Every so often, you read something so ridiculously stupid and absurd that you assume that you’re being pranked. So you look to the date of the article to see if it says April 1. Or you look at the Internet address to see if it’s a parody of a real website.
So when I read a column suggesting that the United States should become more like Italy, I thought this must be some sort of practical joke. After all, Italy is teetering on the edge of bankruptcy, kept afloat by bailouts and subsidies. Its economy is in the toilet, with pervasively high unemployment, almost no growth for a decade, and living standards that are only about two-thirds of U.S. levels.
The Italian government is also famously incompetent (naming the wrong people to high-level posts), with stifling levels of regulation, a dysfunctional fiscal system, and a corrupt legal system (and when it’s not crooked, it’s inane).
Notwithstanding all these crippling flaws, Italy has something akin to catnip for the left. It has a punitive tax burden, and that means it must be a nation worth emulating.
Here’s some of what Eduardo Porter wrote for the New York Times.
Italy may be in a funk, with a shrinking economy and a high unemployment rate, but the United States can learn a lot from it, and not just about the benefits of public health care. Italians live longer. Their poverty rate is much lower than ours. If they lose their jobs or suffer some other misfortune, they can turn to a more generous social safety net. …The reason is not difficult to figure out: rich though we are, we can’t afford the policies needed to improve our record. …But though the nation’s fiscal challenge has taken center stage in the presidential election campaign, raising more taxes from American families remains stubbornly off the table.
I’m willing to believe Italians live longer, but every other assertion in that passage is upside down. Yes, they have more subsidies for joblessness, but that’s one of the reasons they have higher unemployment (as even Paul Krugman and Larry Summers have acknowledged).
And the claim about less poverty is laughable. I’m guessing the author naively relied upon the slipshod analysis from the statists at the Organization for Economic Cooperation and Development. Those bureaucrats put together a moving-goalposts measure of income distribution and falsely categorized it as a tool for measuring poverty.
Setting aside these mistakes, the column is designed to convince people that we should give more money to Washington.
Citizens of most industrial countries have demanded more public services as they have become richer. And they have been by and large willing to pay more taxes to finance them. Since 1965, tax revenue raised by governments in the developed world have risen to 34 percent of their gross domestic product from 25 percent, on average. The big exception has been the United States. …the United States raises less tax revenue, as a share of the economy, than every other industrial country. No wonder we can’t afford to keep more children alive. In 2007, the most recent year for which figures are available, the United States government spent about 16 percent of its output on social programs — things like public health, food and housing for the poor. In Italy, that figure was 25 percent. …Every other industrial country has a national consumption tax, which can be used to raise a lot of money.
I will give the author credit. If you read the entire column, it’s clear he wants all Americans to pay higher taxes, not just the so-called rich. So at least he’s being honest, unlike a lot of statists (click here for a list of honest leftists who admit you can’t finance big government without screwing the middle class).
But honesty about goals doesn’t mean desirability of policy. If America becomes more like Italy, it will mean Italian-style stagnation and joblessness.
And it’s particularly worrisome to see that the author wants a value-added tax, which is a sure-fire way of giving politicians a big pile of money that will be used to expand the burden of government spending.
I have nothing against copying other nations, either when they get one policy right (such as Estonia’s flat tax or Australia’s system of personal retirement accounts), or when they get a bunch of policies right and routinely rank at the top for economic freedom and prosperity (such as Hong Kong and Singapore).
But I’m mystified by those who look at failure and conclude America should do likewise.
P.S. The Italians have a bad tax system, but they don’t meekly comply. Whether they’re firebombing tax offices or sailing yachts to other countries, they are a powerful example of the Laffer Curve insight that higher tax rates don’t necessarily translate into higher tax revenues.
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I literally do not comprehend Porter. Seriously mind-boggling. Did it possibly occur to him that all that spending is perhaps, just perhaps the reason Italy is economically doomed? It’s like he completely missed what has happened in Italy and just wants to keep dreaming about a socialized system without looking at its real-life consequences.
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The statements about dead children are creepy…and exactly why the statistics ‘show’ Italians live longer: Italy and most of the rest of the world EXCEPT the US do not count babies that die in the first 24 hours in life expectancy calculations. However unfortunate, a few babies do die in the first day and not counting them has a disproportionately large effect on average life expectancy.
Italy looks and feels very different to a tourist vs. a permanent resident. The realities of stronger mandatory collectivism become apparent only once you move into the country and start looking for residence, work, start a business etc.
Peripherally to the economic issues, but quite relevant to standard of living, most Italians also forcibly live in old thousand square foot apartments. That is due to aggressive centralized urban planning that virtually bans single family residences and forces people to live in appartments. But this is also something that is catnip to the Euro-lemming American left, as it forces people to live in “community”.
That being said, Americans are going to have to be conditioned to not look at Italy, and more generally Europe, in such negative light — as it will become gradually apparent that this is where the US is irreversibly headed under HopNChange — and as anemic growth Europe (the wholly grail of HopNChange) continues to decline against the backdrop of a human race growing at a much faster five percent rate as a whole. Personally, I still speculate that Americans after their Bush-Obama-Obama/Romney years of decline will stabilize at some sort of French equilibrium for a few years before entering the final Grecian decline phase (just like France). These could be the compression chamber phase, where the American public will spend a few years getting used to sub one percent growth rates. After that phase, an even more stressed electorate will eventually elect its own Hollande (perhaps an Obama unbound?) and thus line up for the Grecian phase of the decline into worldwide averagedom. On the other hand, the US is a large country that will be impossible to “rescue” — and its relative decline from most prosperous country on earth is so precipitous on a historical scale — that decline momentum may just be strong enough to blow the US past the French equilibrium phase straight into Hellenization.
But the details of the decline scenarios are difficult to predict. One thing is certain: remaining the most prosperous country on earth by decreasing the incentives to produce (i.e. by flattening the effort-reward curves) is impossible. One way or another, mimicking the rest of the world in class-warfare and regulation will inevitably lead to convergence towards average worldwide prosperity. And the point of no return has passed for America. The pace of decline is actually accelerating. Look who represents the “reasonable” alternative against the delusion of HopNChange: Mitt Romney. And listen what Mitt Romney has to say to get himself elected. The writing is on the wall. The decline is now becoming ingrained in the psyche of the Republic.
Yeah, I loved the part about dead children too…. lower taxes = dead children..? Actually, I believe they are able to fund the murder (abortion) of quite a few of them with the taxes they already get.
“If they lose their jobs” – how does Porter think that’s supposed to happen? Italy’s laws allow dismissal only for “concrete and wanton negligence.” Poor performance on an employee’s part is legally the responsibility of the employer. See my colleague Matt Melchiorre in City AM: http://www.cityam.com/forum/super-mario-must-radically-reform-italy-avert-enormous-disaster
Yes, this is true. If you go to Italy and want to see expensive cars you must trespass and look into ramshackle garages at country homes.
Just got back from Italy. We made friends with a restauranteur there. He’s so screwed. Basically, he says that, yes, tax rates are high, but nobody pays them. The government levies fines for everything, because there are laws against everything, but nobody pays those either. So, the effective tax rate, is only slightly higher than it should be. Interesting system. They don’t have much in the tank for enforcement. Just don’t buy a Ferrari. They’ll find you then!
My favorite part was when he basically said that our lack of higher taxes leads to dead children. I blogged about this same article on Wednesday:
http://togetrichisglorious.blogspot.com/2012/08/taxes-revenue-spending-and-outcomes.html
Every time I see all thos Georgia redshirts, I feel like sending a Skinny Bobby Harper joke about Georgia Bulldogs