To close on a serious note, folks on the left genuinely seem to think the economy is a fixed pie and one person’s success necessarily means another person’s failure. We need to figure out ways of educating them about growth, as I try to do in this interview.
Archive for October, 2011
In what will probably become an annual tradition, here is the Halloween tax video I posted last year.
The last 30 seconds of the three-minute video actually contain some very good economics, roughly akin to this classic cartoon. Yes, incentives matter.
Posted in Dependency, Economics, Great Depression, Greece, Redistribution, Roosevelt, Statism, tagged Dependency, Economics, FDR, Great Depression, Redistribution, Roosevelt, Statism on October 30, 2011| 51 Comments »
Here’s an absolutely horrifying video of President Franklin Roosevelt promoting a “Second Bill of Rights” based on coercive redistribution.
At first, I was going to post it and contrast it with this superb Reagan video and compare how one President’s policies kept America mired in a depression while the other implemented policies that triggered an American renaissance.
But there’s a much more important question, one that also applies to modern leftists. Do they actually believe this nonsense?
In other words, are people who push for bad policy misguided or malicious?
In the case of FDR, did he really think that the government could guarantee “rights” to jobs, recreation, housing, good health, and security?
If so, he was horribly misguided and blindly ignorant to the realities of economics.
But if he didn’t believe that government magically could provide all these things, then would it be fair to say he was maliciously lying in order to delude people and get their votes?
I don’t know Roosevelt’s motives, Like most politicians, he probably listened to both the angel (however misguided) on one shoulder and the devil on the other shoulder.
But if he was listening to the angel and trying to do what he thought was best, at least FDR had an excuse. Communism had not yet collapsed. Socialism had not yet collapsed. And Greek-style redistributionism had not yet collapsed.
So it was possible seventy years ago for a well-intentioned person to believe that government was some sort of perpetual motion machine of prosperity.
I’m not sure there is a similarly charitable interpretation for the motives of modern-day statists.
Posted in Big Government, Economics, Fiscal Crisis, Fiscal Policy, Government Spending, Mitchell's Law, tagged Big Government, Economics, Fiscal Crisis, Fiscal Policy, Government Spending, Mitchell's Law on October 30, 2011| 294 Comments »
A couple of weeks ago, I proposed a “Golden Rule of Fiscal Policy” that was probably a bit too wordy.
Good fiscal policy exists when the private sector grows faster than the public sector, while fiscal ruin is inevitable if government spending grows faster than the productive part of the economy.
In some recent speeches, I’ve been experimenting with how to discuss this concept, and I’ve decided to be more concise.
I’ve also decided to be self-aggrandizing and call this Mitchell’s Golden Rule.
In some sense, this Golden Rule is a way of trying to help people understand why it is important to limit the growth of federal spending. And based on my recent speeches, it appears that linking government growth and private sector growth is very helpful.
Especially when I point out that the fiscal crises in nations such as Greece are the result of the opposite approach – letting the public sector grow faster than the productive sector of the economy.
Another advantage of the Golden Rule is that it doesn’t matter whether a nation has a budget deficit or a budget surplus. As I’ve explained on several occasions, the fiscal problem in most nations is that government is too big. Deficits and debt are just a symptom of that problem.
Following the Golden Rule doesn’t prohibit tax increases, but it certainly means they will be far less likely. Simply stated, tax revenues tend to track economic performance. So if the private sector is growing faster than the government, that means tax revenues will be growing faster than government spending. So why raise tax rates?
P.S. Regular readers know that I’ve already tried to create a legacy with the not-so-famous Mitchell’s Law, which points out that politicians often propose to expand government to ostensibly solve the messes created by previous expansions of government.
But there’s nothing new about Mitchell’s Law. Great economists such as Mises wrote about how one misguided government intervention often becomes the excuse for another foolish government intervention. I simply coined a phrase in hopes of helping to popularize the notion that one government mistake is often a precursor for another government mistake.
I’m not aware, however, of anybody that has stated that the key to good fiscal policy is restraining government spending so it grows slower than the private sector. Hence, my narcissistic decision to label this concept Mitchell’s Golden Rule.
But I’m posting in this in my humor category because I’m 99 percent convinced this is a doctored image.
Part of what makes it amusing, however, is that it could be true.
And even though this is a humor post, I suppose it’s worth noting that people should be free to choose any course of study, but they shouldn’t expect taxpayers to pick up the tab and they shouldn’t blame society if employers don’t think certain majors are as valuable as others.
This is why libertarianism is the most ethical philosophy. People are free to make their own choices, but they’re not free to coerce others.
Posted in CBO, Congressional Budget Office, Deficit, Economics, Government Spending, Health Reform, Keynes, Keynesian, Obama, stimulus, Video, tagged CBO, Congressional Budget Office, Government Spending, Government-run healthcare, Obama, Obamacare, stimulus, Video on October 29, 2011| 20 Comments »
I’ve criticized the Congressional Budget Office for generating biased and inaccurate numbers. These are the clowns, after all, who say deficit spending stimulates the economy in the short run but they also rely on a model which seemingly predicts 100 percent tax rates maximize growth in the long run.
About the only nice thing that can be said about this collection of bureaucrats is that they’re consistent, though I’m not sure being wrong all the time is something to brag about – especially when even cartoonists start to make fun of CBO’s flawed approach.
This is why I’ve argued it may be best to shut down CBO, and also written that – at a minimum – sweeping reform of the Capitol Hill bureaucracy is a test of GOP seriousness.
I’m not alone in my disdain for CBO. In a column for The Hill, Veronique de Rugy of the Mercatus Center makes two excellent points about the Congressional Budget Office: 1) the general inability of economists to predict (we’d be rich if we knew how to do that) and 2) the use of inaccurate models.
The CBO’s consistently flawed scoring of the cost of bills is used by Congress to justify legislation that rarely performs as promised and drags down the economy. Whether it scores the recent healthcare bill or the cost of the Capitol Hill Visitor Center, an ambitious three-floor underground facility, the price for taxpayers always ends up larger than originally predicted. …Like many economists, its analysts suffer from a misplaced belief in their forecasting prowess. …CBO relies heavily on Keynesian economic models, like the ones it used during the stimulus debate. Forecasters at the agency predicted the stimulus package would create more than 3 million jobs. …But unemployment stubbornly remained around 10 percent. What was wrong with the CBO’s numbers? …the stimulus and the ACA should serve as yet more evidence that Congress should take budget scores and economic projections with a grain of salt. What looks good in the spirit world of the computer model may be very bad in the material realm of real life because people react to changes in policies in ways unaccounted for in these models.
Let’s now move from the general to the specific. Peter Suderman reports from Reason on new research suggesting that costs for just one provision of Obamacare may be far higher than predicted by the jokers at CBO.
The Congressional Budget Office’s official cost estimate for last year’s health care overhaul projected that the law would cost a little less than $950 billion over its first decade. About half of that cost came from the law’s Medicaid expansion, which was projected to enroll 16 million new individuals in the joint federal-state health care program for the poor and disabled. But researchers at Harvard University are now warning that policymakers should be prepared for substantial uncertainty about the true enrollment effects of the Medicaid expansion. In a paper published in the journal Health Affairs earlier this week, a team of health economists estimated that, under the law, new Medicaid enrollment could be as low as 8.5 million people, but also as high as 22.4 million people—with additional costs to match…meaning that a full decade of the Medicaid expansion alone could end up costing nearly $1 trillion—more than the entire law was supposed to cost in its first ten year out of the gate.
The article does note that it’s possible that costs also might be lower than forecast, but Peter explains why the upper-bound estimate is more likely to be accurate because the law creates perverse incentives.
Indeed, CBO’s failure to recognize that new programs will lure people into greater dependency is one of the biggest reasons that the bureaucracy routinely under-estimates the cost of new programs. This is a point I stressed in my video explaining why Obamacare will be far more costly than CBO predicted.
Heck, even CBO is beginning to acknowledge that Obamacare will be more expensive than forecast, and most of the legislation hasn’t even been implemented.
Posted in Bailout, Big Government, Debt, Deficit, Economics, Europe, Government Spending, Greece, Higher Taxes, International bureaucracy, International Monetary Fund, Tax Increase, Taxation, tagged Bailouts, Big Government, El Salvador, Greece, Higher Taxes, IMF, International bureaucracy, International Monetary Fund, Tax Increase on October 28, 2011| 16 Comments »
The Europeans have just agreed to another bailout for Greece. That’s the bad news.
The good news is…well, there is no good news. Sarkozy, Merkel, and the other statists have once again failed to do the right thing and instead have decided to throw good money after bad and dig the debt hole even deeper.
But there is worse news. The IMF is financing part of the bailout and American taxpayers are “shareholders” in the IMF.
In other words, I’m helping to reward bad behavior and misallocate global capital. This doesn’t make me very happy – especially since the White House supports this misguided approach.
But this is business-as-usual for the IMF, and here’s a first-hand example.
I’m in El Salvador where I just finished two days of speeches, meetings, and interviews to discuss how the country should deal with its fiscal imbalance.
My message is simple. El Salvador should reject tax hikes and instead put government on a diet by capping annual spending growth so the budget grows by 1 percent or 2 percent annually.
Ever single reporter responded by saying some variant of “but the IMF says we need to raise taxes.”
During the first interview, I simply said the IMF was wrong. During the second interview, I said El Salvador should refuse to let IMF bureaucrats in the country. After I heard the same IMF message the third time, I suggested shooting down any flight carrying IMF bureaucrats and their snake-oil economic advice.
The last comment was a joke, of course, but it does raise a fundamental question. Why are American taxpayers subsidizing an international bureaucracy that runs around the world urging higher taxes and bailouts?!?
To be fair, the IMF usually includes some good advice in their reports. If you read the fine print, the bureaucrats often recommend reductions in subsidies, red tape, government payrolls, and handouts.
But if you give politicians in any country a set of options, and higher taxes and/or bailouts are on the list, it doesn’t take a genius to realize that the good reforms will get ignored while the bad policies will be adopted.