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Archive for December 22nd, 2013

It’s not easy being a libertarian, particularly if you follow public policy.

Thomas Jefferson almost certainly was right when he wrote that “The natural progress of things is for liberty to yield, and government to gain ground.”

Heck, 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 percent of economic output during the 1800s when nations became rich, but now the burden of government spending averages more than 40 percent of GDP.

And if you really want to get depressed, then look at the long-run fiscal forecasts for the United States and other industrialized countries. Things are going to get worse. Much worse.

Most nations are heading toward a Greek-style fiscal crisis. And while the United States is in better shape than many European welfare states today, our long-run outlook is actually worse according to the International Monetary Fund.

Even the Bank for International Settlements and Organization for Economic Cooperation and Development agree with the IMF’s grim prognosis.

Speaking of the IMF, let’s discuss some very bad news. It’s about Albania, so it may not seem very important, but it’s quite symbolic of the destructive impact of international bureaucracies.

As you can see from this Reuters report, the IMF basically bribed Albania to get rid of its flat tax.

“The IMF staff and the authorities reached an agreement on the IMF supporting their economic programme with financial assistance which could be delivered over a period of three years under an extended fund facility with access of about 300 million euros,” the IMF’s mission chief, Nadeem Ilahi, told reporters. …The three-month-old Socialist government will scrap a flat tax of 10 percent in the next fiscal year in January and raise the corporate tax to 15 percent from 10 percent. Also, the income tax for high-earners will rise to rates of 13 percent and 23 percent from 10 percent currently. …”The package of economic policies … supported by the IMF programme should make Albania an economy that is reforming, is open to foreign investors. … A lot of the reforms the authorities are planning are consistent with what the European Union has been asking for,” Ilahi said.

So think about what this means. The IMF is hurting global growth by distorting the allocation of capital. It’s hurting Albanian growth by enabling more government spending. And it’s hurting Albanian growth by forcing higher tax rates.

And then the IMF bureaucrat in charge, Mr. Ilahi, actually has the nerve to assert that all this bad policy will make Albania “open to foreign investors.” Yeah, sure. Investors are always flocking to nations that are actively increasing the burden of government. I guess that’s why France is such an economic dynamo and Hong Kong is suffering from stagnation…at least according to the IMF model anyway.

Keep in mind, by the way, that Mr. Ilahi (like all international bureaucrats) gets a tax-free salary! So I guess we shouldn’t be too surprised that he is completely clueless about the real-world impact on the destructive policies he has foisted upon Albania.

By the way, Albanian politicians are not exactly blameless. They doubled government spending over the past 10 years, with outlays climbing from less than 200 million leks in 2003 to more than 400 million leks this year.

And then these profligate politicians decided to throw their taxpayers under the bus in exchange for a pile of additional loot from the IMF.

The real victims are the people of Albania. They suffered decades of communist enslavement. But even after the collapse of the Soviet Empire, they’ve never enjoyed a free-market, small-government economy. But with the flat tax, they had at least one pro-growth policy.

Now they don’t even have that.

P.S. The IMF is an equal-opportunity proponent of bad policy. The tax-free bureaucrats have advocated lots of tax hikes on Americans, including a value-added tax, a financial transactions tax, and class-warfare tax rate increases. Oh, and let’s not forget they urged a giant energy tax on American consumers. IMF KevorkianIt’s nice to know that the bureaucrats are so industrious at developing policies to hurt the United States when American taxpayers underwrite the biggest share of the IMF budget.

P.P.S. But I don’t want to be unfair. The IMF did provide – albeit by accident – very powerful evidence showing why the United States should not have a value-added tax. So I guess that was one useful thing the bureaucrats did, even if it wasn’t their intention. And the bureaucracy has published some good studies about the economic benefits of reducing government spending and others warning that tax increases can be self defeating.

P.P.P.S. Since this has been a depressing post, let’s close by noting that the IMF doesn’t always succeed. The bureaucrats unsuccessfully tried to pressure Latvia into abandoning the flat tax.

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