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.
[…] of Wagner’s Law, which is that wealthy nations tend to adopt welfare states. And even though the welfare state slows growth, these nations are still richer than some developing countries that have smaller burdens of […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] and purposes, she is asserting that government in these nations is too small, even though the evidence from western nations shows that small governments were very conducive to growth. Moreover, we’re supposed to believe that high tax rates won’t discourage productive […]
[…] and purposes, she is asserting that government in these nations is too small, even though the evidence from western nations shows that small governments were very conducive to growth. Moreover, we’re supposed to believe that high tax rates won’t discourage productive economic […]
[…] and purposes, she is asserting that government in these nations is too small, even though the evidence from western nations shows that small governments were very conducive to growth. Moreover, we’re supposed to believe that high tax rates won’t discourage productive economic […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] doesn’t lead to “development.” It’s the other way around. The western world became rich when the burden of government was very small and most nations didn’t even have income tax regimes. It was only after nations because […]
[…] doesn’t lead to “development.” It’s the other way around. The western world became rich when the burden of government was very small and most nations didn’t even have income tax regimes. It was only after nations because […]
[…] Such nations don’t exist today, but it’s worth noting that the western world became rich when the burden of government spending averaged about 10 percent of GDP. […]
[…] The same thing happened in Europe. The burden of government spending used to be quite modest on the other side of the Atlantic, with outlays consuming only about 10 percent of economic output. […]
[…] want to restore limited and constitutional government, which we had for much of our nation’s history, with the burden of federal spending consuming only about 3 percent of economic […]
[…] and purposes, she is asserting that government in these nations is too small, even though the evidence from western nations shows that small governments were very conducive to growth. Moreover, we’re supposed to believe that high tax rates won’t discourage productive economic […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] can be financed at very low tax rates. Heck, if the United States and the United Kingdom had the kind of limited governments that existed 100 years ago, neither nation would even need a flat tax. A few user fees and excise taxes would suffice. Now […]
[…] tax system should only fund the legitimate functions of government. For much of our history, the government only consumed about 10 percent of economic output and we didn’t need any broad-based tax. So you know where I […]
[…] The same thing happened in Europe. The burden of government spending used to be quite modest on the other side of the Atlantic, with outlays consuming only about 10 percent of economic output. […]
[…] Let’s remember, after all, that the United States was a Hobbesian jungle of vicious anarchy back in the 1800s when the federal government consumed only 3 percent of economic output! […]
[…] Let’s remember, after all, that the United States was a Hobbesian jungle of vicious anarchy back in the 1800s when the federal government consumed only 3 percent of economic output! […]
[…] Government also used to be very small in Western Europe before the income tax. Indeed, it was during that period when European nations became […]
[…] Government also used to be really tiny in Western Europe before a income tax. Indeed, it was during that duration when European nations became […]
[…] standards) of Western Europe is evidence that big government is good for growth, I invite you to look at this chart. Simply stated, Western Europe became rich when government was very […]
[…] shared some remarkable data last year showing that the public sector used to be very small. Not just in the United States, but other […]
[…] shared some remarkable data last yearshowing that the public sector used to be very small. Not just in the United States, but other […]
[…] shared some remarkable data last year showing that the public sector used to be very small. Not just in the United States, but other […]
[…] just look at how small government used to be in the developed world compared to where it is now. Public sectors used to consume only about 10 […]
[…] 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 […]
[…] This implies, for instance, that government in the United States was far too small in the 1800s and early 1900s when the overall burden of government spending was about 10 percent of GDP. […]
[…] in the mid-1800s when the burden of government spending – even in France – was only about 10 percent of economic output. So Bastiat was largely limited to examples of corrupt regulatory arrangements and protectionist […]
[…] that conclusion in the mid-1800s when the burden of government spending – even in France – was only about 10 percent of economic output. So Bastiat was largely limited to examples of corrupt regulatory arrangements and protectionist […]
[…] in the mid-1800s when the burden of government spending – even in France – was only about 10 percent of economic output. So Bastiat was largely limited to examples of corrupt regulatory arrangements and protectionist […]
[…] jednom malo starijem tekstu o razvoju zapadne Europe, Dan Mitchell je ukazao na jedan od ključnih faktora rasta životnog […]
[…] he makes the absolutely essential point that western nations became rich when government was very small and there was virtually no […]
[…] he makes the absolutely essential point that western nations became rich when government was very small and there was virtually no […]
It seems to me that the Welfare State could not exist absent the tremendous productivity gains achieved by mechanization during the Industrial Age. It further seems to me that no productivity gains will be sufficient to prevent the Welfare State from driving a nation into a debt crisis.
[…] other point that merits additional emphasis is that the growth-maximizing size of government is probably far lower than 25 percent of economic […]
[…] other point that merits additional emphasis is that the growth-maximizing size of government is probably far lower than 25 percent of economic […]
[…] a new reader and don’t get the joke, Richard is famous for the Rahn Curve, though I think he overstates the growth-maximizing size of government. As such, I argue that we need to impose my (not nearly as […]
[…] is tragic since the burden of government spending in North America and Western Europe used to be just a fraction of current levels – even in nations such as […]
[…] western world became rich when government was very small. As noted above, Hong Kong and Singapore more recently became rich […]
[…] western world became rich when government was very small. As noted above, Hong Kong and Singapore more recently became rich […]
[…] all this happened when government was much smaller and intervened less in the affairs of the British […]
[…] have made the same fiscal mistake as the United States. Nations in Western Europe and Japan also used to have very small governments. Once the welfare state began, however, economic liberty morphed into bloated welfare […]
Weren’t taxes and the size of government very low prior to 1800? What’s the best explanation for thousands of years of almost no growth prior to that, with much smaller governments than we have today?
One candidate is high violence, which certainly lower growth, although I wouldn’t be surprised if many medieval countries had lower violence than St. Louis, Detroit, Chicago, etc. Of course without the rest of the country providing jobs and innovation, low income areas of these cities might have a medieval standard of living.
Science is a huge explanation. Until people started believing in evidence, based on experimental proof, rather than superstition, progress was virtually impossible.
Poor monetary policy is another explanation, but I’m sure some medieval countries had relatively stable currency but virtually no economic growth.
I really think a comprehensive theory of economic growth that honestly looks at more than just the size of government could be highly persuasive. We should come up with a theory as powerful as the theory of evolution, only for economics.
[…] exists when income isn’t taxed – In libertarian Nirvana, the central government is so small that there’s no need for an income tax. Until we get to that point, though, we’re stuck […]
[…] Western world – Britain, Europe and the United States – became rich when government was much smaller, and respect for political and economic rights far greater. People in the developing world […]
[…] Elmendorf’s predecessor was a doctrinaire leftist named Peter Orszag. If Orszag’s policy views were a country, they would be France or Greece. By contrast, I’m guessing that Elmendorf would be like Sweden or Germany. In other words, he wants more government than I do, but at least Elmendorf basically understands that there’s no such thing as a free lunch. …That being said, while it’s much better to be Sweden rather than Greece, I obviously would prefer to be Hong Kong (or, even better, pre-1913 America). […]
[…] with spending consuming less than 20 percent of economic output. That’s not as good as the United States 100 years ago, but it’s far better than where America is […]
[…] government, with spending consuming less than 20 percent of economic output. That’s not as good as the United States 100 years ago, but it’s far better than where America is […]
[…] state. Indeed, I’ve pointed that the United States (and other nations in the western world) became rich in the 1800s when there was a limited government providing these core “public […]
[…] small state. Indeed, I’ve pointed that the United States (and other nations in the western world) became rich in the 1800s when there was a limited government providing these core “public […]
[…] small state. Indeed, I’ve pointed that the United States (and other nations in the western world) became rich in the 1800s when there was a limited government providing these core “public […]
[…] he’s right that Sweden had a smaller government and a lower tax burden than the United States for a long […]
[…] I’m even willing to say that France is an ideal role model. But only if nations emulate the France of 1870 rather than the France of […]
[…] burden of government spending also is excessive in Hong Kong and Singapore. Based on historical data, economic performance will be maximized if total government spending is less than 10 percent of […]