Becky Nordgren of Gadsden said today that she has filed legislation to create an annual state sales tax holiday for gun and ammunition purchases. The firearms tax holiday would occur every weekend prior to the Fourth of July. Alabama currently has tax holidays for back-to-school shopping and severe weather preparedness. Nordgren says the gun and ammunition tax holiday would be a fitting way to celebrate the anniversary of the nation’s birth and Alabama’s status as a gun friendly state.

I definitely admire the intent, but I’m enough of a tax policy wonk that the proposal makes me uncomfortable.

Simply stated, I don’t want the government to play favorites.

For instance, I want to replace the IRS in Washington with a simple and fair flat tax in part because I don’t want the government to discriminate based on the source of income, the use of income, or the level of income.

And I want states to have the lowest-possible rate for the sales tax, but with all goods and services treated equally. Alabama definitely fails on the first criteria, and I wouldn’t be surprised if it also granted a lot of loopholes.

So put me in the “sympathetic skepticism” category on this proposal.

Though I imagine this Alabama lass could convince me to change my mind.

P.P.S. A few days ago, the PotL noticed that I shared some American-European humor at the end of a blog post. She suggests this would be a good addition to that collection.

Europe Heaven Hell

I can’t comment on some of the categories, but I will say that McDonald’s in London is just as good as McDonald’s in Paris, Milan, Geneva, and Berlin.

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It’s sometimes difficult to make fun of Keynesian economics. But this isn’t because Keynesian theory is airtight.

It’s easy, after all, to mock a school of thought that is predicated on the notion that you can make yourself richer by taking money from your right pocket and putting it in your left pocket.

The problem is that it’s hard to utilize satire when proponents of Keynesian theory say things that are more absurd than anything critics could possibly make up.

Paul Krugman, for example, stated a couple of years ago that it would be good for growth if everyone thought the world was going to be attacked by aliens because that would trigger massive military outlays.

He also asserted recently that a war would be very beneficial to the economy.

Equally bizarre, he really said that the terrorist attacks on the World Trade Center would “do some economic good” because of the subsequent money spent on rebuilding.

And let’s not forget that John Maynard Keynes actually did write that it would be good policy to bury money in the ground so that people would get paid to dig it out.

As you can see, it’s difficult to mock such a strange theory since proponents of Keynesianism already have given us such good material.

But let’s try.

Here’s an amusing satirical image of Ludwig von Mises describing Keynesian economics.

Here’s Paul Krugman doing a Keynesian weather report.

This is the one that got the biggest laugh from me, though I’m chagrined at the misspelling.

Keynesian Fire

Last but not least, here’s an image of a neighborhood that has been the recipient of lots of stimulus. I bet the people are very happy.

Sort of reminds me of this satirical Obama campaign poster.

Let’s close with a few serious observations.

I recently added my two cents to the debate in an article debunking the White House’s attempt to justify the failed 2009 stimulus.

And there’s lots of additional material here, here, and here. My favorite cartoon on Keynesian economics also is worth sharing.

But you’ll probably learn just as much and be more entertained by this video from the Atlas Economic Research Foundation. It looks at the left’s fascination with disaster economics.

And here’s my video debunking Keynesian theory.

I’ll end with a gloomy comment. It’s easy to mock Keynesian economics, but it’s very hard to put a stake through its heart.

How can you kill an idea that tells politicians that their vice – buying votes with other people’s money – is actually a virtue?

P.S. Here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally entertaining sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

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In recent weeks, I’ve pontificated on Obama’s spendthrift budget, Congressman Dave Camp’s timid tax reform plan, and the corrupt cronyism of Washington.

I got to elaborate on all these topics – and more – in this interview with Professor Glenn Reynolds, more widely known as Instapundit.

If there was an overall theme, it’s that President Obama’s statist agenda is not helping the country.

Other than my hair looking strange, I think this was a good interview.

But here’s a point I probably should have included when assessing the President’s performance. If you look at the Census Bureau’s data on median household income (adjusted for inflation), you’ll see that the median American is earning less during the Obama years. And that’s true whether you use 2008 or 2009 as the base year.

Median Household Income

Now let me provide three caveats on this data, two that help Obama and another that is less favorable.

1. First, if you look at the historical data from the Census Bureau, you’ll see that median household income is a lagging indicator. That means that incomes don’t improve in the first year or two of a recovery.

In other words, you can argue, with considerable justification, that Obama inherited bad numbers.

2. Second, median household income is an incomplete measure of living standards. If you peruse the data, you’ll see that median income for 2012 (the latest available year) is lower than it was the year Reagan left office.

I’m a big Reagan fan, so I’m tempted to say the country has lost ground since he left office, but that would be an exaggeration. We obviously have higher living standards today, notwithstanding the Census Bureau numbers.

3. But I’m not making excuses for Obama. My third and final caveat is that the median numbers don’t tell the full story. If you look at the Census Bureau’s numbers for various income groups, you’ll see that the only cohort that has enjoyed higher real income during the Obama years is….drum roll, please…the rich!

You read correctly. The bottom 20 percent have suffer lower incomes. The three middle-income quintiles have lost ground. Even the top 20 percent have lower median incomes. The only group that is ahead is the top 5 percent.

In other words, Obama may use lots of class-warfare rhetoric to pretend he’s on the side of ordinary people.

But his policies (TARPSolyndra, etc) have been enormously beneficial to the cronyists and insiders that have made the Washington metropolitan area so wealthy.

Here’s some of what Senator Portman of Ohio had to say about the topic.

It’s been five years since the experts said the recession was over, but for millions of Americans, it feels like it never ended. We’re living through the weakest economic recovery since World War II, and a lot of folks are struggling to make ends meet. Unemployment remains stubbornly high; the number of long-term unemployed is actually at record levels. But these statistics only tell half the story. Eleven million Americans have become so discouraged that they’ve given up looking for work altogether. Poverty rates have gone up, salaries have gone down, with the average family now bringing home $4,000 less than they did just five years ago.

Just in case you doubt Portman’s remarks, here’s the chart I produced using data from the Minneapolis Federal Reserve Bank.

It shows every recovery since end of World War II. The red line is Obamanomics.

Hmmm….this is almost enough to make one think that maybe we should try free markets and small government instead.

P.S. This Gary Varvel cartoon provides a good synopsis of Obama’s economic policy.

Political Cartoons by Gary Varvel

I also like Varvel’s take on Obamacare, and here’s another one of his cartoons on Obamanomics.

Varvel is the best at exposing the spending-cut hoax in DC, as you can see from this sequester cartoon and this deficit reduction cartoon. This cartoon about Bernie Madoff and Social Security, however, is at the top of my list.

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Germany isn’t exactly a fiscal role model.

Tax rates are too onerous and government spending consumes about 44 percent of economic output.

That’s even higher than it is in the United States, where politicians at the federal, state, and local levels divert about 39 percent of GDP into the public sector.

Germany also has too much red tape and government intervention, which helps to explain why it lags other European nations such as Denmark and Estonia in the Economic Freedom of the World rankings.

But I have (sort of) defended Germany a couple of times, at least on fiscal policy, explaining that the Germans didn’t squander much money on Keynesian spending schemes during the downturn and also explaining that Paul Krugman was wrong in his column on Germany and austerity.

Today, though, I’m going to give Germany some unambiguous praise.

If you look at last decade’s fiscal data, you’ll see that our Teutonic friends actually followed my Golden Rule on fiscal policy for a four-year period.

Here’s a chart, based on IMF numbers, showing total government spending in Germany from 2003-2007. As you can see, German policy makers basically froze spending.

German Fiscal Restraint

I realize that I’m a libertarian and that I shouldn’t be happy unless the burden of spending is being dramatically reduced, but we’re talking about the performance of European politicians, so I’m grading on a curve.

By that standard, limiting spending so it grows by an average of 0.18 percent is rather impressive. Interestingly, this period of fiscal discipline began when the Social Democrats were in power.

And because the economy’s productive sector was growing at a faster rate during this time, a bit more than 2 percent annually, the relative burden of government spending did fall.

The red line in this next chart shows that the public sector, measured as a share of economic output, fell from almost 49 percent of GDP to less than 44 percent of GDP.

German Spending+Deficit as % of GDP

It’s also worth noting that this four-year period of spending restraint also led to a balanced budget, as shown by the blue line.

In other words, by addressing the underlying problem of too much government, the German government automatically dealt with the symptom of red ink.

That’s the good news.

The bad news is that the German government wasn’t willing to sustain this modest degree of fiscal discipline. The Christian Democrats, who took office in mid-2005, allowed faster spending growth beginning in 2008. As I noted above, the budget increases haven’t been huge, but there’s been enough additional spending that Germany no longer is complying with the Golden Rule and the burden of the public sector is stuck at about 44 percent of GDP.

The moral of the story is that Germany shows that good things happen when spending is restrained, but long-run good performance requires long-run spending discipline.

That’s why I’m a fan of Switzerland’s spending cap. It’s called the “debt brake,” but it basically requires politicians to limit spending so that the budget doesn’t grow much faster than inflation plus population.

And that’s why Switzerland has enjoyed more than a decade of good policy.

To see other examples of nations that have enjoyed fiscal success with period of spending restrain, watch this video.

The Canadian example is particularly impressive.

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The President’s new budget has been unveiled.

There are lots of provisions that deserve detailed attention, but I always look first at the overall trends. Most specifically, I want to see what’s happening with the burden of government spending.

And you probably won’t be surprised to see that Obama isn’t imposing any fiscal restraint. He wants spending to increase more than twice as fast as needed to keep pace with inflation.

Obama 2015 Budget Growth

What makes these numbers so disappointing is that we learned last month that even a modest bit of spending discipline is all that’s needed to balance the budget.

By the way, you probably won’t be surprised to learn that the President also wants a $651 billion tax hike.

That’s in addition to the big fiscal cliff tax hike from early last and the (thankfully smaller) tax increase in the Ryan-Murray budget that was approved late last year.

P.S. Since we’re talking about government spending, I may as well add some more bad news.

I’ve shared some really outrageous examples of government waste, but here’s a new example that has me foaming at the mouth. Government bureaucrats are flying in luxury and sticking taxpayers with big costs. Here are some of the odious details from the Washington Examiner.

What can $4,367 buy? For one NASA employee, it bought a business-class flight from Frankfurt, Germany, to Vienna, Austria. Coach-class fare for the same flight was $39. The federal government spent millions of dollars on thousands of upgraded flights for employees in 2012 and 2013, paying many times more for business and first-class seats than the same flights would have cost in coach or the government-contracted rate. …Agencies report their premium travel expenses to the General Services Administration each year. These reports were obtained by the Washington Examiner through Freedom of Information Act requests. …The most common reasons across agencies for such “premium” flights in 2012 and 2013 were medical necessities and flights with more than 14 hours of travel time.

By the way, “medical necessities” is an easily exploited loophole. All too often, bureaucrats get notes from their doctors saying that they have bad backs (or something similarly dodgy) and that they require extra seating space.

Probably the same doctors who participate in the disability scam.

But I’m digressing. It’s sometimes hard to focus when there are so many examples of foolish government policy.

Let’s look at more examples of taxpayers getting reamed.

One such flight was a trip from Washington, D.C., to Brussels, Belgium, which cost $6,612 instead of $863. Similar mission-required upgrades included several flights to Kuwait for $6,911 instead of $1,471, a flight from D.C. to Tokyo for $7,234 instead of $1,081 and a trip from D.C. to Paris for $6,037 instead of $477. …NASA employees also racked up a long list of flights that cost 26, 72 and even 112 times the cost of coach fares, according to Examiner calculations. Several space agency employees flew from Oslo, Norway, to Tromso, Norway — a trip that should have cost $65. Instead, each flew business class for $4,668. Another NASA employee flew from Frankfurt, Germany, to Cologne, Germany, for $6,851 instead of $133, a flight that cost almost 52 times more than the coach fare. …One flight from D.C. to Hanoi, Vietnam, for an informational meeting cost $15,529 instead of $1,649, according to the agency’s 2012 report.

Frankfurt to Cologne for $6851?!? Did the trip include caviar and a masseuse? A domestic flight in Norway for $4668? Was the plane made of gold?

I do enough international travel to know that these prices are absurd, even if you somehow think bureaucrats should get business class travel (and they shouldn’t).

And as you might suspect, much of the travel was for wasteful boondoggles.

Department of the Interior employees, for example, flew to such exotic locations as Costa Rica, Denmark, Japan and South Africa in 2012. …The Department of Labor sent employees to places like Vietnam and the Philippines for “informational meetings,” conferences and site visits.

The one sliver of good news is that taxpayers didn’t get ripped off to the same extent last year as they did the previous year.

The agencies spent $5.7 million in 2012, almost double the $3 million they paid for premium travel in 2013.

The moral of the story is that lowering overall budgets – as happened in 2013 – is the only effective way of reducing waste.

P.P.S. Want to know why the tax reform plan introduced by Congressman Dave Camp was so uninspiring, as I noted last week?

The answer is that he preemptively acquiesced to the left’s demands that class warfare should guide tax policy. Politico has the details.

Republicans had vowed for more than three years to slash the top individual income tax rate to 25 percent as part of a Tax Code overhaul. …last week Camp abandoned plans for a deep cut in the top marginal tax rate. He settled for 35 percent, which is just 4 percentage points lower than the current one. “It was a distribution issue,” Camp said. Getting all the way down to 25 percent “would have reduced taxes for the top 1 percent” and “I said we would be distributionally neutral.”

In other words, this is the tax code version of the Brezhnev Doctrine. Whenever the left is successful is raising the tax burden on the so-called rich (the top 20 percent already bears two-thirds of the burden), that then supposedly becomes a never-to-be-changed benchmark.

Fortunately, Reagan did not accept the left’s distorted rules and we got the Economic Recovery Tax Act in 1981, which helped trigger the 1980s boom.

And even when Reagan agreed to “distributional neutrality,” as happened as part of the 1986 Tax Reform Act, at least he got something big in exchange.

The Camp plan, by contrast, is thin gruel.

A big rate cut is what powered the last major tax overhaul, in 1986, which delivered tax cuts to every income group while slicing the top rate to 28 percent from a whopping 50 percent. …Lawmakers may look at the proposal and think: “I’m having the world coming down on me” and “all this just to get the rate down 4 points?”

That being said, the Camp plan has plenty of good features, including modest rate reductions and repeal of a few bad loopholes. But it’s accompanied by some really bad provisions, such as increased double taxation and higher taxes on business investment.

P.P.P.S. Long-time readers may remember this amusing Reagan-Obama comparison.

For understandable reasons, that’s what crossed my mind when seeing this example of Obama humor.

I should hasten to add, incidentally, that this is not to suggest I want Obama to do anything about the Ukrainian conflict (other than perhaps encourage decentralized power).

Unless one genuinely thinks that Putin has both the capacity and the desire for global imperialism, it’s hard to see how America’s national security is affected.

But I still appreciate good political humor. I like it when Obama is the target, and I like it even when it’s directed at people like me.

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On several occasions, I’ve observed that the poverty rate in America was steadily falling, but that progress came to a halt in the mid-1960s when the government declared a War on Poverty.

And I almost always included a chart showing the annual poverty rate over several decades.

Moreover, I posted graphs showing how government programs trap people in dependency because of very high implicit marginal tax rates. And that’s true in other nations as well.

But it didn’t matter how many times I revisited this issue, I was never clever enough to look at the poverty-rate data to estimate what would have happened if the federal government hadn’t become involved.

Fortunately, John Goodman of the National Center for Policy Analysis was insightful enough to fill the breach. He shows that the War on Poverty has made a big difference. But in the wrong way.

Poverty Goodman

Here’s some of what John wrote about the topic in a column for Forbes.

From the end of World War II until 1964 the poverty rate in this country was cut in half. Further, 94% of the change in the poverty rate over this period can be explained by changes in per capita income alone. Economic growth is clearly the most effective antipoverty weapon ever devised by man. The dotted line shows what would have happened had this trend continued. Economic growth would have reduced the number in poverty to a mere 1.4% of the population today—a number so low that private charity could probably have taken care of any unmet needs. …we didn’t continue the trend. In 1965 we launched a War on Poverty. And as the graph shows, in the years that followed the portion of Americans living in poverty barely budged.

John augments this analysis by looking at some of the social science research about poverty and government dependency.

The numbers are very depressing.

…here is something you may not know. Early on ― in the first decade of our 50-year experiment with an expanded welfare state ― carefully controlled experiments funded by the federal government established without question that welfare changes behavior. It leads to the very behavioral changes that keep people in a state of poverty and dependency. …The experiments were all conducted by social scientists who believed in the welfare state and had no doubt about its capacity to be successful. …The experiments were all controlled. Randomly selected people were assigned to a “control group” and an “experimental group.” …the results were not pretty. To the dismay of the researchers, they largely confirmed what conventional wisdom had thought all along. …The number of hours worked dropped 9% for husbands and 20% for wives, relative to the control group. For young male adults it dropped 43% more. The length of unemployment increased 27% among husbands and 42% for wives, relative to the control group. For single female heads of households it increased 60% more. Divorce increased 36% more among whites and 42% more among blacks. (In a New Jersey experiment, the divorce rate was 84% higher among Hispanics.)

President Obama and other folks on the left don’t seem overly interested in this data.

Instead, they beat the drums about class warfare and income inequality.

They want us to believe the economy is a fixed pie and that all of us somehow get less if some entrepreneur becomes rich.

But John’s point from the column is correct. Economic growth is the way to help the poor, not redistribution.

Unfortunately, many politicians are hostile to the types of policies that produce more growth. Maybe it’s because they don’t understand economics. Or maybe they understand economics but don’t care because they think they’ll be more successful at the ballot box if they pursue the politics of envy and division.

But regardless of motive, bigger government doesn’t have good results, as illustrated by this Gary Varvel cartoon.

Political Cartoons by Gary Varvel

This Chip Bok cartoon, featuring Obama with his ideological soulmate, also is worth sharing.

Political Cartoons by Chip Bok

P.S. Margaret Thatcher has the best-ever takedown of the left’s inequality agenda.

P.P.S. If you want to get agitated, click here to see how a bureaucracy in Paris is using American tax dollars to push a crazy new definition of poverty. Why? To promote more redistribution.

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There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.

Simply stated, we get more jobs, output, and growth when resources are allocated by competitive markets. But when resources are allocated by political forces, cronyism and pork cause inefficiency and waste.

That’s why statist nations languish and market-oriented countries flourish.

Paul Krugman has a different perspective on these issues, which is hardly a revelation. But I am surprised that he oftentimes doesn’t get the numbers quite right when he delves into specific case studies.

He claimed that spending cuts caused an Estonian economic downturn in 2008, but the government’s budget actually skyrocketed by 18 percent that year.

He complained about a “government pullback” in the United Kingdom even though the data show that government spending was climbing faster than inflation.

He even claimed that Hollande’s election in France was a revolt against austerity, notwithstanding the fact that the burden of government spending rose during the Sarkozy years.

My colleague Alan Reynolds pointed out that Krugman mischaracterized the supposed austerity in the PIIGS nations such as Portugal, Ireland, Italy, Greece, and Spain.

We have another example to add to the list.

He now wants us to believe that Germany has been a good Keynesian nation.

Here’s some of what Professor Krugman wrote for the New York Times.

I hear people trying to dismiss the overwhelming evidence for large economic damage from fiscal austerity by pointing to Germany: “You say that austerity hurts growth, but the Germans have done a lot of austerity and they’re booming.” Public service announcement: Never, ever make claims about a country’s economic policies (or actually anything about economics) on the basis of what you think you’ve heard people say. Yes, you often hear people talking about austerity, and the Germans are big on praising and demanding austerity. But have they actually imposed a lot of it on themselves? Not so much.

In some sense, I agree with Krugman. I don’t think the Germans have imposed much austerity.

But here’s the problem with his article. We know from the examples above that he’s complained about supposed austerity in places such as the United Kingdom and France, so one would think that the German government must have been more profligate with the public purse.

After all, Krugman wrote they haven’t “imposed a lot of [austerity] on themselves.”

So I followed the advice in Krugman’s “public service announcement.” I didn’t just repeat what people have said. I dug into the data to see what happened to government spending in various nations.

And I know you’ll be shocked to see that Krugman was wrong. The Germans have been more frugal (at least in the sense of increasing spending at the slowest rate) than nations that supposedly are guilty of “spending cuts.”

German Austerity Krugman

To ensure that I’m not guilty of cherry-picking the data, I look at three different base years. But it doesn’t matter whether we start before, during, or after the recession. Germany increased spending at the slowest rate.

Moreover, if you look at the IMF data, you’ll see that the Germans also were more frugal than the Swedes, the Belgium, the Dutch, and the Austrians.

So I’m not sure what Krugman is trying to tell us with his chart.

By the way, spending in Switzerland grew at roughly the same rate as it did in Germany. So if Professor Krugman is highlighting Germany as a role model, maybe we can take that as an indirect endorsement of Switzerland’s very good spending cap?

But I won’t hold my breath waiting for that endorsement to become official. After all, Switzerland has reduced the burden of government spending thanks to the spending cap.

Not exactly in line with Krugman’s ideological agenda.

P.S. This isn’t the first time I’ve had to deal with folks who mischaracterize German fiscal policy. When Professor Epstein and I debated a couple of Keynesians in NYC as part of the Intelligence Squared debate, one of our opponents asserted that Germany was a case study for Keynesian stimulus. But when I looked at the data, it turned out that he was prevaricating.

P.P.S. This post, I hasten to add, is not an endorsement of German fiscal policy. As I explained while correcting a mistake in the Washington Post, the burden of government is far too large in Germany. The only good thing I can say is that it hasn’t grown that rapidly in recent years.

P.P.P.S. Let’s close with a look at another example of Krugman’s misleading work. He recently implied that an economist from the Heritage Foundation was being dishonest in some austerity testimony, but I dug into the numbers and discovered that, “critics of Heritage are relying largely on speculative data about what politicians might (or might not) do in the future to imply that the Heritage economist was wrong in his presentation of what’s actually happened over the past six years”

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Did you sing Happy Birthday?

The nation just “celebrated” the fifth anniversary of the signing of the so-called American Recovery and Reinvestment Act, Political Cartoons by Nate Beelermore commonly referred to as the “stimulus.”

This experiment in Keynesian economics was controversial when it was enacted and it’s still controversial today.

The Obama Administration is telling us that the law was a big success, but I have a far more dour assessment of the President’s spending binge.

Here’s some of what I wrote about the topic for The Federalist.

The White House wants us to think the legislation was a success, publishing a report that claims the stimulus “saved or created about 6 million job-years” and “raised the level of GDP by between 2 and 3 percent from late 2009 through mid-2011.”

Sounds impressive, right?

Unfortunately, these numbers for jobs and growth are based on blackboard models that automatically assume rosy outcomes.

Here’s how I explain it in the article.

…how, pray tell, did the White House know what jobs and growth would have been in a hypothetical world with no stimulus? The simple answer is that they pulled numbers out of thin air based on economic models using Keynesian theory. …Keynesian economics is the perpetual motion machine of the left. They build models that assume government spending is good for the economy and they assume that there are zero costs when the government takes money from the private sector. That type of model then automatically generates predictions that bigger government will “stimulate’ growth and create jobs. The Keynesians are so confident in their approach that they’ll sometimes even admit that they don’t look at real world numbers. And that’s what the White House did in its estimate. The jobs number (or, to be more technical, the job-years number) is built into the model. It’s not a count of actual jobs.

In the real world, however, you can count jobs.

As part of my article, I looked at the Minneapolis Federal Reserve Bank’s interactive website and compared the current recovery to all business cycle expansions in the post-World War II era.

And I did that comparison for jobs and growth. Here are the numbers for the labor market. The current recovery is in red, and you can see that the nation is “stumbling through the second-worst recovery for job creation in the post-WWII era.”

Minn Fed Recovery Jobs Data

And here are the Minneapolis Fed’s numbers for growth.

It doesn’t seem possible, but GOP performance has been even worse than job performance. We are mired in stagnation. As I noted, “the current recovery (red line) is the weakest expansion since World War II.”

Minn Fed Recovery GDP Data

In other words, it’s very difficult to argue – looking at the numbers – that the President’s main economic initiative was a success.

So why did it flop?

I pontificate in the article, pointing out three specific problems with Keynesian economics. I start with the elementary observation that the theory is based on the notion that you can become richer by taking money out of one pocket and putting it in another pocket.

…there is an “opportunity cost” when government borrows money and spends it. Resources are diverted from the productive sector of the economy. This might not be a problem if government spent money wisely, but stimulus schemes tend to reward interest groups with the most political clout. So instead of outlays for physical and human capital, which at least theoretically might improve the economy’s productive capacity, the White House directed the bulk of the stimulus to redistribution programs and handouts to state governments.

I then make a critical observation about how you shouldn’t try to solve one set of bad government policies with another layer of bad policy.

…the Keynesians don’t seem to appreciate that recessions generally are the result of bad government policies – such as inflation, housing subsidies, etc – that lead to fundamental and unsustainable economic imbalances. Unfortunately, more government spending often is designed to prop up these imbalances, which can create a longer and more painful period of adjustment.

Political Cartoons by Eric AllieBut the clincher, at least for most people, is the simple fact that Keynesianism doesn’t work.

But the biggest problem with Keynesianism is that the real-world evidence is so unfriendly. Consider, for instance, that the White House claimed that the unemployment would never climb above 8 percent if the stimulus was adopted. The following chart shows the actual unemployment projection put together by the Obama Administration, but modified to show the actual monthly unemployment rates the country experienced. …And that’s just the tip of the stimulus iceberg. Keynesian economics has a long track record of failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Nixon, Ford, and Carter in the 1970s. It didn’t work for Japan in the 1990s. And it hasn’t worked this century for either Bush or Obama.

And guess what? I’m going to make a very sad prediction that we’ll get more Keynesian economics in the future, but it’s easy to predict right now that these future spending binges will fail just like previous stimulus schemes have flopped.

P.S. Here’s my video on Keynesian economics and here’s my video on Obama’s failed stimulus.

P.P.S. If you’d rather laugh than hear my voice, my favorite cartoons on Keynsianism can be viewed here and here.

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When I give speeches around the country, I often get asked whether it’s time to give up.

More specifically, has America reached a tipping point, with too many people riding in the wagon of government dependency and too few people creating wealth and pulling the wagon in the right direction?

These questions don’t surprise me, particularly since my speeches frequently include very grim BIS, OECD, and IMF data showing that the long-run fiscal problem in the United States is larger than it is in some nations that already are facing fiscal crisis.

But that doesn’t mean I have a good answer. I think there is a tipping point, to be sure, but I’m not sure whether there’s a single variable that tells us when we’ve reached the point of no return.

Is it when government spending consumes 50 percent of economic output? That would be a very bad development if the burden of government spending reached that level, but it’s not necessarily fatal. Back in the early 1990s, the public sector was that big in Canada, yet policy makers in that country were able to restrain budgetary growth and put the country on a positive path. Sweden is another nation that has turned the corner. Government spending peaked at 67 percent of GDP in the early 1990s, but is now down to 47 percent of GDP after years of free-market reforms.

Is it when a majority of households are getting government handouts? That’s also a worrisome development, especially if those folks see the state as a means of living off their fellow citizens. But taking a check from Uncle Sam doesn’t automatically mean a statist mindset. As one of my favorite people opined, “some government beneficiaries – such as Social Security recipients – spent their lives in the private sector and are taking benefits simply because they had no choice but to participate in the system.”

Is it when a majority of people no longer pay income taxes, leaving a shrinking minority to bear all the burden of financing government? It’s not healthy for society when most people think government is “free,” particularly if they perceive an incentive to impose even higher burdens on those who do pay. And there’s no question that the overwhelming majority of the tax burden is borne by the top 10 percent. There’s little evidence, though, that the rest of the population thinks there’s no cost to government – perhaps because many of them pay heavy payroll taxes.

I explore these issues in this interview with Charles Payne.

The main takeaway from the interview is that the tipping point is not a number, but a state of mind. It’s the health of the nation’s “social capital.”

So for what it’s worth, the country will be in deep trouble if and when the spirit of self-reliance becomes a minority viewpoint. And the bad news is that we’re heading in that direction.

The good news is that we’re not close to the point of no return. There is some polling data, for instance, showing that Americans still have a much stronger belief in liberty than their European counterparts.

And we’ve even made a small bit of progress against big government in the past few years.

I speculated in the interview that we probably have a couple of decades to save the country, but it will become increasingly difficult to make the necessary changes – such as entitlement reform and welfare decentralization – as we get closer to 2020 and 2030.

Welfare State Wagon CartoonsAnd if those changes don’t occur…?

That’s a very grim subject. I fully understand why some Americans are thinking about the steps they should take to protect their families if reforms don’t occur and a crisis occurs.

Indeed, this to me is one of the most compelling arguments against gun control. If America begins to suffer the chaos and disarray that we’ve seen in nations such as Greece, it’s better to be well-armed.

Though maybe there will be some nations that remain stable as the world’s welfare states collapse. And if emigration is your preferred option, I’d bet on Australia.

But wouldn’t it be better to fix what’s wrong and stay in America?

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I feel a bit like Goldilocks.

No, this is not a confession about cross-dressing or being transsexual. I’m the boring kind of libertarian.

Instead, I have a run-of-the-mill analogy. Think about when you were a kid and your parents told you the story of Goldilocks and the Three Bears.

You may remember that she entered the house and tasted bowls of porridge that were too hot and also too cold before she found the porridge that was just right.

And then she found a bed that was too hard, and then another that was too soft, before finding one that was just right.

Well, the reason I feel like Goldilocks is because I’ve shared some “Rahn Curve” research suggesting that growth is maximized when total government spending consumes no more than 20 percent of gross domestic product. I think this sounds reasonable, but Canadians apparently have a different perspective.

Back in 2010, a Canadian libertarian put together a video that explicitly argues that I want a government that is too big.

Now we have another video from Canada. It was put together by the Fraser Institute, and it suggests that the public sector should consume 30 percent of GDP, which means that I want a government that is too small.

My knee-jerk reaction is to be critical of the Fraser video. After all, there are examples – both current and historical – of nations that prosper with much lower burdens of government spending

Singapore and Hong Kong, for instance, have public sectors today that consume less than 20 percent of economic output. Would those fast-growing jurisdictions be more prosperous if the burden of government spending was increased by more than 50 percent?

Or look at Canadian history. As recently as 1920, government outlays were 16.7 percent of economic output. Would Canada have grown faster if lawmakers at the time had almost doubled the size of government?

And what about nations such as the United States, Germany, France, Japan, Sweden, and the United Kingdom, all of which had government budgets in 1870 that consumed only about 10 percent of GDP. Would those nations have been better off if the burden of government spending was tripled?

I think the answer to all three questions is no. So why, then, did the Fraser Institute conclude that government should be bigger?

There are three very reasonable responses to that question. First, the 30 percent number is actually a measurement of where you theoretically maximize “social progress” or “societal outcomes.” If you peruse the excellent study that accompanies the video, you’ll find that economic growth is most rapid when government consumes 26 percent of GDP.

Second, the Fraser research – practically speaking – is arguing for smaller government, at least when looking at the current size of the public sector in Canada, the United States, and Western Europe. According to International Monetary Fund data, government spending consumes 41 percent of GDP in Canada, 39 percent of GDP in the United States, and 55 percent of GDP in France.

The Fraser Institute research even suggests that there should be significantly less government spending in both Switzerland and Australia, where outlays total “only” 34 percent of GDP.

Third, you’ll see if you read the underlying study that the author is simply following the data. But he also acknowledges “a limitation of the data,” which is that the numbers needed for his statistical analysis are only available for OECD nations, and only beginning in 1960.

This is a very reasonable point, and one that I also acknowledged when writing about some research on this topic from Finland’s Central Bank.

…those numbers…are the result of data constraints. Researchers looking at the post-World War II data generally find that Hong Kong and Singapore have the maximum growth rates, and the public sector in those jurisdictions consumes about 20 percent of economic output. Nations with medium-sized governments, such as Australia and the United States, tend to grow a bit slower. And the bloated welfare states of Europe suffer from stagnation. So it’s understandable that academics would conclude that growth is at its maximum point when government grabs 20 percent of GDP. But what would the research tell us if there were governments in the data set that consumed 15 percent of economic output? Or 10 percent, or even 5 percent? Such nations don’t exist today.

For what it’s worth, I assume the author of the Fraser study, given the specifications of his model, didn’t have the necessary post-1960 data to include small-state, high-growth, non-OECD jurisdictions such as Hong Kong and Singapore. If that data had been available, I suspect he also would have concluded that government should be closer to 20 percent of economic output.

I explore all these issues in my video on this topic.

The moral of the story is that government is far too large in every developed nation.

I suspect even Hong Kong and Singapore have public sectors that are too large, causing too many resources to be diverted from the private sector.

But since I’m a practical and moderate guy, I’d be happy if the burden of government spending in the United States was merely reduced back down to 20 percent of economic output.

P.S. Though I would want the majority of that spending at the state and local level.

P.P.S. Since I’m sharing videos today, here’s an amusing video from American Commitment about the joy of being “liberated” from employment.

And if you like snarky videos about Obamacare, here are some based on sex and mockery, and there’s even a Hitler parody.

P.P.P.S. This has nothing to do with public policy, but I got a good chuckle from this news out of Iraq.

A group of Sunni militants attending a suicide bombing training class at a camp north of Baghdad were killed on Monday when their commander unwittingly conducted a demonstration with a belt that was packed with explosives, army and police officials said. …Twenty-two ISIS members were killed, and 15 were wounded, in the explosion at the camp.

One of the reasons I laughed is that I recalled a cartoon that was sent to me many years ago. And when I dug into my humor folder, it was still there.

I think you’ll see the obvious connection.

Terrorist School

And since we’re venturing into humor about self-detonating terrorists, here’s another joke from my treasure trove.

===================================

Guy goes into a sex shop and asks for an inflatable doll.

Guy behind the counter says, “Male or female?”

Customer says, “Female.”

Counter guy asks, “Black or white?

Customer says, “White.”

Counter guy asks, “Christian or Muslim?”

Customer says, “What the hell does religion have to do with it?”

Counter guy says, “The Muslim one blows itself up.”

===================================

And here’s another joke that’s worth sharing.

Garfield Terrorist

If this isn’t enough terrorism-related humor for you, we also have this collection of stereotypes I received from an English friend.

This image, meanwhile, doubtlessly has caused a few nightmares in certain quarters.

And this Jay Leno joke is one of the best examples of anti-political correctness I’ve ever seen.

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The Bible says that “the wages of sin is death,” but the same can’t be said of Washington, DC.

The bureaucrats, lobbyists, politicians, contractors, insiders, cronyists, and influence peddlers have rigged the system so that they get rich by diverting money from people in the productive sector of the economy.

How bad is the disconnect between Washington and real America?

Well, according to Gallup’s Economic Confidence Index, people in every state have a negative outlook.

But there is one outpost of giddy prosperity, and that’s the District of Columbia, where residents have a 20-point gap compared to the most optimistic (or, to be more accurate, least pessimistic) state and a whopping 35-point gap with the average American.

Gallup Confidence DC

If you’re a glass-half-full person, there is a tiny sliver of good news in the new Gallup report.

It turns out that DC is not as fat and happy as it was one year ago, and the likely reason is that the federal Leviathan got put on a modest diet.

The District of Columbia (+19) is the clear outlier in economic confidence, having the only positive reading for 2013 and well above the readings for even the most optimistic states. Its confidence has taken a hit, however, since 2012, when its index was +29. Likely factors in the 10-point drop include October’s federal government shutdown as well as the sequestration spending cuts that occurred earlier in the year.

This explains, of course, why lobbyists were so bitterly opposed to the sequester. It reduced the money flow to Washington, and that meant less of our money to be shared by looter class that dominates the DC establishment.

Unfortunately, the establishment ultimately prevailed and they weakened the sequester as part of the Murray-Ryan tax-hike budget deal.

So don’t be surprised if Washington’s Economic Confidence Index is higher when new numbers are released next year.

And that means that we’ll be one step closer to being another Argentina, a nation on the decline because a corrupt elite uses the coercive power of government to obtain undeserved and unearned wealth.

And the most depressing sign that this already is happening to the United States is that so many of America’s richest communities are now part of the Washington metropolitan area.

P.S. I’m a big fan of Australia. Their private Social Security system is a huge success, and I’ve even suggested that it might be the best place to go if America suffers a Greek-style fiscal collapse.

But that doesn’t mean its government isn’t capable of squandering money in stupendous fashion. Check out this blurb from an Australian news report.

A refrigerator lightbulb retailing for about $3 at a hardware store ended up costing a far north Queensland state school almost $500 after Queensland’s Public Works Department sent an electrician to install it in a teacher’s government-owned home. Doomadgee State School, on the Gulf of Carpentaria, was billed $200 for labour alone after the teacher was told workplace health and safety regulations prevented any staff member from buying and replacing the bulb themselves

This sounds even crazier than some of the absurd examples of waste that I listed last month.

And since I’m in the uncharacteristic position of beating up on Australia, you may as well click here and here to see other examples of government stupidity Down Under.

Though, to be fair, at least the Aussies manage to involve sex when trying to bilk the workplace compensation system.

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Over the years, I’ve shared many charts, graphs, and tables to help people understand that the welfare state is fundamentally unsustainable.

And, assuming there’s not genuine entitlement reform, many of these fiscal estimates show that the United States has a very perilous future.

According to the Bank for International Settlements, the United States is in worse shape than every nation other than Japan and the United Kingdom.

According to the Organization for Economic Cooperation and Development, the United States has a bigger long-run fiscal problem than all countries other than New Zealand and Japan.

And according to International Monetary Fund estimates of both future spending increases and the need for reform, no nation has a bigger problem than the United States.

So do all these numbers mean the United States is really in worse shape than basket cases such as Italy, Spain, Japan, France, and Greece?

Yes and no. I realize that answer makes me sound like a politician, but it is  hard to answer that question because America’s grim long-run numbers are largely a function of rapidly rising health care spending.

And if you assume that Medicare, Medicaid, and Obamacare are left unreformed, then the budgets for these programs will eat up an ever-larger share of our economy and we’ll eventually suffer a fiscal collapse.

However, if you assume that these programs at some point get reformed (and it better be the right kind of reform), then the long-run outlook is considerably less severe.

But notice that I wrote “less severe.” That’s because we still have a demographic issue. Any type of pay-as-you-go welfare state becomes increasingly expensive when there are more and more old people and fewer and fewer young workers.

This is why new projections from the Pew Research Center are so sobering. They show the change in age dependency ratio between now and 2050.

As you can see, we currently have about 50 young or old people for every 100 working-age people. By 2050, however, there will be 66 dependents for every 100 working-age people. And most of that added dependency will be caused by an aging population, not more children.

Age Dependency Ratio Pew

But here’s the good news. Compared to nations such as Spain and Japan, we’re in pretty good shape. Or, to be more accurate, we don’t face as deep of a problem. Indeed, it’s hard to see how those nations will survive.

Same with South Korea and Italy.

Even Germany has a very difficult future. Its welfare state may not be as bloated as some other nations in Europe, and the work ethic may be stronger than most other European countries, but as I already explained, any welfare state becomes unsustainable without new workers to pay taxes to support the dependent class.

In other words, demographics can be destiny. Look at this data on the nations with the lowest fertility rates. You’ll notice that Germans are not reproducing. And the same is true of the Japanese, Italians, and South Koreans (Spain is in 191st place, so they also aren’t having many kids).

Fertility Rate by Nation

I don’t know where this will lead, but it won’t be pretty. Simply stated, the welfare states in these nations will have to be reformed.

But how does that happen in countries where people have been told for decades that they have a “human right” to freebies from the government?

I fear that European nations are going to suffer some major dislocations. And as this Michael Ramirez cartoon suggests, the same problem could happen in America.

Let’s close with some optimism. You’ll notice that two of the four jurisdictions with the lowest fertility rates in the entire world are Hong Kong and Singapore. Yet there’s no major long-run fiscal crisis in those places.

Why? Because they have “pre-funded” retirement systems. In other words, they have personal retirement accounts instead of tax-and-transfer entitlement systems.

The moral of the story is that demographics can be destiny, but it doesn’t have to be.

Something to keep in mind next time there’s a discussion of Social Security reform.

P.S. Considering the high levels of pulchritude in Estonia, Latvia, and Lithuania, I’m mystified that there’s so little reproduction in those nations. Maybe I should volunteer to help out?

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A just-released report from the bean counters at the Congressional Budget Office is getting lots of attention because the bureaucrats are now admitting that Obamacare will impose much more damage to the economy than they previously predicted.

Of course, many people knew from the start that Obamacare would be a disaster and that it would make the healthcare system even more dysfunctional, so CBO is way behind the curve.

Moreover, CBO’s deeply flawed estimates back in 2009 and 2010 helped grease the skids for passage of the President’s failed law, so I hardly think they deserve any applause for now producing more realistic numbers.

But today’s post isn’t about the Obamacare fiasco. I want to focus instead on some other numbers in the new CBO report.

The bureaucrats have put together their new 10-year “baseline” forecast of how much money the government will collect based on current tax laws and the latest economic predictions.

These numbers show that tax revenue is projected to increase by an average of 5.4 percent per year.

As many readers already know, I don’t fixate on balancing the budget. I care much more about reducing the burden of government spending and restoring the kind of limited government our Founding Fathers envisioned.

But whenever the CBO publishes new numbers, I can’t resist showing how simple it is to get rid of red ink by following my Golden Rule of fiscal restraint.

Here’s a chart showing projected revenue over the next 10 years, along with lines showing what happens if spending (currently $3.54 trillion) follows various growth paths.

Balancing the Budget Is Easy

The two biggest takeaways are that a spending freeze (similar to what we got in 2012 and 2013) would almost balance the budget in 2016 and would definitely produce a budget surplus in 2017.

I also highlight what would happen if politicians merely limited spending so it grew at the rate of inflation, about 2.3 percent per year. Under that scenario, the budget would be balanced in 2019 (actually a $20 billion surplus, but that’s an asterisk by Washington standards).

In other words, there is no need to raise taxes. It’s very simple to balance the budget without extracting more money from taxpayers.

This means the Simpson-Bowles people are wrong. The Domenici-Rivlin folks are wrong. Senator Patty Murray is wrong. Jeb Bush and Lindsey Graham are wrong. And (here’s a surprise) the Obama Administration is wrong.

And we have some additional evidence. It’s a chart taken directly from the CBO report and it shows that revenues over the next 10 years will be above the long-run average. This is because even weak growth slowly but surely produces more revenue for Washington, in part because it gradually pushes people into higher tax brackets.

CBO Above-Average Revenues

And this chart just looks at the next 10 yeas. If you peruse the long-run fiscal projections, you’ll see that the tax burden is projected to increase dramatically over the next several decades.

The moral of the story is that there should be tax cuts (ideally as part of tax reform), not tax increases.

P.S. Just in case you think I was being unfair in my description of the Congressional Budget Office, keep in mind that these are the bureaucrats who advise Congress that economic performance increases when taxes go up.

P.P.S. And even though CBO is finally admitting some of the flaws in Obamacare, the bureaucrats are still unrepentant Keynesians. Check out this excerpt from a story in yesterday’s Washington Post.

Rep. Chris Van Hollen (Md.), the top Democrat on the committee, cited the CBO’s finding that the law will “boost overall demand for goods and services over the next few years,” This is because people benefiting from its expansion of Medicaid and insurance subsidies will likely have extra money to spend, which “will in turn boost demand for labor over the next few years,” the report says.

So CBO would like us to believe that the more money the government redistributes, the more growth we’ll get. I guess this explains why France is such an economic dynamo.

More seriously, this is the same flawed analysis that allowed CBO to claim the so-called stimulus was creating jobs as employment was falling.

You can understand why I’ve written that Keynesian economics is the left’s perpetual motion machine.

P.P.P.S. Here’s a Center for Freedom and Prosperity video that I narrated back in 2010, which explains why it is simple to balance the budget. The numbers in the video obviously need to be replaced with the ones I shared above, but the analysis is still right on the mark.

P.P.P.P.S. And if you want to know how to achieve the modest spending restraint needed to balance the budget, the Swiss “debt brake” would be a good place to start.

It’s really a spending cap, and it’s worth noting that the Swiss budget has increased by only 2 percent per year since voters imposed the law back in 2001.

Or maybe we could somehow hope that politicians would simply be responsible, like lawmakers in Canada and New Zealand in the 1990s. Or we could reincarnate Reagan. Or even bring back Clinton.

P.P.P.P.P.S. Since we started this post by talking about how Obamacare is undermining the economy, let’s close with a great example of Obamacare humor.

Remember Pajama Boy? Well, he’s back for an encore performance thanks to some very clever people at Americans for Prosperity.

There’s no update, by the way, on whether being without a job impacts his chances of getting a date with Julia. They’d make such a good couple.

Pajama Boy Jobless

This is amusing, but it surely isn’t as funny as President Obama’s Chief Economist, who actually argued with a straight face that it was a good sign that Obamacare was leading people to drop out of the labor force because unemployment  “might be a better choice and a better option than what they had before.”

Sort of reminds me of this Chuck Asay cartoon, or this famous set of wagon cartoons.

Dependency for more and more people. Such an inviting concept…until this happens.

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Self awareness is supposed to be a good thing, so I’m going to openly acknowledge that I have an unusual fixation on the size of government.

I don’t lose a wink of sleep thinking about deficits, but I toss and turn all night fretting about the overall burden of government spending.

My peculiar focus on the size and scope of government can be seen in this video, which explains that spending is the disease and deficits are just a symptom.

Moreover, my Golden Rule explicitly targets the spending side of the budget. And I also came up with a “Bob Dole Award” to mock those who mistakenly dwell on deficits.

With all this as background, you’ll understand why I got excited when I started reading Robert Samuelson’s column in today’s Washington Post.

Well, there’s a presidential whopper. Obama is right that the role of the federal government deserves an important debate, but he is wrong when he says that we’ve had that debate. Just the opposite: The White House and Congress have spent the past five years evading the debate. They’ve argued over federal budget deficits without addressing the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving… The avoidance is entirely bipartisan. Congressional Republicans have been just as allergic to genuine debate as the White House and its Democratic congressional allies.

By the way, I have mixed feelings about the final sentence in that excerpt. Yes, Republicans oftentimes have displayed grotesque levels of fiscal irresponsibility. Heck, just look at the new farm bill. Or the vote on the Export-Import Bank. Or the vote on housing subsidies. Or…well, you get the point.

On the other hand, GOPers have voted for three consecutive years in favor of a budget that restrains the growth of federal spending, in large part because it includes much-needed reforms to major entitlement programs such as Medicare and Medicaid.

But Republican inconsistency isn’t our focus today.

I want to address other parts of Samuelson’s column that left a bad taste in my mouth.

He argues that you can’t balance the budget merely by cutting discretionary programs. That’s technically untrue, but it’s an accurate assessment of political reality.

I’m much more worried about his assertion that you can’t balance the budget even if entitlement spending also is being addressed.

Let’s look at what he wrote and then I’ll explain why he’s wrong.

Eliminating many programs that are arguably marginal — Amtrak, subsidies for public broadcasting and the like — would not produce enough savings to balance the budget. The reason: Spending on Social Security, Medicare and other health programs… But even plausible benefit trims for affluent retirees would still leave deficits. There would still be a need for tax increases.

This is wrong. Not just wrong, but demonstrably inaccurate.

The Ryan budget, for instance, balanced the budget in 2023. Without a single penny of tax hikes.

Senator Rand Paul and the Republican Study Committee also have produced balanced budget plans. Even as scored by the statists at the Congressional Budget Office.

By the way, you don’t even need to cut spending to balance the budget. Spending cuts would be desirable, of course, but the key to eliminating red ink is simply making sure that government spending climbs at a slower rate than revenues.

And since revenues are expected to grow by about 6 percent per year, it shouldn’t take advanced knowledge of mathematics to realize that the deficit will fall if spending grows by less than 6 percent annually.

Indeed, we could balance the budget as early as 2018 if spending merely was restrained so that the budget grew at the rate of inflation.

But never forget that the goal of fiscal policy should be shrinking the size and scope of the federal government, not fiscal balance.

Ask yourself the following questions. If $1 trillion floated down from Heaven and into the hands of the IRS, would that alter in any way the argument for getting rid of wasteful and corrupt parts of the federal leviathan, such as the Department of Housing and Urban Development?

If the politicians had all that extra money and the budget was balanced, would that mean we could – or should – forget about entitlement reform?

If there was no red ink, would that negate the moral and economic imperative of ending the welfare state?

In other words, the first part of Samuelson’s column is right. We need a debate about “the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving.”

But we’re not going to come up with a good answer if we don’t understand basic fiscal facts.

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If you want to know why the left is wrong about income inequality, you need to watch this Margaret Thatcher video. In just a few minutes, the “Iron Lady” explains how some – perhaps most – statists would be willing to reduce income for the poor if they could impose even greater damage on the rich.

This picture is another way of getting across the same point. It was sent to me by Richard Rahn (famous for the Rahn Curve), and it uses two pizzas to show how leftist policies would “solve” inequality.

Leftist Fairness

I like this analogy, and not just because I also used the pizza analogy to make the same argument in this TV interview.

The growing or shrinking pizza is useful because it helps to focus people on the importance of growth.

Nations that follow the right policy recipe can enjoy the kind of strong and sustained growth that enables huge increases in prosperity for all income classes. In other words, everyone can have a bigger slice if the pie is growing.

I even tried to educate a PBS audience that growth is better than redistribution if you really want to help the poor. Talk about Daniel in the Lion’s Den!

I don’t know if I persuaded anyone, but at least the facts are on my side. Consider, for instance, how the world’s two most laissez-faire jurisdictions – Hong Kong and Singapore – have overtaken the United States over the past 50-plus years.

That’s been great news for low-income and middle-income people, not just the rich.

So ask yourself whether you’d rather be a poor person in one of those jurisdiction or in France. The government in France has all sorts of programs to make your life easier, but you have very little hope of escaping a life of dependency.

And now ask yourself whether it’s good that Obama is doing his best to push America in that direction.

P.S. If you want another example of how long-run growth makes a big difference, check out this chart comparing Chile, Argentina, and Venezuela. Not only has Chile overtaken the other nation thanks to pro-market reforms, but the poverty rate has fallen dramatically.

P.P.S. Since this post shares a very good image about income inequality, let’s include a bonus picture on taxation.

It’s a helpful suggestion on how to make kids aware of the cost of big government.

Tax Lesson for Kids

Though let’s be sure to acknowledge that Obama is doing what he can to make kids more skeptical of class warfare.

P.P.P.S. On a separate topic, I’ve explained that the so-called “austerity” vs “growth” argument is grossly misguided because Keynesian spending isn’t pro-growth and also because it’s important to distinguish between good austerity and bad austerity.

Too many governments are choosing the wrong type of austerity, imposing destructive tax hikes on the private sector. What’s really needed in genuine spending restraint so that “austerity” is imposed on the public sector.

But some folks on the left say there’s been too much spending restraint in recent years.

So who’s right? Well, UBS has produced a report containing some very useful data.

Viewing the global economy as a single unit, we see a very  different picture to the post-crisis world of austerity – at least if “austerity” is taken to mean government spending cuts. The two largest components of global GDP, namely private consumption and fixed investment, both hit multi-year peaks in the first quarter of 2008. …Since the start of 2008, government consumption at the  global level has risen by 20% in real terms, whereas private consumption and fixed investment have risen just 8% and 5%, respectively. In other words, despite talk of austerity, government spending continues to run ahead of private-sector spending.

Hmmm…the burden of government has been growing faster than the private sector. That’s the opposite of what the Golden Rule calls for.

And not only has government been growing too fast in the past, it’s likely that fiscal policy will get even worse in the future.

Structurally, government debt, government spending, and the share of government within the economy must be sustainable. Government consumption’s share of global GDP has risen from 11% to 14% over the past 15 years. In 2013, it reached its highest level since 1980. At the same time, government debt-to-GDP ratios have hit record highs in many countries. In the long run, such elevated levels of expenditure (and corresponding levels of debt and deficit) are probably not sustainable, in particular, given other structural changes underway. For instance, demographic trends in many advanced economies pose challenges.

The moral of the story is that America and other nations should be restraining budgets, ideally by enacting the right kind of entitlement reform.

Though I’m worried that Obama is learning the wrong lesson from what’s happening in Europe.

Indeed, this Henry Payne cartoon shows what he has in mind. And if he succeeds, this satirical 2012 campaign slogan may become reality.

P.P.P.P.S. Here’s a final image that captures the essence of Washington.

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When I posted a video about “libertarian porn” back in 2010, readers presumably were either relieved or disappointed that there was no nudity.

Heck, even my libertarian sex jokes don’t involve sex, so I doubt I’ll be in much demand at comedy clubs.

I may get the same reaction today, because we’re going to have a discussion – but only G-rated – about what our British friends are referring to as “poverty porn.”

More specifically, that’s the term that’s being used for television reality shows in the United Kingdom that expose welfare fraud. Here are some excerpts from a story in U.S. News & World Report.

A shoplifter, a recovering drug addict and a young couple barely able to feed their kids are among the stars of “Benefits Street” — a smash hit reality show featuring welfare recipients that has stirred up a storm of controversy in Britain. The program zooms in on a rough Birmingham street where 9 out of 10 people are said to live off state payouts, chronicling over five episodes the lives of jobless neighbors as they struggle with their daily problems. …Britain’s welfare state has long been a subject of pride among many Britons, but these days attitudes toward benefits have hardened — and polls suggest that support for pouring taxpayer money into welfare, especially for the young, is at a record low. British tabloids are replete with hysteria stories about unemployed people buying flat-screen TVs and designer goods using welfare funds. And “Benefits Street” is the hottest in a growing genre of reality shows about the poor that has been dubbed “poverty porn” because of its sensationalist nature. Even the sober BBC has jumped on the bandwagon with a documentary called “Britain on the Fiddle,” which set out to catch benefits fraudsters in the act on camera. …The “poverty porn” trend comes as Prime Minister David Cameron’s government tries to overhaul the benefits system.

By the way, if you want examples of the “hysteria stories” in the “tabloids,” check out NatailijaTraceyAnjem, and Gina and Danny.

You’ll understand why I wrote that, “if there was a welfare Olympics, the U.K. would have a lot more medals.”

Anyhow, the good news is that politicians in the United Kingdom are finally taking some measures to rein in the welfare state. I don’t know if it’s because television programs are exposing waste and fraud, but it’s clearly good news since welfare spending has exploded over the past 10-plus years in the UK.

Here’s part of a report in the Telegraph.

In a speech that seeks to build on “extraordinary” jobless figures, the Work and Pensions Secretary will promise to end the “twilight world” of entire communities that are reliant on benefits. …Mr Duncan Smith will warn that there are still benefits-dependent areas that “for the most part remain out of sight”. Sources suggested that this is a reference to communities such as the one seen on Benefits Street, a Channel 4 documentary, and said that he was on “a crusade to rescue Benefits Street Britain”. “I have long believed there is no kindness in a benefits system that traps people, leaving them in a twilight world where life is dependent on what is given to you, rather than what you are able to create,” Mr Duncan Smith will say. …A Conservative government wants to ensure that welfare is “a journey that people are on, rather than a destination where they stay”, he will add.

I’ll withhold judgement on whether the squishy Cameron government actually is doing something good in this area, but I’m glad that there’s at least pressure for positive change.

Which is why we need some “poverty porn” in America.

Maybe that would be a wake-up call for our politicians on how the welfare state creates a poverty trap and erodes social capital (something that a few honest liberals have acknowledged).

P.S. In an example of sloppy/biased journalism, the U.S. News article states that “The show has struck a strong chord in a nation…still reeling from its most brutal austerity measures in a generation, with basic public services trimmed drastically.” Why is that passage biased and/or sloppy? Well, because as I had to explain to Paul Krugman, there hasn’t been any genuine austerity in the United Kingdom.

P.P.S. The story in the Telegraph also contains this passage.

The number of people in work rose by 280,000 in the past three months to a record 30.15 million, the biggest quarterly increase in employment on record. Minutes released by the Bank of England’s Monetary Policy Committee said that the “tightening in the eligibility requirements for some state benefits might have led to an intensification of job search”. Mr Duncan Smith claimed that the comments were a tacit endorsement of his welfare reform programme. He said the Bank of England, led by Mark Carney, now believed that the welfare reforms had contributed to the dramatic fall in unemployment.

In other words, this Michael Ramirez cartoon is correct. The numbers from the UK are evidence – in addition to all this evidence – that people are more likely to find jobs when they can’t rely on taxpayer handouts.

P.P.P.S. If “poverty porn” changes the political environment, it could mean the end of the Moocher Hall of Fame.

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There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

The paper looks at changes in the burden of welfare spending over the past 14 years. The story understandably focuses on how the United Kingdom is faring compared to other European nations.

Welfare spending in Britain has increased faster than almost any other country in Europe since 2000, new figures show.  The cost of unemployment benefits, housing support and pensions as share of the economy has increased by more than a quarter over the past thirteen years – growing at a faster rate than in most of the developed world. Spending has gone up from 18.6 per cent of GDP to 23.7 per cent of GDP – an increase of 27 per cent, according to figures from the OECD, the club of most developed nations. By contrast, the average increase in welfare spending in the OECD was 16 per cent.

This map from the story shows how welfare spending has changed in various nations, with darker colors indicating a bigger expansion in the welfare state.

Welfare Spending - Europe

American readers, however, may be more interested in this excerpt.

In the developed world, only the United States and the stricken eurozone states of Ireland, Portugal and Spain – which are blighted by high unemployment – have increased spending quicker than Britain.

Yes, you read correctly. The United States expanded the welfare state faster than almost every European nation.

Here’s another map, but I’ve included North America and pulled out the figures for the countries that suffered the biggest increases in welfare spending. As you can see, only Ireland and Portugal were more profligate than the United States.

Welfare Spending - NA + WE

Needless to say, this is not a good sign for the United States.

But the situation is not hopeless. The aforementioned numbers simply tell us the rate of change in welfare spending. But that doesn’t tell us whether countries have big welfare states or small welfare states.

That’s why I also pulled out the numbers showing the current burden of welfare spending – measured as a share of economic output – for countries in North America and Western Europe.

This data is more favorable to the United States. As you can see, America still has one of the lowest overall levels of welfare spending among developed nations.

Welfare Spending - NA + WE -Share GDP

Ireland also is in a decent position, so the real lesson of the data is that the United States and Ireland must have been in relatively strong shape back in 2000, but the trend over the past 14 years has been very bad.

It’s also no surprise that France is the most profligate of all developed countries.

Let’s close by seeing if any nations have been good performers. The Telegraph does note that Germany has done a good job of restraining spending. The story even gives a version of Mitchell’s Golden Rule by noting that good policy happens when spending grows slower than private output.

Over the thirteen years from 2000, Germany has cut welfare spending as a share of GDP by 1.5 per cent… Such reductions are possible by increasing welfare bills at a lower rate than growth in the economy.

But the more important question is whether there are nations that get good scores in both categories. In other words, have they controlled spending since 2000 while also having a comparatively low burden of welfare outlays?

Welfare Spending - The Frugal FiveHere are the five nations with the smallest increases in welfare spending since 2000. You can see that Germany had the best relative performance, but you’ll notice from the previous table that Germany is not on the list of five nations with the smallest overall welfare burdens. Indeed, German welfare spending consumes 26.2 percent of GDP, so Germany still has a long way to go.

The nation that does show up on both lists for frugality is Switzerland. Spending has grown relatively slowly since 2000 and the Swiss also have the third-lowest overall burdens of welfare spending.

Hmmm…makes you wonder if this is another sign that Switzerland’s “debt brake” spending cap is a policy to emulate.

By the way, Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

No wonder Canada is now much higher than the United States in measures of economic freedom.

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Every so often, I share stories about the ridiculous and outrageous way in which the federal government squanders our money.

So when I saw this New York Post story about the feds pissing away a six-figure sum on condom research, I figured this would be a perfect addition to my collection of government waste stories.

The federal government is stretching your tax dollars — in search of the perfect condom. The National Institutes of Health will spend $224,863 to test 95 “custom-fitted” condoms so every American man can choose the one that fits just right.

And it’s a good match with this story about Washington flushing away more than $400K on research about men not liking to wear condoms.

Do we really need to spend other people’s money to figure out that guys, if they have to wear condoms, would like them to fit?!?

But then I found something in the story that genuinely surprised me. Apparently there are federal regulations that restrict the types of condoms that can be sold in the United States!

The NIH blames US “regulatory guidelines” for American men having to choose from a “narrow range of condom sizes.” The six-figure grant was awarded to TheyFit of Covington, Ga., which offers a wide variety of condoms that vary in length — from a bit more than 3 inches to nearly 9 ¹/₂ — and in width. They’re available in European Union countries, but not in the United States, where they would have to be approved by the Food and Drug Administration.

I’m flabbergasted. I can vaguely understand why the government might regulate some aspects of condom production, such as durability rules to limit breakage. I don’t think such red tape is necessary because companies already plenty of incentive – because of both reputational risk and preemptive legal protection – to maintain good standards.

But at least you can see a rationale for bureaucrats to intervene.

I can’t imagine, though, what excuse regulators came up with when they decided to limit the variety of condom sizes. Maybe this is a literal example of the one-size-fits-all mentality of Washington?

Condom UNAnd isn’t it embarrassing that Europeans have a more market-friendly approach on this issue?

Though none of us should be surprised that the Keystone Cops at the United Nations want to create a human right to obtain taxpayer-financed condoms.

At least Sandra Fluke will be happy about that.

P.S. Here’s a Glenn McCoy cartoon about Obama and subsidized condoms.

P.P.S. Since I started this post with examples of wasteful spending, but then decided that this story might belong in the category of absurd regulation, let’s close by sharing some examples of foolish red tape.

Addendum: A friend with a warped sense of humor emailed to suggest a unflattering link between the condom research and the note left on my windshield right before Christmas. So I can only imagine what my enemies are saying.

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One of my most widely read – but also most depressing – articles was from about two years ago and it exposed the fact that Washington, DC, is now the nation’s richest region.

I explained that Washington is rich because of unearned wealth. Almost all of the loot that winds up in the pockets of highly paid lobbyists, contractors, bureaucrats, politicians, cronyists, and other insiders ultimately comes from taxpayers in the rest of the country.

That’s why we should be angry that a majority of the nation’s richest counties surrounded DC. A region that produces almost nothing manages to live fat and happy because of the coercive power of government.

That’s the kind of income inequality that should be eliminated, and I do my best to fan the flames of resentment in this interview about fat-cat contractors getting big bucks from taxpayers.

All these well-paid contractors are – for all intents and purposes – members of the government workforce. Sort of a shadow bureaucracy that is several times larger than the official count. They get paid by our tax dollars and their jobs exist because of government.

This doesn’t mean all those jobs should be abolished. But, like their official bureaucrat cousins, many contractors are engaged in wasteful and superfluous activities, and almost all of them are paid too much.

By the way, I disagree with Ms. Brian when she claimed in the interview that you don’t find bureaucrats living in “McMansions.” As my Cato colleague Chris Edwards has documented, federal workers get a far larger amount of compensation than people working in the economy’s productive sector.

Heck, even the Washington Post has published stories about bureaucrats living in“a leafy section of Fairfax County where houses sell in the $700,000 range.”

Let’s close today’s post with some good news. According to the most recent Census Bureau data, Washington is now home to “only” 8 of the nation’s 15-richest counties.

That’s a small step in the right direction and it almost surely happened because government spending has been restrained for the past two fiscal years. And when government doesn’t grow, that means less loot for those that have learned to milk the system.

It’s amazing how many good things happen if you reduce the burden of government spending!

P.S. This interview was filmed right before Christmas, so I engaged in some sartorial excess. If you like the red jacket, other attempts to be on the cutting edge of fashion can be seen here and here.

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If you like to go along to get along, I suggest you don’t become a libertarian. At least not if you follow politics or work in Washington.

Otherwise, you’re doomed to a life of endlessly pointing out that the emperor has no clothes. Here are three examples.

1. When almost every Republican and Democrat argued for a Keynesian-style stimulus in 2008, libertarians had the lonely job of explaining that you don’t get more growth by increasing the burden of government spending.

2. And when most Republicans and Democrats said we needed a TARP bailout that same year, it was libertarians who futilely argued that the “FDIC-resolution” approach was a far more sensible way of dealing with the government-created crisis.

3. More recently, there were a bunch of stories complaining that 2013 was a very unproductive year for Congress, and libertarians were among the few to state that we’re better off with fewer laws rather than more laws.

The same is true for “bipartisanship.” Almost every pundit, politician, and lobbyist in Washington will extol the virtues of bipartisanship. But what they really mean is that they want both Republicans and Democrats to join arms in a business-as-usual game.

Indeed, the standard libertarian joke is that you get bipartisanship when the Stupid Party and the Evil Party both agree on something. Needless to say, that often means laws that are both stupid and evil.

Which is a good description of Bush’s 2008 stimulus and the corrupt TARP legislation.

But since we’re at the end of the year, I don’t want to get overly depressed. So let’s share some cartoons that celebrate the Murray-Ryan budget, which is the most recent example of “bipartisanship.”

We’ll start with ones that have a Christmas theme.

The politicians were glad to escape the fiscal constraint of sequestration, but Lisa Benson is not overly impressed by their cooperative effort.

Budget Deal Cartoon 8

Gary Varvel isn’t very happy, either.

Budget Deal Cartoon 1

Varvel is very explicit in this cartoon about Democrats and Republicans being united against taxpayers.

Budget Deal Cartoon 4

The bag should have been labelled “spending,” but that’s a minor complaint.

Steve Breen points out that the budget deal achieved three out of four goals.

Budget Deal Cartoon 2

And Michael Ramirez astutely identifies too much spending as the problem and shows that the budget deal did nothing to address that issue.

Budget Deal Cartoon 3

Here’s another Lisa Benson cartoon, though this one focuses on establishment GOPers trying to hook the Tea Party on the demon rum of big government.

Budget Deal Cartoon 5

Sort of reminds me of this great Henry Payne cartoon about Obama and Greece. Or maybe this Nate Beeler cartoon about weak-willed GOPers.

I’ve saved the best for last.

This Glenn McCoy cartoon shows what bipartisanship really means inside the DC beltway.

Budget Deal Cartoon 6

McCoy had another cartoon last year with a similar theme, as did Michael Ramirez.

In closing, I want to say something vaguely optimistic. The Murray-Ryan budget deal was unfortunate, but it was a rather minor setback compared to the kinds of “bipartisan” big-government schemes we got during the Bush years.

It was sort of akin to the fiscal cliff deal at the beginning of the year. Government got a bit bigger and a bit more expensive, but it was peanuts compared to TARP, the prescription drug entitlement, and many of the other schemes that eroded economic liberty last decade.

P.S. Fairness requires that I point out that bipartisanship doesn’t automatically mean bad legislation. The bipartisan 1997 budget deal between the GOP Congress and Bill Clinton cut some taxes and reduced the growth of federal spending. And the successful sequester came about because of the bipartisan 2011 debt limit legislation.

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Jay Leno had the all-time best Christmas joke and the school bureaucrats in Haymarket, VA, win the prize for the all-time worst example of anti-Christmas lunacy.

But I must win the prize for being the biggest Christmas policy dork. I make this confession freely because there’s no other explanation for being very happy about this present from my girlfriend.

Golden Rule Christmas

The Golden Rule, for those who have not endured my haranguing on the topic, is the common-sense notion that good fiscal policy is achieved when the burden of government spending shrinks compared to the size of the private sector.

And that occurs, needless to say (but I’ll say it anyhow), when government spending increases slower than the growth of private output.

Ideally, it would be even better to actually cut government spending – which actually did happen in the 2012 and 2013 fiscal years (thanks to the Tea Party and sequestration).

Unfortunately, I fear government will grow far too fast in 2014, in part because of the Murray-Ryan budget deal that replaced automatic spending cuts with back-door tax hikes.

Compared to the size of the federal budget, the additional spending isn’t that large, so my real concern is that the pact sets the stage for bigger moves in the wrong direction at some point in the near future.

But let’s not dwell on potential bad news at this time of year.

Instead, let’s close with a better way of selling Mitchell’s Golden Rule. Here’s the Princess of the Levant showcasing the gift she made.

Abir Golden Rule

Since she gave this gift to me, it’s now my job to implement the Golden Rule as a gift to the entire nation.

That should be a simple achievement. If we simply limit government spending so it grows at the rate of inflation (about 2 percent per year), the burden of government spending will fall as a share of gross domestic product.

And even though I’m much more interested in reducing the size of the public sector than I am in fiscal balance, it’s worth noting that you can balance the budget by 2018 with this amount of modest spending restraint.

But even though this should be simple, it definitely won’t be easy. Convincing politicians not to spend is very analogous to convincing ticks not to suck your blood.

Actually, I apologize. That’s a very unfair analogy. The only really bad thing we get from ticks is Lyme Disease.

With politicians, by contrast, we get taxes, spending, and red tape on good days and war, genocide, and totalitarianism on bad days.

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