Why Western Europe Became Rich in the Past…and How It Can Regain Prosperity Today

I’m in Vilnius, Lithuania, where I just finished speaking to a regional conference of the European Students for Liberty.

I subjected the kids to more than 90 minutes of pontificating and 73 PowerPoint slides, but I could have saved them a lot of time if I simply showed them this Rahn Curve video and then posted just one slide – the one showing that the burden of government spending in Europe used to be very small.

This slide shows that government spending used to consume only about 10 percent of European economic output in the 1800s and less than 15 percent of GDP as late as 1913.

I explained to the students that it was during this period of small government that Europe became a rich continent. It was back during this time that most European nations didn’t have income taxes, so there wasn’t big government to misallocate economic output, and there weren’t high tax rates to discourage economic output.

So no wonder Europe went from agricultural poverty to middle class prosperity (and here’s a post where I specifically discuss how Denmark became prosperous when government was small).

To be sure, fiscal policy is not the only variable that determines prosperity, and I gave some big caveats about the importance of good monetary policy, good trade policy, good regulatory policy, etc, etc.

In my conclusion, I offered the students a good news scenario and bad news scenario. The good news is that we know how Europe became rich and we know that a return to small government and free markets will enable Europe to again enjoy rapid growth.

The bad news is that Europe will probably move in the wrong direction rather than right direction. I shared this data from the Bank for International Settlements, showing that even supposedly sober-minded and prudent nations such as Germany and the Netherlands are going to face Greek-Style fiscal crises.

Which is why I was only half-joking during the Q&A session when I suggested that the students stock up on guns and ammo. If and when the continent-wide fiscal crisis occurs (because Europe has poorly designed entitlement programs, just like America), and there’s no Germany or no IMF to provide bailouts, the looters and the moochers are going to switch from being run-of-the-mill rioters and instead become marauding gangs.

In that Mad Max Dystopia, as I explained last year on the NRA’s TV program, the ability to engage in self defense will be highly prized.

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Since Mitt Romney Won’t Defend Himself, I Guess It’s Up to Me to Debunk the Left’s Tax Haven Demagoguery

Earlier this year, I defended Mitt Romney and Bain Capital from the absurd accusation that they did something wrong by utilizing low-tax jurisdictions.

So-called tax havens, as I’ve explained on many occasions, play a valuable role in the world economy. Indeed, they should be emulated rather than persecuted.

In a follow-up post, I mocked ABC News for a ridiculous non-story as they tried to make Romney appear guilty for following good business practices.

The issue has become hot again, so I talked about Romney and tax havens with Jason Riley at the Wall Street Journal.

Since nobody has claimed that Romney violated U.S. tax law, this kerfuffle only exists because the left wants to create the impression that tax havens are bad and then tar the GOP’s presumptive nominee with guilt by association.

Brian Garst of the Center for Freedom and Prosperity nails the issue in his column for the Daily Caller.

People who invest or bank overseas do not hate America. Oftentimes, they are simply banking where their money is earned to avoid the hassle of exchange rate and wire transfer fees. …It’s also smart practice to diversify. …Mitt Romney should not be cowed into shame over his banking practices just because he doesn’t strictly park his after-tax earnings in American banks, but should instead seize the opportunity to more aggressively defend against populist attacks on financial privacy and explain the benefits of jurisdictional tax competition.

That’s good advice, but I’m not holding my breath waiting for Romney to defend Switzerland and other jurisdictions with good policy. That would require an underlying belief in freedom and liberty, which seems to be lacking.

But you would think that he might respond by noting that many top Democrats directly invest in tax havens, and that presumably all of them – as I noted in my WSJ interview – are indirectly invested in these financial centers.

P.S. It’s probably a lost cause, but I’m an old-fashioned guy who thinks that people shouldn’t blatantly lie, so here’s my obligatory complaint that many politicians, journalists, and policy folks are repeating the debunked assertion that so-called tax havens deprive the U.S. Treasury of $100 billion per year. Obama threw around that make-believe number in the 2008 campaign, as seen in this video. But as shown in the final video of this post, the $100 billion figure was concocted out of thin air by a former John Kerry staffer, who confessed he made up the number when the Congressional Research Service asked for his methodology.

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