Yet another Example of the Failure of Keynesian Economics

Early last year, with the sequester about to begin, President Obama stated that “these cuts are not smart, they are not fair, they will hurt our economy, they will add hundreds of thousands of Americans to the unemployment rolls.”

He made this statement because Keynesian theory says government spending can boost “aggregate demand” and goose an economy. So less government spending obviously must be bad for growth.

Then, in October, Obama claimed that the partial government shutdown “inflicted completely unnecessary damage on our economy” and also asserted that, “every analyst out there believes it slowed our growth.”

This statement also was based on the notion that government spending is a form of “stimulus” for economic performance. So anything that slows spending must be a downer for the economy and job creation.

The President had good reasons to worry, at least based on the aforementioned Keynesian perspective. The burden of government spending declined in 2013, both in nominal terms and as a share of economic output.

In other words, the sequester and the partial shutdown did exactly what the President warned about.

So did this mean the economy under-performed? Before we look at the data, I’m going to take a wild guess and predict just the opposite.

Simply stated, you don’t get more growth by expanding the size and scope of government. Here’s what I wrote last year about Keynesian fiscal policy.

Keynesian economics is the perpetual motion machine of the left. You build a model that assumes government spending is good for the economy and you assume that there are zero costs when the government diverts money from the private sector. With that type of model, you then automatically generate predictions that bigger government will “stimulate’ growth and create jobs. Heck, sometimes you even admit that you don’t look at real world numbers. Which perhaps explains why Keynesian economics has a long track record of failure. …The ongoing damage of counterproductive government outlays is much larger and more serious than the transitory costs of redeploying resources when spending is reduced. And overseas borrowing at best creates illusory growth that will be more than offset when the bills come due. Ultimately, the real-world evidence is probably the clincher for most people. As noted above, it’s hard to find a successful example of Keynesian spending.

Now let’s look at some real-world data.

The Wall Street Journal points out that the economy finally experienced some semi-decent growth in 2013, leading the editors to opine that less government leaves more resources in the productive sector of the economy.

Thursday’s news of 3.2% growth in the fourth quarter of 2013 was greeted with cheers and relief. The economy has now grown at 2.5% or faster for three quarters, and the pace in the last six months is the fastest since 2003-2004…The best news is that growth all came from private spending and investment, not the artificial high of unsustainable government spending. The official government contribution to growth was a negative 0.9% due to falling defense outlays and the federal budget sequester. The national-income accounts have a bias that treats government spending as a net contributor to growth even when it’s wasted. Remember how the Keynesians predicted that less spending would mean slower overall growth? Maybe the opposite is true: When government shrinks, the private economy has more money and room to expand.

I obviously agree with these sentiments, but let me augment the passage from the WSJ editorial with a few additional comments.

1. There is a bias in some of the government data. Or, to be more accurate, some data is presented in ways that lead some folks to make sloppy assumptions about government spending contributing to growth. That’s why I prefer looking at how national income is earned (GDI data) rather than how national income is allocated (GDP data).

2. When the burden of government spending shrinks, the economy expands because labor and capital will be used more efficiently. Simply stated, those resources are far more likely to be utilized productively when they’re allocated on the basis of market forces rather than political deal-making.

3. And let’s not forget to add an important caveat that we shouldn’t draw too many conclusions from a quarter or two of data, particularly when there are many factors that determine economic performance.

That being said, there certainly seems to be lots of evidence showing that bigger government is counterproductive and smaller government enhances growth.

We have good evidence, for instance, of nations growing faster when government outlays are constrained, including Canada in the 1990s and the United States during both the Reagan years and Clinton years.

And the Baltic nations imposed genuine spending cuts in recent years and are now doing much better than other European countries that relied on either Keynesian spending or the tax-hike version of austerity.

But if you think those anecdotes are inadequate, you can review some scholarly research on the negative impact of excessive government spending from international bureaucracies such as the Organization for Economic Cooperation and Development, International Monetary Fund, World Bank, and European Central Bank. And since most of those organizations lean to the left, these results should be particularly persuasive.

Moreover, you can find similar findings in the work of scholars from all over the world, including the United States, Finland, Australia, Sweden, Italy, Portugal, and the United Kingdom.

Let’s close with a couple of encore performances. First here’s my video on Keynesian economics.

And here’s my video on Obama’s failed stimulus.

Hmmm…maybe, just maybe, politicians should obey the Golden Rule.

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We Need a Debate about the Size of Government, but It Helps to Understand Basic Fiscal Facts

Self awareness is supposed to be a good thing, so I’m going to openly acknowledge that I have an unusual fixation on the size of government.

I don’t lose a wink of sleep thinking about deficits, but I toss and turn all night fretting about the overall burden of government spending.

My peculiar focus on the size and scope of government can be seen in this video, which explains that spending is the disease and deficits are just a symptom.

Moreover, my Golden Rule explicitly targets the spending side of the budget. And I also came up with a “Bob Dole Award” to mock those who mistakenly dwell on deficits.

With all this as background, you’ll understand why I got excited when I started reading Robert Samuelson’s column in today’s Washington Post.

Well, there’s a presidential whopper. Obama is right that the role of the federal government deserves an important debate, but he is wrong when he says that we’ve had that debate. Just the opposite: The White House and Congress have spent the past five years evading the debate. They’ve argued over federal budget deficits without addressing the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving… The avoidance is entirely bipartisan. Congressional Republicans have been just as allergic to genuine debate as the White House and its Democratic congressional allies.

By the way, I have mixed feelings about the final sentence in that excerpt. Yes, Republicans oftentimes have displayed grotesque levels of fiscal irresponsibility. Heck, just look at the new farm bill. Or the vote on the Export-Import Bank. Or the vote on housing subsidies. Or…well, you get the point.

On the other hand, GOPers have voted for three consecutive years in favor of a budget that restrains the growth of federal spending, in large part because it includes much-needed reforms to major entitlement programs such as Medicare and Medicaid.

But Republican inconsistency isn’t our focus today.

I want to address other parts of Samuelson’s column that left a bad taste in my mouth.

He argues that you can’t balance the budget merely by cutting discretionary programs. That’s technically untrue, but it’s an accurate assessment of political reality.

I’m much more worried about his assertion that you can’t balance the budget even if entitlement spending also is being addressed.

Let’s look at what he wrote and then I’ll explain why he’s wrong.

Eliminating many programs that are arguably marginal — Amtrak, subsidies for public broadcasting and the like — would not produce enough savings to balance the budget. The reason: Spending on Social Security, Medicare and other health programs… But even plausible benefit trims for affluent retirees would still leave deficits. There would still be a need for tax increases.

This is wrong. Not just wrong, but demonstrably inaccurate.

The Ryan budget, for instance, balanced the budget in 2023. Without a single penny of tax hikes.

Senator Rand Paul and the Republican Study Committee also have produced balanced budget plans. Even as scored by the statists at the Congressional Budget Office.

By the way, you don’t even need to cut spending to balance the budget. Spending cuts would be desirable, of course, but the key to eliminating red ink is simply making sure that government spending climbs at a slower rate than revenues.

And since revenues are expected to grow by about 6 percent per year, it shouldn’t take advanced knowledge of mathematics to realize that the deficit will fall if spending grows by less than 6 percent annually.

Indeed, we could balance the budget as early as 2018 if spending merely was restrained so that the budget grew at the rate of inflation.

But never forget that the goal of fiscal policy should be shrinking the size and scope of the federal government, not fiscal balance.

Ask yourself the following questions. If $1 trillion floated down from Heaven and into the hands of the IRS, would that alter in any way the argument for getting rid of wasteful and corrupt parts of the federal leviathan, such as the Department of Housing and Urban Development?

If the politicians had all that extra money and the budget was balanced, would that mean we could – or should – forget about entitlement reform?

If there was no red ink, would that negate the moral and economic imperative of ending the welfare state?

In other words, the first part of Samuelson’s column is right. We need a debate about “the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving.”

But we’re not going to come up with a good answer if we don’t understand basic fiscal facts.

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A “Human Right” to Other People’s Money

One of the many differences between advocates of freedom and supporters of statism is how they view “rights.”

Libertarians, along with many conservatives, believe in the right to be left alone and to not be molested by government. This is sometimes referred to in the literature as “negative liberty,” which is just another way of saying “the absence of coercive constraint on the individual.”

Statists, by contrast, believe in “positive liberty.” This means that you have a “right” to things that the government will give you (as explained here by America’s second-worst President). Which means, of course, that the government has an obligation to take things from somebody else. How else, after all, will the government satisfy your supposed right to a job, education, healthcare, housing, etc.

Sometimes, the statists become very creative in their definition of rights.

• Across Europe, a satellite dish is now a human right.
• The Department of Housing and Urban Development asserts there is a right to “emotional support animals” in college dorms.
• In Finland, broadband access is a basic right.
• In France, it is against the law to say your husband is under-endowed or that your wife is fat.
• There’s now an entitlement for free soccer broadcasts in Europe.
• In Italy, you have the right to…um…your testicles.
• Both the United Nations and the Obama Administration think there’s a right to taxpayer-financed birth control.

You may laugh at these examples, particularly the ones that focus on seemingly trivial issues.

But don’t laugh too hard, because our friends on the left are busy with very grandiose plans for more “positive liberty.”

The EU Observer reports on efforts in Europe to create expanded rights to other people’s money.

Austerity programmes agreed with the troika of international lenders (the European Commission, European Central Bank and International Monetary Fund) are in breach of the EU’s Charter of Fundamental Rights, according to a German legal expert. …under the EU charter of fundamental rights, a legal text which became binding for member states in 2009, several austerity measures enshrined in the MoUs can be fought in courts. …His study highlights that the MoUs “have seriously limited the autonomy of employers and trade unions to negotiate wages.” …Education and health care reforms prescribed in the memorandums are also questionable because they are focusing too much on cutting budgets, he said. …He noted that the concept of “financial stability” was put above all other considerations. “But financial stability cannot be achieved without social stability,” he said.

But it’s not just one oddball academic making these claims.

…the Council of Europe’s social rights committee noted that public policies since 2009 have been unable to stem a generalised increase in poverty on the continent. The committee identified some 180 violations of European Social Charter provisions on access to health and social protection across 38 European countries. In the bailed-out countries, the committee found several breaches – particularly in terms of wages and social benefits. Ireland was found in breach of the social charter for not ensuring the minimum levels of sickness, unemployment, survivor’s, employment injury and invalidity benefits. Greece and Cyprus have “inadequate” minimum unemployment, sickness, maternity and old age benefits, as well as a restrictive social security system. Spain also pays too little to workers on sick leave.

This crazy thinking also exists in the United States. A former Carter Administration official, now a law professor at Georgetown, has written that countries with good policy must change their systems in order to enable more tax revenue in nations with bad policy.

Do states like Switzerland, which provide a tax haven for wealthy citizens of developing countries, violate internationally recognized human rights? …bank secrecy has a significant  human rights impact if governments of developing countries are deprived of resources needed to meet basic economic rights guaranteed by the United Nations Covenant on Economic, Social, and Cultural Rights. …The Covenant explicitly recognizes individual rights to adequate food, clothing, and housing (Article 11); health care, clean water, and sanitation (Article 12); and education (Article 13). The Covenant also imposes obligations on member states to implement these rights.

And the right to redistribution isn’t just part of the U.N. mission.

There’s also a European set of Maastricht Principles which supposedly obligates nations to help each expand the burden of government.

Articles 19 and 20 of The Maastricht Principles call on states to “refrain from conduct which nullifies or impairs the enjoyment and exercise of economic . . . rights of persons outside their territories . . . or which impairs the ability of another State to comply with that State’s . . . obligations as regards economic rights.” …recognizing the fact that secrecy for offshore accounts makes it difficult for developing countries to implement Covenant obligations. It therefore seems indisputable that offshore accounts impede the fulfillment of internationally recognized human rights.

You may be thinking that all this sounds crazy. And you’re right.

You may be thinking that it’s insane to push global schemes for bigger government at the very point when the welfare state is collapsing. And you’re right.

You may be thinking that it’s absurd to trample national sovereignty in pursuit of bad policy. And you’re right.

And you may be thinking this is a complete bastardization of what America’s Founding Fathers had in mind. And you’re right.

But you probably don’t understand that this already is happening. The IRS’s awful FATCA legislation, for instance, is basically designed for exactly the purpose of coercing other nations into enforcing bad American tax policy.

Even more worrisome is the OECD’s Orwellian Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is best viewed as a poisonous acorn that will grow into a deadly World Tax Organization oak tree.

P.S. And the Obama Administration already is pushing policies to satisfy the OECD’s statist regime. The IRS recently pushed through a regulation that says American banks have to put foreign tax law above U.S. tax law.

P.P.S. Statists may be evil, but they’re not stupid. They understand that tax havens and tax competition are a threat to big government.

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Thanks to Government, Banks Treat You Like Crap and Spy on You

People are getting increasingly agitated about being spied on by government.

The snoops at the National Security Agency have gotten the most attention, and those bureaucrats are in the challenging position of trying to justify massive invasions of our privacy when they can’t show any evidence that this voyeurism has stopped a single terrorist attack.

And let’s not forget that some politicians and bureaucrats want to track our driving habits with GPS devices. Their immediate goal is taxing us (gee, what a surprise), but does anyone doubt that the next step would be a database of our movements?

But the worst example of government spying may be the web of laws and regulations that require banks to monitor our bank accounts and to share millions of reports about our financial transactions with the Treasury Department’s Financial Crimes Enforcement Network.

Money laundering laws were adopted beginning about 30 years ago based on the theory that we could lower crime rates by making it more difficult for crooks to utilize the financial system.

There’s nothing wrong with that approach, at least in theory. But these laws have become very expensive and intrusive, yet they’ve had no measurable impact on crime rates.

As you might expect, politicians and bureaucrats have decided to double down on failure and they’re making anti-money laundering laws more onerous, imposing ever-higher costs in hopes of having some sort of positive impact. This is bad for banks, bad for the poor, and bad for the economy.

And it’s encouraging banks to treat customers like crap. Check out this ridiculous example included in a BBC report.

Stephen Cotton went to his local HSBC branch this month to withdraw £7,000 from his instant access savings account to pay back a loan from his mother. A year before, he had withdrawn a larger sum in cash from HSBC without a problem. But this time it was different, as he told Money Box: “When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved.” Mr Cotton says the staff refused to tell him how much he could have: “So I wrote out a few slips. I said, ‘Can I have £5,000?’ They said no. I said, ‘Can I have £4,000?’ They said no. And then I wrote one out for £3,000 and they said, ‘OK, we’ll give you that.’ ” He asked if he could return later that day to withdraw another £3,000, but he was told he could not do the same thing twice in one day.

Here’s another absurd story.

Peter from Wiltshire, who wanted his surname withheld, had a similar experience. He wanted to take out £10 000 cash from HSBC, some to pay to his sons and some to fund his long-haul travel plans. Peter phoned up the day before to give HSBC notice and everything seemed to be fine. The next day he got a call from his local branch asking him to pay his sons via a bank payment and to provide booking receipts for his holidays. Peter did not have any booking receipts to show.

And another.

Belinda Bell is another customer who was initially denied her cash, in her case to pay her builder. She told Money Box she had to provide the builder’s quote.

Why is the bank treating customers like dirt? Well, because they’re pressured to act that way thanks to anti-money laundering laws, which basically require them to act as if unusual transactions are criminal. In other words, customers are guilty until they prove themselves innocent.

HSBC has said…”We ask our customers about the purpose of large cash withdrawals when they are unusual and out of keeping with the normal running of their account. Since last November, in some instances we may have also asked these customers to show us evidence of what the cash is required for.” “The reason being we have an obligation to protect our customers, and to minimise the opportunity for financial crime…” Money Box asked other banks what their policy is on large cash withdrawals. They all said they reserved the right to ask questions about large cash withdrawals.

They’ve “reserved the right”?!? I think Mr. Cotton was spot on when he groused, “You shouldn’t have to explain to your bank why you want that money. It’s not theirs, it’s yours.”

A few politicians also are unhappy about pointless government-mandated spying.

Douglas Carswell, the Conservative MP for Clacton, is alarmed… “All these regulations which have been imposed on banks…infantilises the customer. In a sense your money becomes pocket money and the bank becomes your parent.”

Not let’s look at an example of how anti-money laundering laws lead to foolish intervention in the United States.

We’ll start with a feel-good story from Wired about an entrepreneur coming up with a service that’s desired by consumers.

Mike Caldwell spent years turning digital currency into physical coins. That may sound like a paradox. But it’s true. He takes bitcoins — the world’s most popular digital currency — and then he mints them here in the physical world. …by moving the digital currency into the physical realm, he also prevents hackers from stealing the stuff via an online attack. …You send him bitcoins via the internet, and he sends you back metal coins via the U.S. Postal Service. To spend bitcoins, you need a secret digital key — a string of numbers and letters — and when Caldwell makes the coins, he hides this key behind a tamper-resistant strip. …Caldwell takes a fee of about $50 on each coin he mints.

But our silver cloud has a dark lining.

…he received a letter from the Financial Crimes Enforcement Network, or FINCEN, the arm of the Treasury Department that dictates how the nation’s anti-money-laundering and financial crime regulations are interpreted. According to FINCEN, Caldwell needs to rethink his business. “They considered my activity to be money transmitting,” Caldwell says. And if you want to transmit money, you must first jump through a lot of state and federal regulatory hoops Caldwell hasn’t jumped through.

And since the hoops are very expensive, we have yet another example of foolish red tape killing a business.

Running afoul of FINCEN is a risky proposition. In the spring, the Department of Homeland Security seized two bank accounts belonging to Mt. Gox. The reasoning behind the $5 million seizure: Mt. Gox, like Caldwell, hadn’t registered itself as a money transmission business. …Because he runs a bitcoin-only business, Caldwell says there’s no Casascius bank account for authorities to seize. But he adds that he has no desire to anger the feds, whether he agrees with them or not. So he’s cranking out his last few orders.

I’m not saying, by the way, that bitcoins are necessarily a good way to hold wealth.

But I do believe that it’s good to see the evolution of private forms of money as a hedge against bad government policy. As I wrote back in 2011, “I have no way of knowing how well this system will work and how insulated it will be from government interference, but I very much hope it will be successful. Governments will never behave if they think people have no escape options.”

Unfortunately, politicians and bureaucrats are in the process of trying to shut down that escape option.

P.S. Switching to a different topic, I don’t know if there are any big policy implications, but I was fascinated to find this map in my twitter feed. It shows the first word that pops up when you ask why a country is so ____?

Here are my observations, for what it’s worth. Luxembourg and Switzerland are tax havens, so it’s no surprise that they are rich. Other nations should mimic their successful policies.

Norway, meanwhile, is rich because of oil.

I had no idea the Italians were supposed to be racist, though obviously this map merely shows what Google users are searching for, not what’s actually true.

I’m mystified that Macedonia is “important,” though I suspect Greece was similarly labeled because it is the first domino of the European debt crisis. Hardly something to be proud of.

I’m also surprised that Lithuanians are perceived as suicidal. Isn’t that a Swedish stereotype?

Croatia is beautiful, I’ll agree, at least along the coast.

The neglected people from Montenegro don’t even get a word! Heck, even the Kosovars and Moldovans have Google words.

I won’t comment on the stereotype about France, other than to say that the nation did get in the top-10 on a poll for attractiveness.

P.P.S. Since we’re discussing European stereotypes, here’s some politically incorrect terrorism humor from a British friend.

P.P.P.S. Speaking of stereotypes, here’s some polling data on how the Europeans see each other. I’m not sure how to interpret these results, other than to say that trustworthy people apparently are arrogant and lack compassion.

P.P.P.P.S. It goes without saying that I can’t resist the temptation to share these satirical maps on how the Greeks and Brits view their European neighbors.

P.P.P.P.P.S. Since the main topic of this post is money laundering, let’s end with a joke about how President Obama dealt with these foolish laws.

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Simple Messages about the Folly of Gun Control

Let’s start this post with some cheerful news.

The statists face a huge uphill battle if their campaign to undermine our rights to keep and bear arms. If you want evidence, just look at last year’s special election defeats of two anti-Second Amendment politicians in Colorado (followed by the resignation of another state senator who feared a recall). Or remind yourself about the utter failure of President Obama’s cynical attempt to get more gun control by exploiting the murder of children in Newtown, Connecticut.

And check out these two maps to see how we’re making progress at the state level.

But this doesn’t mean we can relax our vigil. Showing contempt for America’s separation-of-powers system, the President repeatedly has asserted that he has the power to unilaterally change government policy. And just as he arbitrarily rewrites Obamacare, he claims he can impose more gun control.

But that only allows him to nudge policy in the wrong direction since the courts have been reasonably helpful on the Second Amendment in recent years.

Moreover, the real constraint on the statists is the wonderful fact that the American people would respond with massive civil disobedience if politicians ever tried to take our guns. Heck, even some very admirable government officials already are engaging in civil disobedience.

So let’s maintain our momentum by doing everything we can to educate others about the folly of gun control. Here are a handful of images that help make the case for the the Second Amendment.

Though I fear our left-wing friends will misinterpret this one and demand to regulate box cutters (just as some left-wing Brits have advocated knife control).

Here’s one that reminds me that teachers in places such as Israel and Texas have the right to be armed.

Though I wonder whether that would be comfortable. Perhaps this Alabama woman has a better idea.

Here’s an image with the same message found at the top of this post and at the bottom of this post. (and if you want to see a t-shirt that shows the left’s “morally superior” approach, click here).

Needless to say, my daughter has been raised with the right understanding of this issue.

Here’s a poignant reminder that gun control often is a tool of totalitarian regimes.

Which is why I’ve always thought this poster is the most powerful argument against gun control.

Last but not least, here’s a reminder that bad people don’t like private gun ownership.

Sort of the same message I had in my IQ test for criminals and liberals. In simpler terms, would you go looting in the neighborhood pictured at the end of this post?

Let’s close this post with links to a couple of articles that also are worth sharing. If you have left-wing friends, there are two posts that may convince them to be rational about guns. Justin Cronin explains here that restrictions on gun ownership undermined his ability to protect his family. And Jeffrey Goldberg looked at the evidence and concluded that guns make people safer.

And for your analytically minded friends, this Larry Correia piece is must reading for anyone who wants to understand about magazine limits and so-called assault weapons.

P.S. Fee free to vote in my poll asking the most important reason to oppose gun control.

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Everything You Ever Needed to Know about the Left’s View of Income Inequality, Captured in a Single Image

If you want to know why the left is wrong about income inequality, you need to watch this Margaret Thatcher video. In just a few minutes, the “Iron Lady” explains how some – perhaps most – statists would be willing to reduce income for the poor if they could impose even greater damage on the rich.

This picture is another way of getting across the same point. It was sent to me by Richard Rahn (famous for the Rahn Curve), and it uses two pizzas to show how leftist policies would “solve” inequality.

I like this analogy, and not just because I also used the pizza analogy to make the same argument in this TV interview.

The growing or shrinking pizza is useful because it helps to focus people on the importance of growth.

Nations that follow the right policy recipe can enjoy the kind of strong and sustained growth that enables huge increases in prosperity for all income classes. In other words, everyone can have a bigger slice if the pie is growing.

I even tried to educate a PBS audience that growth is better than redistribution if you really want to help the poor. Talk about Daniel in the Lion’s Den!

I don’t know if I persuaded anyone, but at least the facts are on my side. Consider, for instance, how the world’s two most laissez-faire jurisdictions – Hong Kong and Singapore – have overtaken the United States over the past 50-plus years.

That’s been great news for low-income and middle-income people, not just the rich.

So ask yourself whether you’d rather be a poor person in one of those jurisdiction or in France. The government in France has all sorts of programs to make your life easier, but you have very little hope of escaping a life of dependency.

And now ask yourself whether it’s good that Obama is doing his best to push America in that direction.

P.S. If you want another example of how long-run growth makes a big difference, check out this chart comparing Chile, Argentina, and Venezuela. Not only has Chile overtaken the other nation thanks to pro-market reforms, but the poverty rate has fallen dramatically.

P.P.S. Since this post shares a very good image about income inequality, let’s include a bonus picture on taxation.

It’s a helpful suggestion on how to make kids aware of the cost of big government.

Though let’s be sure to acknowledge that Obama is doing what he can to make kids more skeptical of class warfare.

P.P.P.S. On a separate topic, I’ve explained that the so-called “austerity” vs “growth” argument is grossly misguided because Keynesian spending isn’t pro-growth and also because it’s important to distinguish between good austerity and bad austerity.

Too many governments are choosing the wrong type of austerity, imposing destructive tax hikes on the private sector. What’s really needed in genuine spending restraint so that “austerity” is imposed on the public sector.

But some folks on the left say there’s been too much spending restraint in recent years.

So who’s right? Well, UBS has produced a report containing some very useful data.

Viewing the global economy as a single unit, we see a very  different picture to the post-crisis world of austerity – at least if “austerity” is taken to mean government spending cuts. The two largest components of global GDP, namely private consumption and fixed investment, both hit multi-year peaks in the first quarter of 2008. …Since the start of 2008, government consumption at the  global level has risen by 20% in real terms, whereas private consumption and fixed investment have risen just 8% and 5%, respectively. In other words, despite talk of austerity, government spending continues to run ahead of private-sector spending.

Hmmm…the burden of government has been growing faster than the private sector. That’s the opposite of what the Golden Rule calls for.

And not only has government been growing too fast in the past, it’s likely that fiscal policy will get even worse in the future.

Structurally, government debt, government spending, and the share of government within the economy must be sustainable. Government consumption’s share of global GDP has risen from 11% to 14% over the past 15 years. In 2013, it reached its highest level since 1980. At the same time, government debt-to-GDP ratios have hit record highs in many countries. In the long run, such elevated levels of expenditure (and corresponding levels of debt and deficit) are probably not sustainable, in particular, given other structural changes underway. For instance, demographic trends in many advanced economies pose challenges.

The moral of the story is that America and other nations should be restraining budgets, ideally by enacting the right kind of entitlement reform.

Though I’m worried that Obama is learning the wrong lesson from what’s happening in Europe.

Indeed, this Henry Payne cartoon shows what he has in mind. And if he succeeds, this satirical 2012 campaign slogan may become reality.

P.P.P.P.S. Here’s a final image that captures the essence of Washington.

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Are Government Bureaucrats Corrupt and Dishonest?

I don’t like government bureaucrats.

Actually, let me re-phrase that statement. I know lots of people who work for different agencies in Washington and most of them seem like decent people.

So maybe what I really want to say is that I’m not a big fan of government bureaucracies and the results they generate. Why?

Because a bloated government means overpaid bureaucrats, both at the federal level and state level (and in other nations as well).

Because inefficient bureaucracies enable loafing and bad work habits.

Because being part of the government workforce even encourages laziness!

And it may even be the case that government bureaucracies attract dishonest people. A story in the L.A. Times reveals that there’s a correlation between cheating and a desire to work for the government.

Here are some excerpts.

College students who cheated on a simple task were more likely to want government jobs, researchers from Harvard University and the University of Pennsylvania found in a study of hundreds of students in Bangalore, India. Their results, recently released as a working paper by the National Bureau of Economic Research, suggest that one of the contributing forces behind government corruption could be who gets into government work in the first place. …Researchers ran a series of experiments with more than 600 students finishing up college in India. In one task, students had to privately roll a die and report what number they got. The higher the number, the more they would get paid. Each student rolled the die 42 times. …Cheating seemed to be rampant: More than a third of students had scores that fell in the top 1% of the predicted distribution, researchers found. Students who apparently cheated were 6.3% more likely to say they wanted to work in government, the researchers found.

I’m not surprised. Just as the wrong type of people often are attracted to politics, we shouldn’t be surprised to learn that less-than-admirable folks sometimes are attracted to jobs in the bureaucracy.

But I don’t want to draw too many conclusions from this research.

The study looked at people in India and that nation’s government is infamous for rampant corruption.

However, if you look at how America scores in that regard (corruption measures are included in both Economic Freedom of the World and the Index of Economic Freedom), the problem is much less severe.

So even though I’m willing to believe that bureaucrats in America are more prone to bad habits than their private-sector counterparts, I don’t think many of them decide to get government jobs in the expectation that they can extract bribes.

Indeed, I would guess that the average American bureaucrat is far more honest than the average American politician.

That’s damning with faint praise, I realize, but it underscores an important point that the real problem is big government. That’s what enables massive corruption in Washington.

P.S. Switching gears, I’ve written a couple of times about the intrusive and destructive Foreign Account Tax Compliance Act. Well, we have some good news on that front. The Republican National Committee has endorsed the law’s repeal. I don’t want to pretend that’s a momentous development and I even told Reuters that the GOP may only be taking this step for narrow political reasons.

Daniel Mitchell, a senior fellow at the Cato Institute, a libertarian think tank, said: “It’s hard to imagine an issue this obscure playing a visible role in elections … It is making overseas Americans far more sympathetic to (Republicans) and could have an impact on fundraising.”

That being said, I’m more than happy when politicians happen to do the right thing simply because it’s in their self interest. And if we can eventually undo FATCA and enable more tax competition, that’s good news for America and the rest of the world.

P.P.S. And here’s another positive update on a topic we’ve examined before. Governor Rick Perry of Texas has joined a growing list of people who are having second thoughts about the War on Drugs. Here’s an excerpt from a report in the Washington Post.

Texas Gov. Rick Perry (R) on Thursday voiced support for softening penalties for marijuana use, and touted his work moving in the direction of decriminalization. “After 40 years of the war on drugs, I can’t change what happened in the past. What I can do as the governor of the second largest state in the nation is to implement policies that start us toward a decriminalization and keeps people from going to prison and destroying their lives, and that’s what we’ve done over the last decade,” Perry said, according to the Austin American-Statesman.

He joins a growing list of people – such as John Stossel, Gary Johnson, John McCain,  Mona Charen, Pat Robertson, Cory Booker, and Richard Branson – who are recognizing that it’s foolish to give government massive amounts of power and money simply to stop people from doing dumb things to themselves.

But maybe you disagree with all those people and would rather be on the same side as Hillary Clinton.

And make life easier for the folks in this cartoon.

P.P.P.S. I’ve written before about how leftists always criticize so-called tax havens, even though rich statists are among the biggest beneficiaries of these low-tax jurisdictions.

President Obama, for instance, has been so critical of tax havens that he’s been caught making utterly dishonest statements on the topic.

But I guess the President’s opposition to tax competition is less important than his desire to prop up Obamacare. Look at some of what’s been reported by Bloomberg.

…the job of taking over construction of HealthCare.gov, which failed miserably when it debuted in October, is going to Accenture Plc, which switched its place of incorporation in 2009 to Ireland from Bermuda. …Accenture has endured so much criticism over the years for its use of tax havens that it even has a disclosure in its annual report warning investors to expect as much. …Accenture’s roots date back to a once-iconic American business, which helps explain why it’s gotten a lot of heat for incorporating in tax havens since spinning off.

By the way, it makes sense for Accenture to be domiciled in Bermuda rather than the United States.

P.P.P.P.S. On a personal note, I’m down in Florida for my first softball tournament of the year and I’m happy to report that I managed to put one over the fence.

Hitting home runs has become a distressingly infrequent event as I’ve gotten older (I’m playing in a tourney for the 55-and-up crowd), and I like to memorialize it when it happens just in case it’s the last time.

So forgive me if I engage in Walter Mitty-style fantasizing. Maybe, just maybe, the Yankees will call with a contract offer.

Wait, who am I kidding?!?

That’s even less likely than Obamacare succeeding. Or politicians surrendering some of their power by enacting a flat tax.

I’m doomed to be a policy wonk for the rest of my life.

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We Need “Poverty Porn” on American TV

When I posted a video about “libertarian porn” back in 2010, readers presumably were either relieved or disappointed that there was no nudity.

Heck, even my libertarian sex jokes don’t involve sex, so I doubt I’ll be in much demand at comedy clubs.

I may get the same reaction today, because we’re going to have a discussion – but only G-rated – about what our British friends are referring to as “poverty porn.”

More specifically, that’s the term that’s being used for television reality shows in the United Kingdom that expose welfare fraud. Here are some excerpts from a story in U.S. News & World Report.

A shoplifter, a recovering drug addict and a young couple barely able to feed their kids are among the stars of “Benefits Street” — a smash hit reality show featuring welfare recipients that has stirred up a storm of controversy in Britain. The program zooms in on a rough Birmingham street where 9 out of 10 people are said to live off state payouts, chronicling over five episodes the lives of jobless neighbors as they struggle with their daily problems. …Britain’s welfare state has long been a subject of pride among many Britons, but these days attitudes toward benefits have hardened — and polls suggest that support for pouring taxpayer money into welfare, especially for the young, is at a record low. British tabloids are replete with hysteria stories about unemployed people buying flat-screen TVs and designer goods using welfare funds. And “Benefits Street” is the hottest in a growing genre of reality shows about the poor that has been dubbed “poverty porn” because of its sensationalist nature. Even the sober BBC has jumped on the bandwagon with a documentary called “Britain on the Fiddle,” which set out to catch benefits fraudsters in the act on camera. …The “poverty porn” trend comes as Prime Minister David Cameron’s government tries to overhaul the benefits system.

By the way, if you want examples of the “hysteria stories” in the “tabloids,” check out Natailija, Tracey, Anjem, and Gina and Danny.

You’ll understand why I wrote that, “if there was a welfare Olympics, the U.K. would have a lot more medals.”

Anyhow, the good news is that politicians in the United Kingdom are finally taking some measures to rein in the welfare state. I don’t know if it’s because television programs are exposing waste and fraud, but it’s clearly good news since welfare spending has exploded over the past 10-plus years in the UK.

Here’s part of a report in the Telegraph.

In a speech that seeks to build on “extraordinary” jobless figures, the Work and Pensions Secretary will promise to end the “twilight world” of entire communities that are reliant on benefits. …Mr Duncan Smith will warn that there are still benefits-dependent areas that “for the most part remain out of sight”. Sources suggested that this is a reference to communities such as the one seen on Benefits Street, a Channel 4 documentary, and said that he was on “a crusade to rescue Benefits Street Britain”. “I have long believed there is no kindness in a benefits system that traps people, leaving them in a twilight world where life is dependent on what is given to you, rather than what you are able to create,” Mr Duncan Smith will say. …A Conservative government wants to ensure that welfare is “a journey that people are on, rather than a destination where they stay”, he will add.

I’ll withhold judgement on whether the squishy Cameron government actually is doing something good in this area, but I’m glad that there’s at least pressure for positive change.

Which is why we need some “poverty porn” in America.

Maybe that would be a wake-up call for our politicians on how the welfare state creates a poverty trap and erodes social capital (something that a few honest liberals have acknowledged).

P.S. In an example of sloppy/biased journalism, the U.S. News article states that “The show has struck a strong chord in a nation…still reeling from its most brutal austerity measures in a generation, with basic public services trimmed drastically.” Why is that passage biased and/or sloppy? Well, because as I had to explain to Paul Krugman, there hasn’t been any genuine austerity in the United Kingdom.

P.P.S. The story in the Telegraph also contains this passage.

The number of people in work rose by 280,000 in the past three months to a record 30.15 million, the biggest quarterly increase in employment on record. Minutes released by the Bank of England’s Monetary Policy Committee said that the “tightening in the eligibility requirements for some state benefits might have led to an intensification of job search”. Mr Duncan Smith claimed that the comments were a tacit endorsement of his welfare reform programme. He said the Bank of England, led by Mark Carney, now believed that the welfare reforms had contributed to the dramatic fall in unemployment.

In other words, this Michael Ramirez cartoon is correct. The numbers from the UK are evidence – in addition to all this evidence – that people are more likely to find jobs when they can’t rely on taxpayer handouts.

P.P.P.S. If “poverty porn” changes the political environment, it could mean the end of the Moocher Hall of Fame.

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Drilling More Holes in Obamacare’s Sinking Ship

The President’s main “accomplishment” has been such a disaster that I wonder whether it’s time to feel sorry for Obama.

And if you looked in the dictionary for a definition of Schadenfreude, you might find a picture of me reading a story exposing more evidence that Obamacare isn’t working.

Heck, I’ve even shared Hitler parody videos (two of them!) mocking the law.

But to paraphrase Mae West, there’s no such thing as too much of a good thing.

Today, we’re going to look at the opinions of two experts, both of whom expect further bad news for Obamacare.

Here’s some of what Michael Tanner, my Cato colleague, wrote for the New York Post.

…“the State of ObamaCare” is growing ever more troubled. For starters, it’s falling far short of the goal of universal coverage. …just 1.5 million have actually completed the ObamaCare checkout, including payment. Worse, surveys indicate that less than a third of those enrolling were previously uninsured. …Even using the most optimistic reading of these figures, fewer than 11 percent of uninsured Americans have gotten coverage because of the ObamaCare law; most likely, fewer. This is what we’re getting for the $2.7 trillion that ObamaCare will cost over the next 10 years? Plus, we should subtract the roughly 500,000 Americans who, by the White House’s own count, have lost insurance because of ObamaCare.

And Mike expects things will get worse over time.

…that’s just the tip of the iceberg, because those policy-killing rules will hit another part of the market over the course of this year — namely, the “small group” market, where employers now buy health policies that cover about 78 million Americans. Many of those with cancelled plans will ultimately end up with similar, if more expensive, employment-based policies, but some are likely to simply wind up uninsured. …Then there’s the bad news about who is enrolling in ObamaCare plans — or rather, who isn’t: not enough of the young and healthy folks that the program needs to overpay for insurance so as to offset the costs of covering older and sicker people. …Oh, and a Reuters survey finds that new enrollees are also less healthy than ObamaCare’s designers hoped, too. Humana, one of the nation’s largest insurers, reports that so far enrollment in its exchange-based plans has been far “more adverse than previously expected.”

Megan McArdle of Bloomberg is similarly unimpressed with how Obamacare has developed.

Enrollment is below expectations: According to the data we have so far, more than half of the much-touted Medicaid expansion came from people who were already eligible before the health-care law passed, and this weekend, the Wall Street Journal reported that the overwhelming majority of people buying insurance through the exchanges seem to be folks who already had insurance. Coverage is less generous than many people expected, with narrower provider networks and higher deductibles. The promised $2,500 that the average family was told they could save on premiums has predictably failed to materialize. And of course, we now know that if you like your doctor and plan, there is no reason to think you can keep them.

But it’s going to get worse, she writes.

The Barack Obama administration is in emergency mode, pasting over political problems with administrative fixes of dubious legality, just to ensure the law’s bare survival — which is now their incredibly low bar for “success.” Although the fixes may solve the short-term political problems, however, they destabilize the markets, which also need to work to ensure the law’s survival. The president is destroying his own law in order to save it.

The article has lots of detail, but here are a few highlights of the bad things that already have happened.

Obamacare’s exchange facility was conceived as a “three-legged stool”: guaranteed issue, community rating, mandate. …Take one away, and the whole thing is in danger of collapsing. Unfortunately, whenever someone has voiced discontent with the way things are going, the administration has taken a hacksaw to another leg. …some folks who had policies they liked before were being forced to drop them and buy new policies they didn’t like so much. That caused an outcry, followed by an emergency grandfathering rule. Other major emergency fixes include…A one-year delay of the employer mandate…Numerous extensions of enrollment and payment deadlines…Changes in the rules governing the “risk corridor” programs that cover excess losses at insurers.

And here are the bad things that Megan expects will happen in the future.

…the worst is yet to come. Here’s what’s ahead…2014: Small-business policy cancellations…Summer 2014: Insurers get a sizable chunk of money from the government to cover any excess losses. When the costs are published, this is going to be wildly unpopular…Fall 2014: New premiums are announced…2014 and onward: Medicare reimbursement cuts eat into hospital margins…Spring 2015: The Internal Revenue Service starts collecting individual mandate penalties…Spring 2015: The IRS demands that people whose income was higher than they projected pay back their excess subsidies…Spring 2015: Cuts to Medicare Advantage…Fall 2015: This is when expert Bob Laszewski says insurers will begin exiting the market if the exchange policies aren’t profitable…Fall 2017: Companies and unions start learning whether their plans will get hit by the “Cadillac tax,”…January 2018: The temporary risk-adjustment plans, which the administration is relying on to keep insurers in the marketplaces even if their customer pool is older and sicker than projected, run out…Fall 2018: Buyers find out that subsidy growth is capped for next year’s premiums…I expect that the administration is going to issue “temporary” administrative fixes for most of the law’s unpopular bits — just as it has so far. That’s not going to get any easier as midterms and then a presidential election creep closer.

Wow. If I was a Democrat politician, I would not be overly happy at that list – particularly since Obamacare already has caused several dozen involuntary retirements from Congress.

And if I was a partisan Republican, I would get down on my knees every day to give thanks because Chief Justice John Roberts was willing to disregard the Constitution to keep Obamacare alive.

But since I’m a humble policy wonk who simply wants to protect and restore economic liberty, I’m just glad that there’s growing recognition that Obamacare is a turkey that needs to be repealed. No wonder I’m getting more optimistic with each passing day.

Let’s close with a couple of new Obamacare cartoons.

Using an image that will cause many of us to wince, Glenn Foden manages to combine Obamacare and the NSA spying scandal.

Hmmm…I think the images in this example of NSA humor is more pleasurable.

And here’s Henry Payne mixing Obamacare and movie awards.

This post has focused on Obamacare’s failings, so let’s close with an acknowledgement that it’s hard to beat something with nothing.

That’s why reformers need to advocate the types of policies that would undo decades of intervention and re-introduce market forces to the healthcare system.

This video from Reason TV is  a great introduction to that topic.

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The Best State in America Is…?

What’s the best state in America?

I’m not sure I can answer that broad question, but I can address the more narrow issue of which state has the most economic freedom. Last month, for instance, I shared some data from the Canada-based Fraser Institute which showed that South Dakota was America’s most laissez-faire state, followed by Tennessee, Delaware, Texas, and Virginia (though all of them trailed the Canadian province of Alberta).

And one year ago, I posted about a fascinating Mercatus study that ranked states based on total freedom (including, interestingly, a “bachelor party” variable). That research put North Dakota at the top, followed by South Dakota, Tennessee, New Hampshire, and Oklahoma.

Now we have another measure of overall economic liberty at the state level. The Texas Public Policy Foundation has put together a “soft tyranny” index that measures total economic oppression, both for the United States and for the 50 states.

As you would suspect, the ranking was constructed with various measures of spending, taxes, and regulation.

Since we’re focusing today on state competitiveness, let’s first look at that data. As you can see, Texas is in the top spot with the lowest burden of government, followed by South Dakota, Nevada, New Hampshire, and Tennessee.

Since South Dakota and Tennessee appear in the top 5 of all measures, I’m guessing that means they are the best states (and it’s presumably no coincidence that they don’t have broad-based income taxes).

Now let’s review the data for the United States.

Probably the most relevant thing to notice is that economic freedom improved during the Reagan and Clinton years, whereas it worsened under Carter, both Bush Administrations, and Obama.

And since America’s last two presidents have imposed a larger burden of government, it’s no surprise that the United States has fallen in both major global measures of economic freedom.

P.S. On a totally separate issue, I’m not surprised to learn that Republicans who are philosophically corrupt sometimes are personally corrupt as well.

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The Biggest Impediment for the Poor Is Government, not Inequality

A bunch of well-connected rich people and government officials are descending upon Switzerland for the annual World Economic Forum meeting in Davos.

This upsets many people, and perhaps with some justification. After all, bad things often happen when big business and big government intersect.

But some folks reflexively think that wealth is bad and they would like us to believe that the economy is a fixed pie, meaning that the rich have more money because the poor have less money.

If you think I’m exaggerating, check out a new report from Oxfam, a UK-based group that was created to alleviate poverty but has largely morphed into a left-wing pressure group.

The folks at Oxfam complain about the supposed “capture of opportunities by the rich at the expense of the poor and middle classes” and that “tax rates for the richest have fallen in 29 of the 30 countries.”

Here are some excerpts from a report in the EU Observer.

As the world’s richest and most powerful men and women prepare to meet in the Swiss resort of Davos for the annual World Economic Forum on Wednesday (22 January), the British development charity, Oxfam, has issued a new report on global inequality. According to its findings, the wealth of the world’s 85 richest people – €81.2 trillion – amounts to that of the poorest half of the world population, or 3.5 billion people. …”In Europe, austerity has been imposed on the poor and middle classes under huge pressure from financial markets whose wealthy investors have benefited from state bailouts of financial institutions,” the charity said. Financial deregulation in the US has contributed to the situation, in which the richest one percent of the population has more money than ever since 1933.  …The charity said Davos participants should reverse the trend and pledge to support higher taxes for the rich, while refraining from using their wealth to seek political favours.

There are several parts of this excerpt that deserve attention, including passages that are correct (such as bailouts giving undeserved money to the rich) and passages that are nonsensical (the financial crisis was caused by intervention, not deregulation).

But I want to focus solely on the inequality issue. Let’s assume Oxfam is right and that the world’s 85 richest people have $81.2 trillion of wealth. The group obviously wants us to think this accumulation of wealth is bad and that it somehow comes at the expense of the rest of us.

Tim Carney of the Washington Examiner hits the nail on the head, explaining that there’s a big difference between honest wealth and riches obtained through government coercion.

…is it a bad thing for a country to have some really rich people? Again, it depends on how they got rich. Sutirtha Bagchi of the University of Michigan’s business school and Jan Svejnar of Columbia’s School of International and Public Affairs studied how inequality correlates with economic growth. In general, more inequality meant slower growth, and less inequality meant faster growth. But in many countries, over various time periods, growing inequality had no effect on economic growth. The new study suggests that an increase in inequality hurt the economy when the rich were getting rich through political connections. That is, inequality hurts the economy when “a large share of the national wealth is held by a small number of politically connected families,” as the authors put it. …Bagchi and Svenjar took pains to classify political billionaires as narrowly as possible. …The political billionaires were only people who “would not have become a billionaire in the absence of political connections that resulted in favoritism and/or explicit government support.”

The oft-missed lesson here is that undeserving wealth generally is obtained because of big government.

Which reminds me of a very astute observation by a former Cato colleague, who wrote that, “…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people.”

Carney continues, pointing out that wealth obtained through markets is good. Such success creates a bigger pie and helps boost living standards for everyone.

But wealth achieved via government is cronyism, and that contributes to economic stagnation.

When a country’s wealthiest got wealthy through market means, the resulting inequality has no negative effect on economic growth. This jibes with what we know about free markets. If people can get rich by providing valuable things at good prices, then society will get more valuable things at good prices—and people across the income spectrum benefit. But if people get rich by pocketing subsidies and using the state to crush competitors, then they gained their wealth at the expense of everyone else. Bill Gates became a billionaire by making and selling something that makes regular people more productive and more connected. Buffett got rich largely by providing capital to underfunded but well-run businesses. If Bagchi’s and Svejnar’s findings are correct, then the bottom line is this: Inequality itself doesn’t hurt the economy. Cronyism hurts the economy.

I fully agree with Tim’s analysis, though I would have drawn a distinction between the younger Warren Buffett, who was a savvy investor and the older Buffett, who has climbed into bed with the political elite.

The bottom line is that the poor aren’t poor because of honest rich people. The poor are suffering because of big government, including the cronyism that lines the pockets of dishonest companies and individuals that feed at the public trough.

Unfortunately, many insider leftists are perfectly content with those policies and they use inequality to distract voters from the real problem.

There are honest leftists, of course, and they presumably would be outraged by the sleaze in national capitals. Their problem is that they genuinely think the economic is fixed pie. Or they think that inequality is such a bad thing that they would be willing to reduce incomes for the poor if it meant the rich suffered even more.

If you don’t believe me, watch this marvelous video of Margaret Thatcher debunking the left.

And my old grad school colleague Steve Horwitz also has some very sage observations on income inequality and class warfare.

P.S. In its report on inequality, Oxfam also went after tax havens and said more revenue for government would help reduce poverty.

Oxfam also estimated that €15.5 trillion of the wealth is hidden from the taxman in offshore accounts, at a time when governments are cutting public spending. …tax avoidance by EU and US corporations in Africa is depriving its governments from resources which could be use to fight poverty.

I wrote a study years ago exposing Oxfam’s sloppy methodology on tax competition issues. No wonder they’ve been labeled as being part of the “tax taliban.”

But what really irks me about that passage is the assumption that bigger government reduces poverty. That’s nonsense. The data shows that growth is the best way of helping the poor.

P.S. I wrote yesterday about Chris Christie’s problems in New Jersey. I said his real challenge was the need to reduce the burden of government, not the bridge scandal.

But I’m a sucker for good political humor, so enjoy this image that appeared in my inbox.

P.P.S. Since Oxfam criticized tax havens, I can’t resist calling your attention to my video tutorial on tax competition and tax havens.

Simply stated, we need some external check on the greed of the political class.

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New Mercatus Fiscal Ranking Shows the Real New Jersey Scandal

If you’re a libertarian, you generally don’t act and think like other people. Most folks, when they heard about Governor Christie’s bridge-closing scandal, focused on the potential political ramifications.

But not me. My immediate reaction was to think that the problem could have been avoided if the bridge and its various entry points were privately owned. Sort of like the Ambassador Bridge between Canada and Michigan, which is the busiest border crossing in North America. Or the Progreso International Bridge, a major transportation link between Mexico and Texas.

If the George Washington Bridge also had private owners, they would want to maximize the flow of traffic, not arbitrarily close lanes for petty political purposes. So while others may speculate about Chris Christie and the 2016 presidential race, I daydreamed about how privatized bridges would improve transportation (just as I couldn’t stop myself from pontificating about private fire departments when sharing some libertarian humor).

All that being said, I’m digressing before I even get started. The purpose of today’s column is to focus on the real scandal in New Jersey.

New research from the Mercatus Center looks at cash solvency, budget solvency, long-run solvency, and service-level solvency to show which states are fiscally responsible and which states face serious long-run problems.

And while Chris Christie may have taken a few steps to rein in excessive compensation for state bureaucrats (causing me to become giddy with infatuation), he still has a long way to go because the Garden State is in last place in this comprehensive new ranking of fiscal responsibility.

And that means New Jersey is even behind fiscal hell holes such as California, New York, and Illinois.

Here are the key takeaways from the study, which ranks all 50 states.

This paper contributes to that stream of research by applying models of fiscal condition to create indices measuring cash, budget, long-run, and service-level solvency as well as overall fiscal condition at the state level. It also discusses the relative strengths and weaknesses of each solvency index and provides a ranking — based on these indices and using fiscal year 2012 data — of the 50 US states. …Table 9…shows the state rankings based on fiscal condition with all four dimensions taken into account. …the states at the bottom are there due to years of poor financial management decisions, bad economic conditions, or a combination of both. New Jersey and Illinois face similar problems of tax revenues that have not kept up with expenditures, use of budget practices that only appeared to balance their annual budgets, and significant debt levels as a result of decades of using bonds without being able to pay for them. In addition, both states have underfunded their pension systems, resulting in   billions in unfunded liabilities.

Now let’s take a look at the main chart from the study, showing the ranking for all 50 states.

And I want to focus on the bottom 10, which are a rogue’s gallery of big-government basket cases. New Jersey, as already noted, is in last place, but the next-worst state is Connecticut, which has become a fiscal mess ever since making the horrible mistake of adopting an income tax more than two decades ago.

Illinois is in 48th place, which is not surprising since the state is infamous for tax-and-spend fiscal policy. Massachusetts is number 47, making it the fourth-worst state…just as it is the fourth-worst state in the Tax Freedom Day rankings.

California is number 46, and I was surprised (given Jerry Brown’s attempts to drive successful people from the state) to read in the study that its fiscal condition actually has gotten better in recent years. And no rating of fiscal irresponsibility is complete without New York, which is in 45th place.

Indeed, you’ll notice that there’s a good bit of overlap between the states at the bottom of the Mercatus study and the “death spiral” states that I shared last year. No wonder taxpayers are fleeing these oppressive jurisdictions.

Likewise, you’ll see that there’s also overlap between the highest-ranking states and the states that have avoided the mistake of imposing an income tax.

And since we’re on the topic of top-ranked states, it is worth noting that five of the top 10 don’t have an income tax, but we should issue a caveat. Both Alaska and Wyoming have a lot of natural resources, so politicians in those states have lots of revenue to spend. Indeed, too much if we believe these numbers showing state debt in Alaska.

And the same is true for North Dakota, which makes the mistake of maintaining an income tax while also collecting a flood of severance tax revenue.

P.S. If you want to further explore state fiscal performance, here are four additional rankings.

• The state business tax climate index.
• State spending growth between 2001-2011.
• A comprehensive measure of overall freedom by state.
• The famous “moocher index” of state dependency ratios.

P.P.S. I have a confession to make. I’m currently on vacation in Nevis with the PotL. Sounds like an idyllic (albeit very temporary) lifestyle, particularly since it’s cold back in Washington. But every night has been a battle because I can’t figure out how to operate the bloody thermostat. It’s automatically set for 64 degrees, which is far too cold for my tastes, but I don’t know how to change the temperature. It’s a digital device and when I move the temperature up or down, the word “set” starts blinking on the screen, but with no indication of how to actually implement that command. So I have to get up in the middle of the night and turn the device to “on” or “off” depending on whether I’m too cold or too hot. You may be asking yourself why I don’t inquire with the hotel staff, but that’s not an option. A friend on the island arranged for me to rent a private condo, so there’s nobody I can contact. Sort of reminds me of the time in Slovakia when I couldn’t figure out how to operate a shower, or the time in Switzerland when I was baffled by a toilet. And if I can’t figure out how to operate household fixtures, how on earth will I ever figure out how to shrink the size and scope of the federal government.

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Deconstructing Obama’s Dismal Record on Jobs

According to the most recent numbers from the Bureau of Labor Statistics, the unemployment rate has dropped to 6.7 percent. Is this good news?

Well, it’s depends on your benchmark. Compared to France’s anemic economy and double-digit levels of unemployment, America is in decent shape.

But if you use data from the Minneapolis Federal Reserve to compare the current business cycle to previous downturns and upturns in the U.S. economy, then the outlook is very grim. Simply stated, the American economy is enduring the worst performance for labor markets since the Great Depression.

Moreover, the Washington Post put together a chart in 2012 showing that Obama was far behind other presidents on job creation (a point humorously reinforced by Michael Ramirez).

Let’s look at some additional data to assess the President’s track record on jobs.

We’ll start with a chart, versions of which I’ve been sharing for nearly four years. It shows the unemployment rate that the White House claimed we would have back in 2009 if the so-called stimulus was enacted, compared to what actually happened.

As you can see, this is hardly a ringing endorsement for the Keynesian notion that more government spending is good for job creation (or for Nancy Pelosi’s laughable claim that you create jobs by paying people not to work).

But even though I’ve used variations of that chart several times, I don’t think it’s the best measure of either employment markets or the President’s performance. The White House can argue, with some validity, that the chart merely shows that the recession was more severe than they first forecast.

And critics of the Obama Administration can argue, also with validity, that the unemployment rate is an inadequate measure because it doesn’t capture the extent to which people drop out of the job market.

That’s why I’ve always liked the Labor Department’s figures showing the employment-population ratio. It’s a very straightforward number, showing the share of the working-age population that is employed.

And this data series is perhaps even more unfavorable if we’re giving Obama a grade for jobs.

The big drop took place before the President took office, so that’s definitely not his fault. But he can be blamed for the fact that the labor market didn’t bounce back, which usually happens after a recession.

Having millions of people leave the labor force translates into less economic output.

…economic output is a function of labor and capital. And if you want an economy to produce more, your only choices are to somehow achieve one or more of the following:

• More capital.
• More labor.
• More efficient use of capital.
• More productive use of labor.

In other words, labor and capital are the two ingredients that determine economic performance.

Needless to say, if you have less of one of the ingredients, you’re not going to produce as much.

Let’s look at another chart that reveals the Administration’s poor performance on jobs. James Pethokoukis of the American Enterprise Institute combines concepts by replicating the White House’s chart (including their prediction of joblessness in the absence of a so-called stimulus), but also including red dots showing what the unemployment rate would be today based on the various labor force participation rates that we might expect in a healthier economy.

The startling takeaway from this chart is that the unemployment rate today would be more than 10 percent if people hadn’t dropped out of the labor market!

Very sobering data, indeed.

And the main response from the White House is to argue for more unemployment benefits. That’s not very compassionate, as Senator Rand Paul and I explained in a piece for USA Today.

By the way, there is no reason to think that labor force was supposed to shrink. Here’s what the Bureau of Labor Statistics predicted in 2007 compared to what’s actually happened.

So we have to ask ourselves why did so many workers leave the labor market? Was it the overall increase in the burden of government? The increase in the minimum wage? The disability scam? Subsidized unemployment? The welfare trap?

The honest answer is either “I don’t know” or “all of the above.” Or maybe something in between.

But I do know that it’s a very bad sign.

And it’s especially discouraging that we’re seeing a significant drop if labor force participation among males of prime working age.

That may reflect an erosion of social capital, and once a society loses the spirit of self reliance and the work ethic, it’s very difficult to restore those valuable norms. And once a nation has too many people riding in the wagon and not enough people pulling the wagon, that doesn’t bode well.

Since this post has been filled withe depressing data, let’s close by sharing some amusing cartoons.

Nate Beeler has produced some gems, so let’s start with this cartoon showing that some people have been stuck in a deep freeze.

And here’s Beeler’s take on the “drop” in labor force participation.

Lisa Benson, meanwhile, mocks the President’s empty talking points.

And Glenn McCoy shows the President’s version of compassion.

These cartoons remind me of the ones I shared last August.

P.S. Careful readers will have noticed that this piece cites both the employment-population ratio and the labor force participation rate. These two data series are sometimes used interchangeably, though I prefer the former for reasons explained in this article for the BLS’s Monthly Labor Review.

P.P.S. On a totally separate topic, I want to share some good news about the International Monetary Fund. The IMF is a statist international bureaucracy that pushed for bad policy, both in America and other nations. Last year, I reported that the Obama Administration proposed to give the IMF more money and authority, but that lawmakers on Capitol Hill wisely rejected the request. Well, the same positive outcome  happened again as part of the spending bill just approved by Congress.

Here’s some of what the New York Times reported.

Administration officials concede that Congress’s decision not to make the changes will be an embarrassment to President Obama internationally…congressional Republicans would not budge… The structural changes to the fund have languished since Mr. Obama agreed to the “rebalancing” with great fanfare at the G-20 meeting in Seoul, South Korea, in 2010.  …Since the 2010 accord, every nation involved but the United States has ratified it. But the United States remains the monetary fund’s largest contributor, and without Congress’s approval, the restructuring cannot happen.

P.P.P.S. And since I’m sharing random news, here’s something else that may interest readers. Time has a non-political personality quiz that supposedly reveals whether you are liberal or conservative. For what it’s worth, I’m 83 percent conservative and 17 percent liberal. I’m not sure what to think of the test, but it’s definitely better than the “social attitude test” I took last year, which concluded that I’m a “moderate” and “a centrist with few strong opinions.” I much prefer Professor Bryan Caplan’s libertarian purity quiz, where I scored a 94 out of 160, which may not sound impressive, but it was enough to put me in “the heady realm of hard-core libertarianism.”

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Mirror, Mirror, on the Wall, Which Nation Has Increased Welfare Spending the Fastest of All?

There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

The paper looks at changes in the burden of welfare spending over the past 14 years. The story understandably focuses on how the United Kingdom is faring compared to other European nations.

Welfare spending in Britain has increased faster than almost any other country in Europe since 2000, new figures show.  The cost of unemployment benefits, housing support and pensions as share of the economy has increased by more than a quarter over the past thirteen years – growing at a faster rate than in most of the developed world. Spending has gone up from 18.6 per cent of GDP to 23.7 per cent of GDP – an increase of 27 per cent, according to figures from the OECD, the club of most developed nations. By contrast, the average increase in welfare spending in the OECD was 16 per cent.

This map from the story shows how welfare spending has changed in various nations, with darker colors indicating a bigger expansion in the welfare state.

American readers, however, may be more interested in this excerpt.

In the developed world, only the United States and the stricken eurozone states of Ireland, Portugal and Spain – which are blighted by high unemployment – have increased spending quicker than Britain.

Yes, you read correctly. The United States expanded the welfare state faster than almost every European nation.

Here’s another map, but I’ve included North America and pulled out the figures for the countries that suffered the biggest increases in welfare spending. As you can see, only Ireland and Portugal were more profligate than the United States.

Needless to say, this is not a good sign for the United States.

But the situation is not hopeless. The aforementioned numbers simply tell us the rate of change in welfare spending. But that doesn’t tell us whether countries have big welfare states or small welfare states.

That’s why I also pulled out the numbers showing the current burden of welfare spending – measured as a share of economic output – for countries in North America and Western Europe.

This data is more favorable to the United States. As you can see, America still has one of the lowest overall levels of welfare spending among developed nations.

Ireland also is in a decent position, so the real lesson of the data is that the United States and Ireland must have been in relatively strong shape back in 2000, but the trend over the past 14 years has been very bad.

It’s also no surprise that France is the most profligate of all developed countries.

Let’s close by seeing if any nations have been good performers. The Telegraph does note that Germany has done a good job of restraining spending. The story even gives a version of Mitchell’s Golden Rule by noting that good policy happens when spending grows slower than private output.

Over the thirteen years from 2000, Germany has cut welfare spending as a share of GDP by 1.5 per cent… Such reductions are possible by increasing welfare bills at a lower rate than growth in the economy.

But the more important question is whether there are nations that get good scores in both categories. In other words, have they controlled spending since 2000 while also having a comparatively low burden of welfare outlays?

Here are the five nations with the smallest increases in welfare spending since 2000. You can see that Germany had the best relative performance, but you’ll notice from the previous table that Germany is not on the list of five nations with the smallest overall welfare burdens. Indeed, German welfare spending consumes 26.2 percent of GDP, so Germany still has a long way to go.

The nation that does show up on both lists for frugality is Switzerland. Spending has grown relatively slowly since 2000 and the Swiss also have the third-lowest overall burdens of welfare spending.

Hmmm…makes you wonder if this is another sign that Switzerland’s “debt brake” spending cap is a policy to emulate.

By the way, Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

No wonder Canada is now much higher than the United States in measures of economic freedom.

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More Bad News from Government-Run Education: The Corrosive Centralization of Common Core

I’ve posted hundreds of charts over the past several years, including on favorite topics such as tax code corruption and counterproductive government spending.

But arguably the most powerful and compelling chart I’ve ever shared is on the topic of education. Prepared by my Cato colleague, Andrew Coulson, it shows that massive increases in spending and bureaucracy (which accompanied increasing federal involvement and intervention) have had zero impact on educational performance.

Keep that chart in the back of your mind as we consider what George Will has to say about President Obama’s scheme – known as Common Core – to expand federal involvement and intervention.

We have several excerpts, beginning with this passage outlining some of his concerns.

Common Core…is the thin end of an enormous wedge. It is designed to advance in primary and secondary education the general progressive agenda of centralization and uniformity. …proponents of the Common Core want its nature and purpose to remain as cloudy as possible for as long as possible. Hence they say it is a “state-led,” “voluntary” initiative to merely guide education with “standards” that are neither written nor approved nor mandated by Washington… Proponents talk warily when describing it because a candid characterization would reveal yet another Obama administration indifference to legality.

Will then notes that we’ve been sliding down the slippery slope of centralization and Washington control.

The 1965 Elementary and Secondary Education Act (ESEA), the original federal intrusion into this state and local responsibility, said “nothing in this act” shall authorize any federal official to “mandate, direct, or control” schools’ curriculums. The 1970 General Education Provisions Act stipulates that “no provision of any applicable program shall be construed to authorize any” federal agency or official “to exercise any direction, supervision, or control over the curriculum, program of instruction” or selection of “instructional materials by any” school system. The 1979 law creating the Education Department forbids it from exercising “any direction, supervision, or control over the curriculum” or “program of instruction” of any school system.

And Common Core is just the latest example.

…what begins with mere national standards must breed ineluctable pressure to standardize educational content. Targets, metrics, guidelines and curriculum models all induce conformity in instructional materials. Washington already is encouraging the alignment of the GED, SAT and ACT tests with the Common Core. By a feedback loop, these tests will beget more curriculum conformity. All of this will take a toll on parental empowerment, and none of this will escape the politicization of learning like that already rampant in higher education.

If this sounds familiar, it’s probably because you’re aware of other slippery slope examples, such as the tiny income tax in 1913 that has morphed into the internal revenue code monstrosity of today.

Returning to the topic of education, Will warns that the one-size-fits-all approach will undermine the innovation and experimentation needed to figure out how best teach kids.

Even satisfactory national standards must extinguish federalism’s creativity: At any time, it is more likely there will be half a dozen innovative governors than one creative federal education bureaucracy. And the mistakes made by top-down federal reforms are continental mistakes.

I particularly like his warning about “continental” mistakes. You get the same problem with global regulation, by the way.

The bottom line, as Will explains, is that Common Core is yet another example of a failed approach.

What is ludicrous is Common Core proponents disdaining concerns related to this fact: Fifty years of increasing Washington input into K-12 education has coincided with disappointing cognitive outputs from schools. Is it eccentric that it is imprudent to apply to K-12 education the federal touch that has given us HealthCare.gov? …Opposition to the Common Core is surging because Washington, hoping to mollify opponents, is saying, in effect: “If you like your local control of education, you can keep it. Period.”

You won’t be surprised to learn that Cato Institute experts are among the leading opponents of Common Core. Here’s what Andrew Coulson, in a column warning about the negative impact on private schools, has written.

…the Common Core–aligned tests create a powerful incentive for schools to teach the same concepts in the same order at the same time. This would make it all but impossible for schools to experiment with new ways of tailoring education to meet the needs of individual children — they will instead have to resort to expecting that all children who happened to be born in the same year progress at the same rate across subjects.

And another Cato scholar, Neil McCluskey, points out that other education experts also think Common Core is a dud.

The Common Core is opposed by scholars at leading think tanks on the right and the left, including the Heritage Foundation, the Hoover Institution, the Brookings Institution and the Cato Institute. My research has shown that there is essentially no meaningful evidence that national standards lead to superior educational outcomes. Hoover Institution Senior Fellow Eric Hanushek, an education economist and supporter of standards-based education reform, has reached a similar conclusion, recently writing: “We currently have very different standards across states, and experience from the states provides little support for the argument that simply declaring more clearly what we want children to learn will have much impact.” Hanushek’s conclusion dovetails nicely with Common Core opposition from Tom Loveless, a scholar at the left-leaning Brookings Institution. In 2012, Loveless demonstrated that moving to national standards would have little, if any, positive effect because the performance of states has very little connection to the rigor or quality of their standards, and there is much greater achievement variation within states than among them. In fact, Loveless has been one of the clearest voices saying the Core is not a panacea for America’s education woes, writing: “Don’t let the ferocity of the oncoming debate fool you. The empirical evidence suggests that the Common Core will have little effect on American students’ achievement. The nation will have to look elsewhere for ways to improve its schools.”

We started this post with a very powerful chart, so let’s end with another chart.

It’s not as visually compelling, but it shows that the United States already spends more on education than another other nation.

But if you look at the data is this post, you’ll see that American students are lagging behind their counterparts in other developed nations.

Maybe, just maybe, it’s time to put kids first. Perhaps we should discard the Bush-Obama approach of centralization and spending and instead choose a better path.

In other words, let’s learn from Chile, Sweden, and the Netherlands.

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More Amusing Anti-Libertarian Humor

Do libertarians have a sense of humor?

That’s a relevant question because many people think of us as unhappy curmudgeons, or perhaps as dorky Randians.

While I think those stereotypes are unfair, I also confess that I can only think of a few examples of explicitly pro-libertarian humor.

Libertarian Jesus scolding modern statists.

This poster about confused statists.

The libertarian version of a sex fantasy.

Since I could only find three examples, does this mean libertarians are hopelessly dour and lacking in humor?

I think the answer is “no” and I think there are two reasons to justify that response. First, libertarians are always making fun of oafish and moronic government. I like to think, for instance, that my UK-vs-US government stupidity contest contains some amusing satire.

Skeptics may respond that you can mock big government without being a libertarian, and that’s a fair point.

But this gives me an opportunity to list the second reason why it’s wrong to accuse libertarians of lacking a sense of humor. Simply stated, we have the ability to appreciate anti-libertarian humor. This not only shows that we have funny bones, but it also demonstrates that we have considerable confidence about the strength of our ideas.

So with that build-up, here’s an example of anti-libertarian humor I received from a fellow traveler in Illinois.

I think you’ll agree that this can be added to our collection of anti-libertarian humor.

• A video portraying Somalia as a libertarian paradise.
• Cartoons on libertarian ice fishing and libertarian lifeguards.
• A mosaic showing 24 types of libertarians.
• A poster showing how the world sees libertarians.
• A 23-photo montage of libertarian problems.
• The answer to the riddle of why the libertarian chicken crossed the road.

P.S. Since I am a dorky libertarian, I can’t resist responding to the above cartoon by noting that we actually don’t need government fire departments. The folks at the Reason Foundation have been working on this issue for decades and have a study explaining the benefits of private fire departments.

But there’s a lot more evidence. Here’s what one expert wrote in 2012 for Cato Unbound.

…my town contracts out its entire fire department to the company Rural/Metro, a pioneer in privatized fire services. Their trucks are shiny, red, and full of water, just like a “traditional” fire department’s. Their firemen train just like their municipal counterparts do in neighboring jurisdictions. They respond to fire and EMS calls just like the government-run systems do. The main differences I’ve discerned are that: (1) their logo—which otherwise looks much like other fire department logos—notes the name of the company underneath the name of the town, and (2) workers are covered under a private sector 401(k) plan, so our town is not on the hook for a massive future pension payout. Neither of these differences is relevant from a service delivery standpoint.

And an article in Capitalism Magazine the same year pointed out that privatized fire protection exists in hundreds of communities.

…nearly half of Denmark’s municipalities contract with Group 4 Falck to provide firefighting and ambulance services. In America, more than 450 communities contract with Rural/Metro Corporation for fire protection service, EMS, or both. Unlike government fire services, which focus on fire response, Rural/Metro focuses on fire prevention. A former mayor of Scottsdale, Arizona, which has used Rural/Metro for more than two decades said, “Scottsdale citizens are offered a much better balance between response and prevention than is available in most communities.”

Why are so many communities looking at private options?

Most likely, it’s because unions have conspired with government officials to push labor costs to absurd levels, as humorously depicted is this somewhat off-color video.

P.P.S. Returning to the topic of humor, I have a serious request. Can anybody provide examples of self-deprecating humor by leftists?

I don’t think statists have much self-confidence in their ideas, so they probably don’t have much ability to poke at themselves, but I imagine there must be some examples.

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It’s Not Springtime for Hitler and Obamacare

The title of today’s column may not make much sense if you’ve never watched The Producers, a 1960s Mel Brooks comedy featuring Gene Wilder and Zero Mostel, but you’ll soon see the connection.

That’s because we’re going to laugh at Obamacare, otherwise known as the gift that keeps on giving, and Hitler is part of our satire.

The President’s ill-fated takeover of the healthcare sector has been a complete cluster-you-know-what for the left. It’s not only helped make the American people far more skeptical of big government, it’s also generated some first-rate political humor.

We’ve had everything from Pajama boy abuse to clever political cartoons, all of which has helped turn government-run healthcare into a punch line.

I think Obamacare videos are particularly effective, whether they’re based on sex or mockery, and one of my favorites, from last October, featured the former Fuehrer of Germany’s National Socialist Workers Party.

Now we have a second example of Hitler Obamacare parody, and it is equally funny. It appears that a national socialist shouldn’t rely on the promises of an American quasi-socialist.

One of my favorite parts, which takes place about three minutes into the video, is the reference to Sandra. I assume that’s a clever dig at Ms. Fluke, the female version of Pajama Boy. If it was unintentional, then it’s merely serendipity.

But the whole video is amusing, including the references to the corrupt waiver process that has exempted many unions from provisions of Obamacare.

Heck, the humor assault on the President’s main “accomplishment” is so brutal that I sometimes – when sharing cartoons mocking Obamacare – can’t help but talk about a spirit of Schadenfreude and I also wonder whether it’s time to feel sorry for the President.

Maybe I’m becoming a softie.

P.S. If you like Hitler parody videos, here are two more that are worth viewing.

Here’s Hitler learning about Europe being downgraded.

And here’s the Fuehrer finding out that Scott Walker prevailed in his fight against government bureaucrats in Wisconsin.

But if you want a serious video about Obamacare, you can click here and watch me pontificate about why government-run healthcare is a fiscal nightmare.

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New Data Shows Big Loss of Economic Freedom in the United States

My favorite Heritage Foundation publication (other than…ahem…my studies on government spending and the flat tax) is the annual Index of Economic Freedom.

Like the Fraser Institute’s Economic Freedom of the World and the World Economic Forum’s Global Competitiveness Report, the Index is a broad measure of liberty to engage in voluntary exchange in a system of secure property rights and honest government.

Unfortunately, the United States has been moving in the wrong direction in recent years. As you can see here, here, and here, America used to rank in the top 10. But this chart shows that the United States is now has fallen to number 12 and is considered to be only “Mostly Free.”

I’m not surprised to see Hong Kong and Singapore at the top of the list, but notice how large of a lead they have over the other four “Free” nations. Their big advantage, if you dig into the details, exists because of relatively low burdens of government spending and comparatively modest tax rates.

Canada’s strong performance shows how a nation can improve with the right reforms.

In the “Mostly Free” section, it’s kind of embarrassing that America is behind Denmark. The United States actually has a slightly better (or, to be more accurate, slightly less worse) fiscal regime (with “Lazy Robert” being the poster child for the welfare state), but Denmark gets very good grades for being very laissez-faire in other regards.

I’m pleased to see, by the way, that Chile and Estonia score reasonably well. Estonia has been a good role model in recent years for fiscal restraint (even if Paul Krugman can’t understand the numbers). Chile, meanwhile, engaged in many pro-growth reforms over the past three decades (though I’m worried the new government may harm the nation’s leading position in Latin America).

You’ll notice that Slovakia isn’t on the list of “Free” or “Mostly Free” nations. That nation suffered a big drop, in part because a socialist government repealed the flat tax. Such a shame.

One of the good things about the Heritage Index is that you can play with the data to compare nations based on particular variable. Here’s a chart showing scores for “government spending” in Europe. Wow, talk about a “red” continent.

Switzerland stands out for being the only advanced nation with a semi-decent score of “Moderately Free,” though that’s nothing to brag about. But when all your neighbors are “Unfree,” you look good by comparison. No wonder Switzerland is in much better shape than France.

P.S. I prefer the Fraser Institute’s Economic Freedom of the World over the Heritage Index of Economic Freedom, not because I’m an expert on the methodology of the two publications, but for the simple reason that I assume Economic Freedom of the World must be slightly more accurate because, unlike the Heritage Index,  it showed the U.S. score declining during the Bush years.

P.P.S.  I wrote back in 2010 that we shouldn’t fear the supposed Chinese tiger and the new numbers in the Index corroborate what I wrote. China is mired way down in the “Mostly Unfree” category, with a score that puts them in 137th place.

P.P.P.S. If you like global rankings that make no sense, here are some quasi-amusing options.

• One group claimed that America is one of the world’s most authoritarian nations.
• The statists at the OECD put together a ranking asserting that poverty is a bigger problem in the United States than in Greece, Portugal, or Turkey.
• In a 2010 ranking of influence in the world of global finance, the FCI 500 placed me higher than either George Soros or Paul Krugman. I wish that was even close to true.
• A bunch of enviro-nutjobs put together a “Happy Planet” index showing the USA behind such garden spots as Cuba, Albania, and Venezuela.

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The Lamest Possible Rationale for NSA Spying

Last June, in response to a question about indiscriminate spying by the National Security Agency, I made two simple points about the importance of judicial oversight and cost-benefit analysis.

I want – at a minimum – there to be judicial oversight whenever the government spies on American citizens, but I also think some cost-benefit analysis is appropriate. Just because a court has the power to approve snooping, that doesn’t mean it’s a sensible use of law enforcement resources.

Nothing since then has changed my mind.

Indeed, I’m perhaps even more skeptical of untrammeled government power and ability to spy on citizens for the simple reason that I don’t trust politicians.

Just look at how the White House turned the supposedly professional IRS into a partisan political operation. The government had power, ostensibly for a legitimate reason, but politicians and bureaucrats then used the power is a grossly improper fashion.

On the other hand, I know there are people out there who hate America. And they don’t just hate us because we’re intervening in the Middle East. I suspect many of them would want to kill us even if we had a perfect libertarian foreign policy of non-intervention and peaceful global commerce.

Now we learn from a report in the Washington Post that government has become bigger and more powerful and that our privacy has been violated as part of the NSA’s spying, yet there have been no benefits. As is zero. Nada. Zilch.

Here are some excerpts.

An analysis of 225 terrorism cases inside the United States since the Sept. 11, 2001, attacks has concluded that the bulk collection of phone records by the National Security Agency “has had no discernible impact on preventing acts of terrorism.” In the majority of cases, traditional law enforcement and investigative methods provided the tip or evidence to initiate the case, according to the study by the New America Foundation, a Washington-based nonprofit group.

But perhaps, you may be thinking, this is merely the predictable conclusion of a group that is predisposed to be skeptical. That’s a fair concern, but the article also has some very compelling corroborating evidence.

The study, to be released Monday, corroborates the findings of a White House-appointed review group, which said last month that the NSA counterterrorism program “was not essential to preventing attacks” and that much of the evidence it did turn up “could readily have been obtained in a timely manner using conventional [court] orders.”

So not only do outsiders find little to no value in NSA spying, but even hand-picked insiders couldn’t come up with any evidence to show that the program was effective.

But you won’t be surprised to learn that defenders of the NSA have come up with a can’t-miss way of defining success.

Senior administration officials…say it has been valuable in knocking down rumors of a plot and in determining that potential threats against the United States are nonexistent. Director of National Intelligence James R. Clapper Jr. calls that the “peace of mind” metric.

Yes, your eyes did not deceive you.You actually read correctly. The government wants us to acquiesce to a loss of privacy because we will learn that there are no threats and we’ll have “peace of mind.”

That has to be the lamest justification for government power that I’ve ever read.

This is even more preposterous than asserting that we should squander $1 trillion per year on anti-poverty programs, not because that redistribution will help the poor, but rather because it makes leftists feel better about themselves.

That being said, supporters do have a somewhat powerful comeback.

Michael Morell, a former acting CIA director and a member of the panel, said the program “needs to be successful only once to be invaluable.”

Indeed, I suspect this is the main reason why ordinary people might support the NSA.

But I disagree with Mr. Morell because he asserts that a single example of success would be invaluable. The article, for instance, cites one “victory” for the NSA surveillance program.

…the program provided evidence to initiate only one case, involving a San Diego cabdriver, Basaaly ­Moalin, who was convicted of sending money to a terrorist group in Somalia. Three co-conspirators were also convicted. The cases involved no threat of attack against the United States.

I’m glad that a foreign terrorist attack was blocked, but is that really “invaluable”? Does that “victory” justify a very expensive and very intrusive NSA monitoring regime?

As I’ve acknowledged before, I don’t know enough about terrorism to offer an informed viewpoint. But I have studied a similar issue, money laundering laws, and that research leads me to be very suspicious about the NSA.

These laws were put in place with the excuse that government would collect and analyze large amounts of data to help deter crime.

All the evidence, however, shows that these laws are a costly failure. The invade our privacy, hurt the poor, impose high regulatory costs, and have little or no impact on underlying crimes.

Just something to keep in mind when people argue that government should have more power and authority.

P.S. At least the revelations about NSA spying have generated some first-rate political humor.

P.P.S. Keep in mind that the NSA is just one cog in the machinery of government. So if you’re worried about the NSA’s intrusion and power, then you should also worry about the power of the IRS. If you’re concerned about the IRS’s authority, then you also should fret about the Obamacare exchanges. And if you think the Obamacare exchanges give the government too much knowledge and power, then you should be agitated about “know-your-customer” laws that require banks to spy on their customers. And if you’re not happy about those money-laundering rules, then you surely should be dismayed about asset-forfeiture rules. And if you don’t approve of government stealing property, then maybe you don’t like government accumulation of power for the Drug War. And if the failed War on Drugs rubs you the wrong way, then perhaps you…I better stop now. I think you get the point.

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Great Moments in Wasteful Spending…or Great Moments in Bizarre Regulation?

Every so often, I share stories about the ridiculous and outrageous way in which the federal government squanders our money.

• Forcing taxpayers to pay millions of dollars for pro-Obamacare and pro-IRS propaganda.
• Doing interviews – at a per-person cost of $6,000 – about erectile dysfunction and sticking the tab on us.
• Giving disability benefits to a grown man who wants to wear diapers and live as an “adult baby.”
• Squandering $400K on experimental underwear that detect cigarette smoke.
• Paying 35 times the market price for some Kindles.
• A $100,000 library grant to a city without a library.
• Throwing $100 million in the garbage by subsidizing a leftist bureaucracy in Paris that advocates for higher taxes in the United States.

So when I saw this New York Post story about the feds pissing away a six-figure sum on condom research, I figured this would be a perfect addition to my collection of government waste stories.

The federal government is stretching your tax dollars — in search of the perfect condom. The National Institutes of Health will spend $224,863 to test 95 “custom-fitted” condoms so every American man can choose the one that fits just right.

And it’s a good match with this story about Washington flushing away more than $400K on research about men not liking to wear condoms.

Do we really need to spend other people’s money to figure out that guys, if they have to wear condoms, would like them to fit?!?

But then I found something in the story that genuinely surprised me. Apparently there are federal regulations that restrict the types of condoms that can be sold in the United States!

The NIH blames US “regulatory guidelines” for American men having to choose from a “narrow range of condom sizes.” The six-figure grant was awarded to TheyFit of Covington, Ga., which offers a wide variety of condoms that vary in length — from a bit more than 3 inches to nearly 9 ¹/₂ — and in width. They’re available in European Union countries, but not in the United States, where they would have to be approved by the Food and Drug Administration.

I’m flabbergasted. I can vaguely understand why the government might regulate some aspects of condom production, such as durability rules to limit breakage. I don’t think such red tape is necessary because companies already plenty of incentive – because of both reputational risk and preemptive legal protection – to maintain good standards.

But at least you can see a rationale for bureaucrats to intervene.

I can’t imagine, though, what excuse regulators came up with when they decided to limit the variety of condom sizes. Maybe this is a literal example of the one-size-fits-all mentality of Washington?

And isn’t it embarrassing that Europeans have a more market-friendly approach on this issue?

Though none of us should be surprised that the Keystone Cops at the United Nations want to create a human right to obtain taxpayer-financed condoms.

At least Sandra Fluke will be happy about that.

P.S. Here’s a Glenn McCoy cartoon about Obama and subsidized condoms.

P.P.S. Since I started this post with examples of wasteful spending, but then decided that this story might belong in the category of absurd regulation, let’s close by sharing some examples of foolish red tape.

• Regulations making it difficult for trucking firms to weed out drunk drivers.
• Year-long sting operations by federal milk police.
• Rules harassing coffee shops with bikini-clad sales staff.
• OSHA requirements for expensive safety harnesses for people working 11 feet off the ground.

Addendum: A friend with a warped sense of humor emailed to suggest a unflattering link between the condom research and the note left on my windshield right before Christmas. So I can only imagine what my enemies are saying.

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The Bread-ish Difference Between Capitalism and Socialism

If you ask an economist about the difference between capitalism and socialism, you’ll probably get a boring answer about the size of government, the impact on incentives, and the power of the state.

Or maybe you’ll get a nit-picking answer, sort of like when I explained that Obama technically isn’t a socialist.

That’s why it’s sometimes best to use simple, common-sense analogies.

Two years ago, I used two cows to explain the differences between various economic systems.

But this image may be an ever more succinct way to showing the difference between capitalism and socialism.

Or, if you prefer stories, this updated version of the fable of the ant and the grasshopper makes the same point.

And here’s the PC version of the Little Red Hen.

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To Be Genuinely Compassionate, Politicians Should Focus on Job Creation, not Unemployment Benefits

Washington is in the middle of another debate about redistributing money.

But that’s hardly newsworthy. Politics, after all, is basically a never-ending racket in which insiders buy votes and accumulate power with other people’s money.

The current debate about extending unemployment benefits is remarkable, though (at least from an economic perspective), because certain politicians want to give people money on the condition that they don’t get a job. Needless to say, that leads to a very perverse incentive structure.

There is a problem with joblessness, to be sure, but it’s misguided to think that extending unemployment benefits is the compassionate response.

Senator Paul and I wrote a column for USA Today about a better way of helping the unemployed. Looking at the empirical evidence, we argue that it’s time to unleash the private sector by reducing the burden of government.

We started with an assessment of the labor market, which has been dismal under Obama’s reign.

The nation is enduring the weakest recovery since the Great Depression, 11 million people remain unemployed, and millions more have dropped out of the labor force. For minorities, it’s even worse. The black unemployment rate is more than twice that of whites. And the weak job market means that even those who are employed are having a hard time climbing the economic ladder.

We explain that more unemployment benefits is a misguided approach.

There’s a lot of talk about helping those down on their luck, but there’s a big divide on the best approach. Our view is that America needs a growth agenda based on reducing the burden of government. The unemployed need a strong job market, not endless handouts that create dependency. …There’s an understandable desire in Washington to “do something,” and extending benefits once again certainly is the easy route for policy makers. But if we are serious about keeping workers out of the long-term unemployment trap, we must have a debate about which policies cause unemployment and which policies create jobs.

The column cites many of the academic studies showing that unemployment benefits lead to more joblessness.

I’ve made this point during television interviews, and this Michael Ramirez cartoon echoes our thinking in a more entertaining fashion.

And we definitely can’t overlook this superb Wizard-of-Id parody. It doesn’t focus specifically on unemployment benefits, but it makes a great point about labor supply incentives.

But let’s get back to the column. Our main goal is to identify the types of policies that would generate jobs and growth.

Simply stated, genuine compassion should be defined by helping people get back to work so they don’t need to be wards of the state.

And easing the burden of government is the best way to make that happen. Our column looks at some evidence – from both overseas and here at home – about the policies that are associated with better economic performance.

Big government is responsible for today’s unemployment situation. …Since President Obama was elected, we have spent $560 billion on unemployment benefits. It’s likely many more jobs would have been created had the government not diverted that money from the economy’s productive sector. …Instead of copying stagnant European nations with bigger public sectors, we should learn from countries that have achieved better performance by lowering the burden of government. Singapore and Hong Kong are examples of jurisdictions with small governments and free markets that enjoy strong and sustained growth with very low levels of joblessness. …look at Canada, which has significantly boosted its jobs market with pro-growth reforms, or Switzerland, which has cemented its traditionally strong labor markets with reforms to control the growth of government. This is not a partisan argument. Or at least it shouldn’t be. The United States enjoyed strong levels of job creation during both the Reagan and Clinton years. But in both cases, public policy was largely the same, featuring an increase in economic freedom.

Some people may wonder whether Reagan and Clinton belong in the same category.

Well, as illustrated by this chart, they both presided over periods with impressive job creation.

And they both presided over periods with generally good economic policy.

Reagan moved the country in the right direction on purpose. Clinton, by contrast, may have wanted to move the nation in the other direction, but he was unsuccessful. Indeed, the evidence is very strong that the overall burden of government fell during his tenure.

Whether by accident or design, America needs another period of free markets and shrinking government.

For further details on the recipe for good policy, here’s the video I narrated for the Center for Freedom and Prosperity, which explains the conditions that lead to strong and sustained growth.

P.S. I’m obviously a fan of Senator Rand Paul. Not only does he choose good people as op-ed partners, he also gave me public credit for a good Obamacare joke.

P.P.S. On a separate topic, I wrote in December 2012 that the strongest evidence for media bias is which stories get covered. A perfect example is that journalists already have given 17 times as much coverage of the Chris Christie “bridgegate” scandal as they gave to the IRS scandal over the past six months.

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The Worst Feature of the Income Tax Is…?

In the famous “Bridge of Death” scene in Monty Python and the Holy Grail, some of the knights are asked to name their favorite color. One of them  mistakenly says blue instead of yellow and is hurled into the Gorge of Eternal Peril.

I can sympathize with the unfortunate chap. If asked my least favorite part of the tax code, I sometimes get confused because there are so many possible answers.

Do I most despise the high tax rates that undermine economic growth?

Am I more upset about the pervasive double taxation of income that is saved and invested?

Or do I get most agitated by a corrupt and punitive IRS?

How about the distorting loopholes for politically connected interest groups?

And the anxiety of taxpayers who can’t figure out how to comply with an ever-changing tax code?

Depending on my mood and time of day, any of these options might be at the top of my list.

But I also might say that I’m most upset about the way that the tax code facilitates a perverse form of legalized corruption in Washington. In this FBN interview, I explain how even small tax bills often are vehicles for lining the pockets of lobbyists and politicians.

To elaborate, some taxpayers may pay more when there’s new tax legislation and some may pay less. But this “winners” and “losers” game only applies outside the beltway.

The inside-the-beltway crowd always wins. Whether they’re lobbying for or against a provision, they get very big checks. Whether they’re voting yes or no on legislation, they’re getting showered with campaign contributions.

This chart, showing the growing number of pages in the tax code (by the way, we’re now up to 76,000 pages of tax law), also could be seen as a proxy for how the Washington establishment has gamed the system so that they always profit.

Or, to be more specific, it’s an example of how government has become a racket for the benefit of insiders. All of us pay more and endure less growth, but Washington’s gilded class lives fat and happy because there is always lots of money changing hands.

So how do we solve this problem?

The answer, at least for a period of time, in the flat tax. This video explains how this simple and fair system would operate.

But even though I’m a big advocate of tax reform, the flat tax is only a partial solution.

Simply stated, there’s no way to reduce Washington corruption until and unless you shrink the size and scope of the federal government.

That means somehow figuring out how to restore the Constitution’s limits on Washington. For much of our nation’s history, federal spending consumed only about 3 percent of our economic output.

And when the public sector was small and government generally focused only on core competencies, there wasn’t nearly as much opportunity for the graft and sleaze that characterize modern Washington.

P.S. The bad news is that all the projections show that the federal government will get far bigger in the future. So before we shrink the burden of government, we first need to come up with ways to keep it from growing.

P.P.S. The national sales tax is another intermediate option for reducing DC corruption, though that option requires repeal of the 16th Amendment so politicians don’t pull a bait-and-switch game and stick up with both an income tax and consumption tax.

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The War on Poverty Has Been a Disaster for Taxpayers…and for Poor People

I’ve shared many charts over the years, but two of the most compelling ones deal with poverty.

The numbers in this chart, which are based on Census Bureau data and scholarly studies (see here, here, here, and here), show that the poverty rate was steadily falling in the United States – until the federal government decided to launch a so-called War on Poverty.

Once Washington got more involved and started spending trillions of dollars, we stopped making progress. The poverty rate has changed a bit with shifts in economic conditions, but it’s stayed remarkably steady between 11 percent and 15 percent of the population.

So why have we stopped making progress? This second chart shows how redistribution programs create a dependency trap. The plethora of handouts from government make self-reliance and work comparatively unattractive, particularly since poor people are hit with very high implicit marginal tax rates.

And just as rich people respond logically to incentives, the same is true of poor people.

In a recent debate with a representative of the Center for American Progress, I tried to make these points. I doubt I had any effect on her outlook, but hopefully viewers began to see that the welfare state has been bad news for taxpayers and bad news for poor people.

Our debate was cut short by the host, but I think it was a fair representation of each side’s views.

And if you want more information on this topic, my former colleague from my days at the Heritage Foundation, Robert Rector, assesses the War on Poverty for today’s Wall Street Journal.

He starts with some very sobering numbers.

Fifty years later, we’re losing that war. Fifteen percent of Americans still live in poverty, according to the official census poverty report for 2012, unchanged since the mid-1960s. Liberals argue that we aren’t spending enough money on poverty-fighting programs, but that’s not the problem. …The federal government currently runs more than 80 means-tested welfare programs that provide cash, food, housing, medical care and targeted social services to poor and low-income Americans. Government spent $916 billion on these programs in 2012 alone, and roughly 100 million Americans received aid from at least one of them, at an average cost of $9,000 per recipient. …Federal and state welfare spending, adjusted for inflation, is 16 times greater than it was in 1964. If converted to cash, current means-tested spending is five times the amount needed to eliminate all official poverty in the U.S.

He then explains that poor people don’t suffer from material deprivation (which may explain why the Obama Administration wants to manipulate the numbers to justify more welfare spending).

…the typical American living below the poverty level in 2013 lives in a house or apartment that is in good repair, equipped with air conditioning and cable TV. His home is larger than the home of the average nonpoor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.

Robert then gets to the heart of the issue, explaining that the welfare state has expanded dependency and exacerbated social pathologies.

…consider LBJ’s original aim. He sought to give poor Americans “opportunity not doles,” planning to shrink welfare dependence not expand it.  …By that standard, the war on poverty has been a catastrophe. The root “causes” of poverty have not shrunk but expanded as family structure disintegrated and labor-force participation among men dropped. A large segment of the population is now less capable of self-sufficiency than when the war on poverty began. …In 1963, 6% of American children were born out of wedlock. Today the number stands at 41%. As benefits swelled, welfare increasingly served as a substitute for a bread-winning husband in the home. …children raised in the growing number of single-parent homes are four times more likely to be living in poverty than children reared by married parents of the same education level. …Even in good economic times, a parent in the average poor family works just 800 hours a year, roughly 16 hours weekly, according to census data. Low levels of work mean lower earnings and higher levels of dependence.

Mr. Rector also has some specific suggestions in his column, most of which seem sensible, but this is where I think my idea of sweeping decentralization and federalism is very appropriate.

P.S. Thomas Sowell’s indictment of the welfare state is must reading.

P.P.S. Some honest leftists now acknowledge that big government creates worrisome forms of dependency.

P.P.P.S. If you want to know how dependency varies by state, here’s a map showing welfare payments and another map showing food stamp usage.

P.P.P.P.S. Shifting to a bigger stage, my least favorite international bureaucracy has made the preposterous claim that poverty is a bigger problem in America than it is in basket-case nations such as Greece and Portugal. Not that we should be surprised since the OECD actively urges a bigger welfare state in the United States.

P.P.P.P.P.S. And don’t forget our Moocher Hall of Fame if you want examples of the human cost of the welfare state.

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Washington’s Over-Compensated Shadow Bureaucracy and the Real Income-Inequality Problem

One of my most widely read – but also most depressing – articles was from about two years ago and it exposed the fact that Washington, DC, is now the nation’s richest region.

I explained that Washington is rich because of unearned wealth. Almost all of the loot that winds up in the pockets of highly paid lobbyists, contractors, bureaucrats, politicians, cronyists, and other insiders ultimately comes from taxpayers in the rest of the country.

That’s why we should be angry that a majority of the nation’s richest counties surrounded DC. A region that produces almost nothing manages to live fat and happy because of the coercive power of government.

That’s the kind of income inequality that should be eliminated, and I do my best to fan the flames of resentment in this interview about fat-cat contractors getting big bucks from taxpayers.

All these well-paid contractors are – for all intents and purposes – members of the government workforce. Sort of a shadow bureaucracy that is several times larger than the official count. They get paid by our tax dollars and their jobs exist because of government.

This doesn’t mean all those jobs should be abolished. But, like their official bureaucrat cousins, many contractors are engaged in wasteful and superfluous activities, and almost all of them are paid too much.

By the way, I disagree with Ms. Brian when she claimed in the interview that you don’t find bureaucrats living in “McMansions.” As my Cato colleague Chris Edwards has documented, federal workers get a far larger amount of compensation than people working in the economy’s productive sector.

Heck, even the Washington Post has published stories about bureaucrats living in“a leafy section of Fairfax County where houses sell in the $700,000 range.”

Let’s close today’s post with some good news. According to the most recent Census Bureau data, Washington is now home to “only” 8 of the nation’s 15-richest counties.

That’s a small step in the right direction and it almost surely happened because government spending has been restrained for the past two fiscal years. And when government doesn’t grow, that means less loot for those that have learned to milk the system.

It’s amazing how many good things happen if you reduce the burden of government spending!

P.S. This interview was filmed right before Christmas, so I engaged in some sartorial excess. If you like the red jacket, other attempts to be on the cutting edge of fashion can be seen here and here.

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Even the Establishment Media Is now Admitting the French Economic Model Is Fatally Flawed

Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Back in 2011, I said France was engaged in economic self-destruction.

In September 2012, I wrote that it was time to start the countdown for France’s fiscal crisis.

In October of that year, I pontificated about France’s looming fiscal suicide.

Last April, I warned that the fuse was burning on France’s fiscal time bomb.

In June of 2013, I stated that the looters and moochers in France were running out of victims to plunder.

And in October of last year, I expounded on France’s economic death spiral.

Geesh, looking at that list, I guess I’m guilty of – in the words of Paul Krugman – being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

“Au revoir, bloodsuckers”

Many of the nation’s most capable people are escaping – ranging from movie stars to top entrepreneurs.

What I find most amusing is that France’s parasitical political elite is whining and complaining that these people won’t remain immobile so they can be plundered.

And when the people who have the greatest ability leave, that has an impact on economic performance – and ordinary people are the ones who suffer the most.

…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it’s more like 5 million.

The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.

Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me “organize my nursery.” …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.

Government-subsidized “toned” stomachs. Hey, maybe big government isn’t all bad. Sort of reminds me of the taxpayer-financed boob jobs in the United Kingdom (British taxpayers also pay for sex trips to Amsterdam).

More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.

I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. “Why not? I deserve it,” she said when I questioned her. “I paid my benefits into the system.”

So what’s the bottom line? Well, the author sums up the issue quite nicely.

…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …“The best thinkers in France have left the country. What is now left is mediocrity.” From a chief legal counsel at a major French company: “France is dying a slow death. Socialism is killing it…”

As the old saying goes, this won’t end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will “merely” suffer long-run stagnation and decline.

Which is a shame because France is a beautiful country and is ranked as one of the best places to live if you happen to already have a considerable amount of hard-to-tax wealth (and the French also were ranked among the top-10 most attractive people).

But bad government can screw up a country, even if it does have lots of natural advantages.

And that’s exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.

The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America’s Vice President and asserted that it’s patriotic to pay higher taxes.

That’s why I’ll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country’s statist initiatives.

P.S. The prize for silliest example of government intervention in France goes to the law that makes it a crime to insult your spouse’s personal appearance.

P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?

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In the OECD’s Fantasy World, Higher Business Taxes and more Government Spending Are Good for Growth

Over the years, I’ve shared some ridiculous arguments from our leftist friends.

Paul Krugman, for instance, actually wrote that “scare stories” about government-run healthcare in the United Kingdom “are false.” Which means I get to recycle that absurd quote every time I share a new horror story about the failings of the British system.

Today we have some assertions from a statist that are even more absurd

“Taxes for thee, but not for me!”

Pascal Saint-Amans is a bureaucrat at the Paris-based Organization for Economic Cooperation and Development. He has spent his entire life sucking at the public teat. After spending many years with the French tax authority, he shifted to the OECD in 2007 and now is in charge of the bureaucracy’s Centre for Tax Policy Administration.

I don’t know why he made the shift, but perhaps he likes the fact that OECD bureaucrats get tax-free salaries, which nicely insulates him from having to deal with the negative consequences of the policies he advocates for folks in the private sector.

Anyhow, Saint-Amans, acting on behalf of the uncompetitive nations that control the OECD, is trying to create one-size-fits-all rules for international taxation and he just wrote a column for the left-wing Huffington Post website. Let’s look at a few excerpts, starting with his stated goal.

To regain the confidence and trust of our citizens, there is a pressing need for action. To this end, the OECD’s work…will pave the way for rehabilitating the global tax system.

You probably won’t be too surprised to learn that the OECD’s definition of “rehabilitating” in order to regain “confidence and trust” does not include tax cuts or fundamental reform. Instead, Monsieur Saint-Amans is referring to the bureaucracy’s work on “tax base erosion and profit shifting (BEPS) and automatic exchange of information.”

I’ve already explained that “exchange of information” is wrong, both because it forces low-tax jurisdictions to weaken their privacy laws so that high-tax governments can more easily double tax income that is saved and invested, and also because such a system necessitates the collection of personal financial data that could wind up in the hands of hackers, identity thieves, and – perhaps most worrisome – under the control of governments that are corrupt and/or venal.

The OECD’s palatial headquarters – funded by U.S. tax dollars

So let’s focus on the OECD’s “BEPS” plan, which is designed to deal with the supposed crisis of “massive revenue losses” caused by corporate tax planning.

I explained back in March why the BEPS proposal was deeply flawed and warned that it will lead to “formula apportionment” for multinational firms. That’s a bit of jargon, but all you need to understand is that the OECD wants to rig the rules of international taxation so that high-tax nations such as France can tax income earned by companies in countries with better business tax systems, such as Ireland.

In his column, Monsieur Saint-Amans tries to soothe the business community. He assures readers that he doesn’t want companies to pay more tax as a punishment. Instead, he wants us to believe his BEPS scheme is designed for the benefit of the business community.

Naturally, the business community feels like it’s in the cross-hairs. …But the point of crafting new international tax rules is not to punish the business community. It is to even the playing field and ensure predictability and fairness.

And maybe he’s right…at least in the sense that high tax rates will be “even” and “predictable” at very high rates all around the world if government succeed in destroying tax competition.

You’re probably thinking that Saint-Amans has a lot of chutzpah for making such a claim, but that’s just one example of his surreal rhetoric.

He also wants readers to believe that higher business tax burdens will “foster economic growth.”

The OECD’s role is to help countries foster economic growth by creating such a predictable environment in which businesses can operate.

I guess we’re supposed to believe that nations such as France grow the fastest and low-tax economies such as Hong Kong and Singapore are stagnant.

Yeah, right. No wonder he doesn’t even try to offer any evidence to support his absurd claims.

But I’ve saved the most absurd claim for last. He actually writes that a failure to confiscate more money from the business community could lead to less government spending – and he wants us to believe that this could further undermine prosperity!

Additionally, in some countries the resulting lack of tax revenue leads to reduced public investment that could promote growth.

Wow. I almost don’t know how to respond to this passage. Does he think government should be even bigger in France, where it already consumes 57 percent of the country’s economic output?

Presumably he’s making an argument that the burden of government spending should be higher in all nations.

If so, he’s ignoring research on the negative impact of excessive government spending from international bureaucracies such as the International Monetary Fund, World Bank, and European Central Bank. And since most of those organizations lean to the left, these results should be particularly persuasive.

He’s also apparently unaware of the work of scholars from all over the world, including the United States, Finland, Australia, Sweden, Italy, Portugal, and the United Kingdom.

Perhaps he should peruse the compelling data in this video, which includes a comparison of the United States and Europe.

Not that I think it would matter. Saint-Amans is simply flunky for high-tax governments, and I imagine he’s willing to say and write ridiculous things to keep his sinecure.

Let’s close by reviewing some analysis of the OECD’s BEPS scheme. The Wall Street Journal is correctly skeptical of the OECD’s anti-tax competition campaign. Here’s what the WSJ wrote this past July.

…the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.

P.S. High-tax nations have succeeded in eroding tax competition in the past five years. The politicians generally claimed that they simply wanted to better enforce existing law. Some of them even said they would like to lower tax rates if they collected more revenue. So what did they do once taxpayers had fewer escape options? As you can probably guess, they raised personal income tax rates and increased value-added tax burdens.

P.P.S. If you want more evidence of the OECD’s ideological mission.

It has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes.

The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.

It supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”

The OECD advocates the value-added tax based on the absurd notion that increasing the burden of government is good for growth and employment.

It even concocts dishonest poverty numbers to advocate more redistribution in the United States.

P.P.P.S. I should take this opportunity to admit that Monsieur Saint-Amans probably could get a job in the private sector. His predecessor, for instance, got a lucrative job with a big accounting firm, presumably because “he had ‘value’ to the private sector only because of his insider connections with tax authorities in member nations.” See, it’s very lucrative to be a member of the parasite class.

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Government-Run Social Security Is Bad News for Blacks and other Minorities

America desperately needs genuine entitlement reform to avoid a Greek-style fiscal future.

The biggest problems are the health entitlements such as Medicare, Medicaid, and Obamacare, but Social Security also has a huge long-run fiscal shortfall.

That’s why I’m a big fan of the very successful reforms in places such as Chile and Australia, where personal accounts are producing big benefits for workers. These systems also boost national economies since they generate higher savings rather than added unfunded liabilities.

And I’m very happy that we now have more than 30 nations with personal accounts, even tiny little jurisdictions such as the Faroe Islands.

But many statists object to reform, presumably because they don’t want workers to become capitalists. They apparently prefer to make people dependent on government.

Not all leftists take that narrow and cramped approach, however. Some academics at Boston College, for instance, produced some research showing some big benefits from Australia’s private Social Security system.

And new we have some remarkable admissions about how minorities are net losers from Social Security in a study from the left-leaning Urban Institute.

We use historical and projected data from 1970 to 2040 to measure the ratio of old age, survivors, and disability insurance (OASDI) benefits received to taxes paid by members of each race or ethnicity each year. This measure captures the transfers that occur in a given year from current workers to current beneficiaries of each group. We then examine benefit-tax ratios for each race or ethnicity into the future to determine how these redistributions will play out in the coming years. Our conclusion: When considered across many decades—historically, currently, and in the near future—Social Security redistributes from Hispanics, blacks, and other people of color to whites.

Why does the program have this perverse form of redistribution?

On average, blacks are more likely to be low income and short lived and are less likely to marry than whites. …Given this, one would expect forced annuitization and auxiliary benefits related to marriage and divorce to redistribute from blacks to whites.

And that’s exactly what the research found.

…whites have clearly received a disproportionate share of benefits relative to the taxes that they pay in at a point in time. Their benefit-to-tax ratio has been higher than that of blacks, Hispanics, and other ethnic groups for as long as the system has existed, while projections continue that trend at least for decades to come.

Here’s a chart from the study showing how different races have fared in terms of taxes paid and benefits received.

In other words, if folks on the left really cared about minorities, they would be among the biggest advocates of genuine reform.

By the way, it’s also worth noting that Social Security is a bad deal for everyone. The Urban Institute study simply investigates who loses the most.

And the system is getting worse for every new generation.

Recent studies have also documented how different generations are treated within Social Security, with succeeding generations achieving successively lower “returns” on their contributions.

This helps explain why the evidence shows personal retirement accounts are superior – even for folks who would have retired at the peak of the recent financial crisis.

Here’s my video on why we should replace the bankrupt tax-and-transfer Social Security system with personal retirement accounts.

P.S. You can enjoy some Social Security cartoons here, here, and here. And we also have a Social Security joke, though it’s not overly funny when you realize it’s a depiction of reality.

P.P.S. Thanks to Social Security, I made a $16 trillion mistake in a TV debate. Fortunately, it didn’t really change the outcome since I was understating the fiscal shortfall of the current system.

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TARP Was Bad, but the Looming Obamacare Bailout for Corrupt Insurance Companies Could Be Worse

Welcome Instapundit readers. To augment the depressing and worrisome message in this post, I suggest you read this article showing how we can restore market forces to our government-dictated healthcare system.

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I hate to dredge up bad memories so early in a new year, but we need to remind ourselves of the awful TARP bailout of 2008.

Our financial system had gone out of whack because of bad monetary policy from the Federal Reserve and unsustainable housing subsidies from Fannie Mae and Freddie Mac.

Some financial institutions gambled on the government’s misguided policies and got caught with their pants down when the bubble burst.

But rather than let those companies fail and use the sensible and non-corrupt “FDIC resolution” method to recapitalize the banking system, we got a taxpayer-to-Wall-Street bailout.

Or, from the perspective of the big banks, they got a very good return on their campaign contributions (read Kevin Williamson if you want to get upset about this disgusting form of cronyism).

Well, as Yogi Berra might say, it’s deja vu all over again.

Except now the fat cats lining up at the Treasury door are the big health insurance corporate titans. They got in bed with the White House to push Obamacare and now they’re worried about losing money now that it’s becoming more apparent that the American version of government-run healthcare doesn’t work any better than the British version.

Charles Krauthammer warns us about what may happen in his Washington Post column.

…there’s a Plan B. It’s a government bailout. Administration officials can’t say it for political reasons. And they don’t have to say it because it’s already in the Affordable Care Act, buried deep. First, Section 1341, the “reinsurance” fund collected from insurers and self-insuring employers at a nifty $63 a head. (Who do you think the cost is passed on to?) This yields about $20 billion over three years to cover losses. Then there is Section 1342, the “risk corridor” provision that mandates a major taxpayer payout covering up to 80 percent of insurance-company losses.

At this point, you may be wondering why there’s bailout language buried in the Obamacare legislation.

The simple answer is that politicians always love to accumulate power, and the insurance industry probably lobbied very hard to get this back-door access to our money.

But maybe the White House knew that Obamacare would be unstable and they needed a bailout option to keep the system from totally unraveling. Particularly when it seems that the Obama Administration is arbitrarily changing the system every other day.

First, it postponed the employer mandate. Then it exempted from the individual mandate people whose policies were canceled (by Obamacare). And for those who did join the exchanges, Health and Human Services Secretary Kathleen Sebeliusis “strongly encouraging” insurers — during the “transition” — to cover doctors and drugs not included in their clients’ plans. The insurers were stunned. Told to give free coverage. Deprived of their best customers. Forced to offer stripped-down “catastrophic” plans to people age 30 and over (contrary to the law). These dictates, complained an insurance industry spokesman, could“destabilize” the insurance market.

So what does all this mean? It’s not good news for Big Insurance.

Shrinking revenues and rising costs could bring on the “death spiral” — an unbalanced patient pool forcing huge premium increases (to restore revenue) that would further unbalance the patient pool as the young and healthy drop out. End result? Insolvency — before which the insurance companies will pull out of Obamacare. Solution? A huge government bailout. It’s Obamacare’s escape hatch. And — surprise, surprise — it’s already baked into the law.

This sounds depressing, but Krauthammer suggests that there could be a way of derailing a bailout before it begins.

…the GOP needs to act. Obamacare is a Rube Goldberg machine with hundreds of moving parts. Without viable insurance companies doing the work, it falls apart. No bailout, no Obamacare. Such a bill would be overwhelmingly popular because Americans hate fat-cat bailouts of any kind. Why should their tax dollars be spent not only saving giant insurers but also rescuing this unworkable, unbalanced, unstable, unpopular money-pit of a health-care scheme? …Do you really think vulnerable Democrats up for reelection will vote for a bailout? And who better to slay Obamacare than a Democratic Senate — liberalism repudiating its most important creation of the last 50 years. Want to be even bolder? Attach the anti-bailout bill to the debt ceiling. That and nothing else. Dare the president to stand up and say: “I’m willing to let the country default in order to preserve a massive bailout for insurance companies.” …Who can argue with no bailout? Let the Senate Democrats decide: Support the bailout and lose the Senate. Or oppose the bailout and bury Obamacare.

I hope his political judgement is correct, though I suspect the statists (and their echo chamber in the media) would portray any effort to amend the debt limit as a sore-loser attack on Obamacare.

But if it’s a simple no-bailout message, perhaps that would be sufficiently popular to overcome the political establishment. As Krauthammer points out, the legislation could be very simple: “Sections 1341 and 1342 of the Affordable Care Act are hereby repealed.”

Let’s close today’s post with some good Obamacare cartoons. We’ll start with Eric Allie’s amusing look at how the White House is measuring success.

Nice gimmick, huh? You pass a law that destroys people’s existing insurance policies, then you claim victory when some of them sign up for more expensive Obamacare insurance.

Next we have Nate Beeler welcoming the new year.

Chip Bok’s cartoon is somewhat optimistic in that he’s suggesting that Obamacare may unravel.

And Gary Varvel mocks the moving goalposts of Obamacare.

Lisa Benson congratulates the President for winning Politifact’s Lie of the Year Award.

Michael Ramirez hints that the President may not be in a position to enjoy his multi-million dollar Hawaiian vacation.

Last but not least, Scott Stantis warns us that Obamacare violates the Hippocratic Oath about doing no harm.

P.S. Under no circumstances should you feel sorry for the insurance companies. As I noted the other day, they endorsed Obamacare and actively lobbied for its passage. They deserve every bad thing that might happen to them.

P.P.S. It’s hard to find much humor in this situation, but perhaps this funny “bailout application” could be updated to make it easier for big insurance companies to rape and pillage taxpayers.

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Boost Worker Pay – and Make the United States More Competitive – by Gutting the Corporate Income Tax

The business pages are reporting that Chrysler will be fully owned by Fiat after that Italian company buys up remaining shares.

I don’t know what this means about the long-term viability of Chrysler, but we can say with great confidence that the company will be better off now that the parent company is headquartered outside the United States.

This is because Chrysler presumably no longer will be obliged to pay an extra layer of tax to the IRS on any foreign-source income.

Italy, unlike the United States, has a territorial tax system. This means companies are taxed only on income earned in Italy but there’s no effort to impose tax on income earned – and already subject to tax – in other nations.

Under America’s worldwide tax regime, by contrast, U.S.-domiciled companies must pay all applicable foreign taxes when earning money outside the United States – and then also put that income on their tax returns to the IRS!

And since the United States imposes the highest corporate income tax in the developed world and also ranks a dismal 94 out of 100 on a broader measure of corporate tax competitiveness, this obviously is not good for jobs and growth.

No wonder many American companies are re-domiciling in other countries!

Maybe the time has come to scrap the entire corporate income tax. That’s certainly a logical policy to follow based on a new study entitled, “Simulating the Elimination of the U.S. Corporate Income Tax.”

Written by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, Laurence J. Kotlikoff, the paper looks at whether it makes sense to have a burdensome tax that doesn’t even generate much revenue.

The U.S. Corporate Income Tax…produces remarkably little revenue – only 1.8 percent of GDP in 2013, but entails major compliance and collection costs. The IRS regulations detailing corporate tax provisions are tome length and occupy small armies of accountants and lawyers. …many economists…have suggested that the tax may actually fall on workers, not capitalists.

Regarding who pays the tax, shareholders bear the direct burden of the corporate tax, of course, but economists believe workers are the main victims because the levy reduces investment, which then means lower productivity and lower wages.

Statists would like us to believe that capitalists and workers are enemies, but that’s utter nonsense. Both prosper by cooperating. There’s a very strong correlation between a nation’s capital stock (the amount of investment) and the compensation of its workers.

So it’s no surprise to see that’s precisely what the authors found in their new research.

This paper posits, calibrates, and simulates a multi-region, life-cycle dynamic general equilibrium model to study the impact of U.S. and global corporate tax reforms. …when wage taxation is used as the substitute revenue source, eliminating the U.S. corporate income tax, holding other countries’ corporate tax rates fixed, engenders a rapid and sustained 23 to 37 percent higher capital stock… Higher capital per worker means higher labor productivity and, thus, higher real wages.

The impact is significant, both for worker compensation and overall economic output.

…real wages of unskilled workers wind up 12 percent higher and those of skilled workers 13 percent higher. …on balance, output rises – by 8 percent in the short term, 10 percent in the intermediate term, and 8 percent in the long term… The economy’s endogenous expansion expands existing tax bases, with the increased revenue making up for roughly one third the loss in revenue from the corporate income tax’s elimination.

By the way, the authors bizarrely then write that “we find no Laffer Curve,” but that’s presumably because they make the common mistake of assuming the Laffer Curve only exists if a tax cut fully pays for itself.

But that’s only true for the downward-sloping side of the Laffer Curve.

In other cases (such as found in this study), there is still substantial revenue feedback.

And I guess we shouldn’t be surprised that full repeal of the corporate income tax doesn’t raise revenue. The Tax Foundation, after all, estimates that the revenue-maximizing rate is about 14 percent.*

Now that I’m done nit-picking about the Laffer Curve, let’s now look at one additional set of results from this new study.

…each generation, including those initially alive, benefits from the reform, with those born after 2000 experiencing an 8 to 9 percent increase in welfare.

I should point out, incidentally, that economists mean changes in living standards when they write about changes in “welfare.” It’s a way of measuring the “well being” of society, sort of like what the Founders meant when they wrote about “the general welfare” in the Constitution.

But, once again, I’m digressing.

Let’s focus on the main lesson from the paper, which is that the corporate income tax imposes very high economic costs. Heck, even the Paris-based Organization for Economic Cooperation and Development (which is infamous for wanting higher tax burdens on companies) admitted that the levy undermines prosperity.

The study even finds that workers would be better off if the corporate income tax was replaced by higher wage taxes!

To learn more about the topic, here’s a video I narrated many years ago about cutting the corporate income tax. There was less gray in my hair back then, but my analysis still holds today.

* For the umpteenth time, I want to emphasize that the goal should not be to maximize revenue for politicians. Instead, we should strive to be on the growth-maximizing point of the Laffer Curve.

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