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Archive for December, 2014

How thoughtful. The President gave the economy a special gift before jetting off to Hawaii.

The Obama administration is cramming like a college student trying to study for a final exam, publishing more than 1,200 new regulations in the last 15 days alone, according to data from Regulations.gov. Energy and environment rules are the biggest category, with 139 published by the federal government in the last 15 days… So far this year, the Obama administration has proposed or finalized  more than $200 billion in regulations when the coal ash rule’s costs are factored in, according to the American Action Forum.

Unfortunately, it appears there is no return policy for these gifts, even if many of them are actually lumps of coal.

So is there a way to quantify the cost of all this regulation, particularly when added to all the red tape that’s already been imposed?

The honest answer is that it’s very difficult. Do you measure only direct budgetary costs? What about compliance costs for the private sector. And how about the indirect costs of diminished productivity, not only in terms of economic performance but also the impact on longevity?

On the other side of the ledger, should there also be some calculation of benefits? A national 5-MPH speed limit would wreck the economy, to be sure, but it would save lives. How does this get measured, using cost-benefit analysis?

The bottom line is that the methodological issues when looking at regulatory burdens are significant, so take any numbers with a few grains of salt. With that caveat out of the way, here are some very large numbers to digest.

Americans spend 8.8 billion hours every year filling out government forms.

The economy-wide cost of regulation is now $1.75 trillion.

For every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.

The Obama Administration added $236 billion of red tape in 2012 alone.

A World Bank study determined that moving from heavy regulation to light regulation “can increase a country’s average annual GDP per capita growth by 2.3 percentage points.”

And now we’re going to augment this disturbing list.

The Mercatus Center at George Mason University has a “RegData” page that allows a user to generate all sorts of information on regulatory burdens.

But I wasn’t focused on “micro” data on the regulations that affect different industries or the regulations promulgated by various bureaucracies.

I clicked on the data designed to capture the overall “macro” magnitude of red tape. And we have two types of information.

This first chart measures the numbers of words in the annual Code of Federal Regulations (which makes great reading if you’re suffering from insomnia).

The bottom line is that there’s been a 40 percent-plus increase in the number of words over the past 15 years.

To be sure, the number of words cranked out by regulatory bureaucracies is not a perfect measure of regulatory burdens.

The Pentagon, for instance, has 26 pages of regulation detailing how to bake brownies. That’s insanely stupid and probably makes brownie procurement four times more expensive than necessary.

But there are regulations with fewer pages (and fewer words) that are far more expensive to the overall economy. The IRS, for instance, imposed a regulation to force American banks to put foreign tax law above U.S. tax law regarding the reporting of bank deposit interest paid to nonresident foreigners with U.S. accounts. That regulation was less than five pages long, but could drive millions of dollars from the American financial system.

Now let’s look at the number of restrictions imposed by regulations. To be more specific, the Mercatus experts calculate the number of times that regulations use coercive words and phrases such as “shall” and “must not.”

The good news, if you’re grading on a curve, is that the use of coercive terminology has jumped by “only” 28 percent since 1997.

I guess you could say that bureaucrats are becoming loquacious faster than they’re becoming proscriptive.

Or if you’re a glass-half-empty person, you could say that they’re making us read more to learn how our freedoms are being curtailed.

Now let’s look at the regulatory burden imposed by one piece of legislation.

I’ve referred to the so-called Wall Street Reform and Consumer Protection Act as the Dodd-Frank Bailout Bill, but that really doesn’t capture the scope of the legislation. Robert Genetski has a column in Investor’s Business Daily that attempts to measure the law’s economic burden.

Our politicians have placed any number of barriers in the way of prosperity, and one of the most costly has been the Dodd-Frank financial reforms (DF). …The Government Accountability Office provided an original estimate of Dodd-Frank’s direct cost: $2.9 billion over the first five years. If that is accurate, it means the law will cost the taxpayers roughly $600 million annually, or $5 for each private-sector worker. The direct cost to taxpayers is only the beginning. Historical estimates show private-sector costs to comply with government regulations tend to be 36 times the direct cost to government. If Dodd-Frank is typical, the annual cost of compliance will be more like $22 billion, or $188 for each private-sector worker. Unfortunately, there are numerous indications the Dodd-Frank regulations are far from typical. …Dodd-Frank has a compliance cost of close to $120 billion annually, or just over $1,000 for each private-sector worker. As burdensome as that estimate sounds, it too likely understates Dodd-Frank’s compliance costs. …the Davis Polk law firm identified 398 explicit new regulations created by Dodd-Frank, making it at least 25 times more extensive and complex than Sarbanes-Oxley. If the costs of complying with Sarbanes-Oxley are the more reasonable gauge for those associated with Dodd-Frank, it could easily cost 25 times more than its predecessor, or $225 billion a year. This amounts to almost $2,000 for each private-sector worker.

Wow. I’m glad he ran out of space. The burden of the law got more expensive with each new paragraph.

Now let’s shift to a more uplifting story.

Back in the late 1970s, politicians actually deregulated the air cargo sector.

The folks at Mercatus highlight some of the benefits.

In the twenty years prior to deregulation, the CAB refused to certify the entry of any new cargo carriers or the expansion of existing ones into new routes and limited the size of plane allowed for air cargo hauls. Thus under this regime carriers such as FedEx, which was classified as an express (rather than cargo) service, could only use small planes even when larger ones were the more efficient choice. …Deregulation of the airline industry occurred in two stages: the first happened with the passage of Public Law 95-163 deregulating interstate air cargo transport in 1977; this was followed a year later by the Airline Deregulation Act of 1978 deregulating the air passenger industry. The effects of deregulation were dramatic. …Absent route restrictions, the air cargo industry began using hub-and-spoke models that made widespread overnight shipping possible. …Free from operational restrictions imposed by the CAB and the Interstate Commerce Commission (ICC), shippers increased reliability and provided a multitude of delivery speed, time, and method combinations. …Deregulation of air cargo was a key element in the emergence of modern supply chain management and allowed wider access to goods supplied by domestic and international sources. It also facilitated American trade to foreign markets. Efficiencies in widespread use of hub-and-spoke models for air cargo, by reducing total costs, enable more American products to reach foreign markets.

There’s also an accompanying video that is perfect for the season.

If air cargo regulation was the good and Dodd-Frank was the bad, I guess it’s now time for the ugly.

Here’s a video from Reason that satirizes the TSA for senseless rules on what can – and cannot – be carried onto a plane.

Just in case you think the video is unfair to the TSA, check out these horror stories.

P.S. Here’s what would happen if Noah tried to comply with current regulation when building an ark.

P.P.S. Meanwhile, there are reports that Santa Claus was arrested after a multi-bureaucracy investigation found that he violated a slew of federal rules.

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When I want to make serious points about why gun control is misguided, I’ll often cite the scholarly work of John Lott or the expert analysis of Larry Correia.

There are also two pro-2nd Amendment columns (here and here) from self-confessed leftists that also make very persuasive reading.

And let’s not forget the Constitution protects our right to keep and bear arms (at least for those who still think that document means anything).

But I confess that I mostly like using satire and mockery when criticizing gun control. And I’m pleased to report that a friend sent me some very good new material.

So, in the holiday spirit, let’s amuse ourselves by questioning the logic of the anti-2nd Amendment ideologues.

We’ll start with one that has a two-pronged meaning. Because, like satirical images that can be seen here and here, it points out that both gun control and the Drug War are premised on the notion that government can make something disappear simply by making it illegal.

Methinks the person who created this poster isn’t a good speller. But his logic is airtight. Gun control would disarm law-abiding people while leaving the bad guys with all the weapons.

But that’s apparently too difficult to understand for people like Mayor Rahm Emanuel in Chicago (speaking of which, here’s how a statist might try to explain the different murder rates in pro-gun Houston and anti-gun Chicago).

Our next image makes a very important point that school shootings basically didn’t exist back when there was no gun control.

Even when actual machine guns were fully legal!

The bad news is that anti-gun political correctness has taken over and resulted in preposterous horror stories in many government schools.

But the good news is that while machine guns are now heavily regulated, at least Americans can still own tanks.

The next two images make the philosophical point that we shouldn’t leave all guns in the hands of government, particularly given some horrible results from the 20th century.

Very reminiscent of some of the images that are found here, here, here, and here.

Here’s another one to add to the list.

The gentleman makes a good point. Something definitely isn’t right, which perhaps explains why this poster of pro-gun control dictators is the 4th-most viewed thing I’ve ever written.

P.S. You can  see some amusing pro-Second Amendment posters herehereherehere, and here. And some amusing images of t-shirts and bumper stickers on gun control herehere, and here.

P.P.S. I have a snarky IQ test for criminals and liberals, but I also have a serious poll asking people why they oppose gun control.

P.P.P.S. The image at the bottom of this post makes me proud to be American.

P.P.P.P.S. I’m sure this is an urban legend rather than a real interview, but I always get a laugh from this transcript.

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I wrote earlier this year about the “perplexing durability” of Keynesian economics. And I didn’t mince words.

Keynesian economics is a failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. And it didn’t work for Bush or Obama in recent years. No matter where’s it’s been tried, it’s been a flop. So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

And I specifically challenged Keynesians in 2013 to explain why automatic budget cuts were supposedly a bad idea given that the American economy expanded when the burden of government spending shrank during the Reagan and Clinton years.

I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s when government spending was curtailed.

It seems that the evidence against Keynesianism is so strong that only a fool, a politician, or a college professor could still cling to the notion that bigger government leads to more growth.

Fortunately, it does appear that there’s a growing consensus against this free-lunch theory.

Professor John Cochrane of the University of Chicago (and also an Adjunct Scholar at Cato) has a superb column about the retreat of Keynesianism in today’s Wall Street Journal.

The tide also changed in economic ideas. The brief resurgence of traditional Keynesian ideas is washing away from the world of economic policy. …Why? In part, because even in economics, you can’t be wrong too many times in a row. …Our first big stimulus fell flat, leaving Keynesians to argue that the recession would have been worse otherwise. George Washington’s doctors probably argued that if they hadn’t bled him, he would have died faster. With the 2013 sequester, Keynesians warned that reduced spending and the end of 99-week unemployment benefits would drive the economy back to recession. Instead, unemployment came down faster than expected, and growth returned, albeit modestly. The story is similar in the U.K.

All of this is spot on. Once the stimulus was replaced by spending restraint, the economy did better. And job creation picked up when subsidies for unemployment were limited, just as more sensible economists predicted.

Cochrane is also correct about the spending restraint in the United Kingdom. I didn’t expect Cameron and Osbourne to deliver some good fiscal policy, but it’s happening and the British economy is the envy of most other European nations.

The column also looks at past Keynesian failures.

These are only the latest failures. Keynesians forecast depression with the end of World War II spending. The U.S. got a boom. The Phillips curve failed to understand inflation in the 1970s and its quick end in the 1980s, and disappeared in our recession as unemployment soared with steady inflation.

But this isn’t just about empirical evidence.

I’ve used humor to debunk Keynesianism. Professor Cochrane takes a more high-brow approach to show why the theory doesn’t make sense.

Hurricanes are good, rising oil prices are good, and ATMs are bad, we were advised: Destroying capital, lower productivity and costly oil will raise inflation and occasion government spending, which will stimulate output. Though Japan’s tsunami and oil shock gave it neither inflation nor stimulus, worriers are warning that the current oil price decline, a boon in the past, will kick off the dreaded deflationary spiral this time. I suspect policy makers heard this, and said to themselves “That’s how you think the world works? Really?” And stopped listening to such policy advice. …in Keynesian models, government spending stimulates even if totally wasted. Pay people to dig ditches and fill them up again. By Keynesian logic, fraud is good; thieves have notoriously high marginal propensities to consume.

By the way, just in case you think he’s exaggerating, keep in mind that Paul Krugman actually argued that a fake invasion from outer space would “stimulate” growth because the world would waste money building defenses against E.T.

And Krugman also argued that the 9-11 terrorist attacks were pro-growth!

Cochrane closes with some optimistic thoughts.

…no government in the foreseeable future is going to enact punitive wealth taxes. Europe’s first stab at “austerity” tried big taxes on the wealthy, meaning on those likely to invest, start businesses or hire people. Burned once, Europe is moving in the opposite direction. Magical thinking—that, contrary to centuries of experience, massive taxation and government control of incomes will lead to growth, prosperity and social peace—is moving back to the salons. …the policy world has abandoned the notion that we can solve our problems with blowout borrowing, wasted spending, inflation, default and high taxes. The policy world is facing the tough tradeoffs that centuries of experience have taught us, not wishing them away.

I wish I was equally optimistic about the death of Keynesianism. As I glumly stated a few years ago, Keynesian economics is like a Freddy Krueger move, inevitably rising from the dead when politicians want to rationalize wasting money on favored interest groups.

But I hope Cochrane is right and I’m wrong.

For further information, here’s my video on Keynesian economics.

P.S. Since it’s the holiday season and I’m sharing videos, here’s a very clever and funny video about Keynesian Christmas carols.

The songs in the second half of the video are the ones that make sense, of course, and I particularly like the point that consumer spending is a reflection of growth, not a driver of growth.

P.P.S. If you want even more visual content, here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally entertaining sequel, which features a boxing match between Keynes and Hayek.

P.P.P.S. But if you want more humor about Keynesian economics, click here, here, here, and here.

P.P.P.P.S. Let’s end on a serious note. It’s encouraging that leaders from nations at opposite ends of Europe are acknowledging the shortcomings of Keynesianism.

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I can’t help but wonder whether the song made famous by The Grinch Who Stole Christmas should be the theme song for the Internal Revenue Service. After all, that bureaucracy is “as cuddly as a cactus” and “as charming as an eel.”

And it appears that having “the tender sweetness of a seasick crocodile” is not a good strategy for big budget increases.

Indeed, it appears that working as an adjunct of the Obama reelection campaign has backfired on the IRS. One of the good results of the “cromnibus” negotiations is that GOPers actually took revenge on the IRS for political interference. The bureaucracy is actually going to get less money next year. In other words, a real budget cut, not one of those fake Washington cuts that occur when spending doesn’t increase as fast as desired.

Not surprisingly, the big Democratic donor who now serves as IRS Commissioner isn’t very happy about this development.

The Hill reports that the John Koskinen is claiming that his agency’s budget has been cut too much…and he’s saying that the bureaucrats will make taxpayers suffer as a result.

After absorbing a $346 million budget cut, IRS officials are warning taxpayers not to expect their phone calls to get answered or their refunds to be delivered quickly. Employees shouldn’t count on overtime pay, or for empty staff slots to be filled. And lawmakers seeking to reduce the deficit should assume the agency will collect far less revenue than it could have.  “We’re well beyond cutting out any fat,” John Koskinen, the IRS commissioner, told reporters after his agency saw its budget slashed for the fifth consecutive year. “And we’re now into cutting, as people say, muscle headed toward bone.”

And here are some passages from a story published by Fox News.

The Internal Revenue Service is crying poor in the face of budget cuts and weighing the possibility of its own short-term shutdown — even warning that tax refunds could be delayed next year. …”Everybody’s return will get processed,” Koskinen told reporters. “But people have gotten very used to being able to file their return and quickly getting a refund. This year we may not have the resources, the people to provide refunds as quickly as we have in the past.” …Congress cut the IRS budget by $346 million for the budget year that ends in September 2015. The $10.9 billion budget is $1.2 billion less than the agency received in 2010. The agency has come under heavy fire from congressional Republicans for its now-halted practice of applying extra scrutiny to conservative groups seeking tax-exempt status.

So what’s the real story? Is the IRS budget not inadequate? Do the bureaucrats need more spending to process refund checks?

Well, my first response is to scold people who get refunds. That means, after all, that they overpaid their taxes during the year and – for all intents and purposes – gave the government and interest-free loan.

But that’s a separate issue. Let’s focus on the IRS budget. And as you can see from this chart, the IRS budget has declined since 2010. But you can also see that the IRS budget has approximately doubled over the past thirty years. And these numbers are adjusted for inflation!

So feel free to cry tears for the IRS, but just make sure they’re crocodile tears.

Just like the ones we all cried when the IRS complained about the possibility of being covered by Obamacare, even as the bureaucrats doubtlessly were looking forward to the new power the IRS got as a result of the law (and as humorously illustrated by cartoons from Gary Varvel, Glenn McCoy, and Henry Payne).

Now let’s bend over backwards and look at the issue from the IRS’s perspective. The bureaucrats will argue with some validity that tax laws are far more complex today than they were thirty years ago.

That’s unquestionably true, as shown by data on the number of pages in the tax code, number of provisions in the tax law, and even by the number of pages in the instruction booklet for the IRS 1040 form.

Heck, I mentioned just a few days ago that there were more than 4,600 changes in the tax code between 2001 and 2012 alone. And think of awful tax laws like FATCA that cost more to enforce than they produce in revenue.

All this nonsense is mostly the result of bad laws imposed by politicians, not a result of IRS actions.

But I still can’t find it in my heart to feel sympathy for the IRS.

After all, the IRS somehow managed to find the staff and resources to launch a politically motivated attack against tea party groups. And the so-called Taxpayer Advocate takes the side of the IRS rather than taxpayers. Worst of all, the bureaucracy even found enough money to hand out bonuses after being caught trying to interfere with elections!

So let’s celebrate the fact that the IRS is being subjected to some modest but long-overdue belt-tightening.

It couldn’t happen to a nicer group of people.

The bottom line is that IRS budget cuts show that Republicans sometimes do the right thing.

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Two years ago, I jumped on USA Today for stating that the 112th Congress was the “least productive” since the end of World War II.

My argument was very straightforward. It’s better to have no legislation than bad legislation. Here’s some of what I wrote about USA Today’s hypothesis.

…it does blindly assume that it is productive to impose more laws. Was it productive to enact Obamacare? What about the faux stimulus? Or the Dodd-Frank bailout bill? Wouldn’t the headline be more accurate if it read, “This Congress could be least destructive since 1947″? …To be sure, not all legislation is bad. …Congress would have to enact a law to repeal Obamacare. Laws also would need to be changed to reform entitlements, or adopt a flat tax. And some laws are benign, such as the enactment of Dairy Goat Awareness Week or naming a federal courthouse. But I’m guessing that the vast majority of substantive laws are bad for freedom and result in less prosperity.

One year ago, I criticized the Washington Post, which complained that the 1st Session of the 113th Congress wasn’t productive. Here are a few excerpts from that column.

Do you think that additional laws from Washington will give you more freedom and more prosperity? …I strongly suspect most Americans will say “no.” …That’s because taxpayers instinctively understand that more activity in Washington usually translates into bigger and more expensive government. …The first session of the current Congress may have been the “least productive” in history when it comes to imposing new laws, butthat “record-low congressional accomplishment” translates into a smaller burden of government spending. Indeed, government spending actually has declined for two consecutive years. That hasn’t happened since the 1950s.

Well, this topic is my version of Bill Murray’s Groundhog Day, because it’s time to deal with the same silly arguments.

Only this time, we’re looking at the final data for the 113th Congress. But we’ll still mock media outlets for mindlessly equating legislation with productivity.

Politico groused that “…this Congress has been singularly unproductive, shutting down most government functions for two weeks last fall, passing the fewest bills in memory and lurching from crisis to crisis.”

The Hill whined that “…the last two sessions of Congress with divided government are the two most unproductive in history in terms of bills cleared by both chambers.”

And Dana Milbank of the Washington Post whimpered that “According to a tally by the Library of Congress, 296 bills were presented to the president by this Congress — nearly the same as the 284 presented by the previous Congress, the fewest of any Congress since the counts began in the 1940s. …More than 10 percent of the bills presented were about naming or renaming things and awarding medals.”

So what’s my reaction to these complaints? Well, here’s where my Groundhog Day analogy breaks down. In the movie, Bill Murray learns to change his responses to win the heart of Andie MacDowell.

But I don’t have any new responses. My reactions today are exactly the same as two years ago and one year ago. As a general rule, I want less legislation.

Heck, I’d probably even be willing to double Congressional pay if lawmakers agreed to be even less “productive.” Maybe they could copy the Texas state legislature and only meet every other year, with a limit of being in session no more than 140 days!

Since I don’t really have anything new to add to the debate on legislative “productivity,” I may as well close today’s column by mocking another Washington shibboleth.

I wrote last year that “bipartisanship” isn’t always a wonderful thing, as is so often claimed in Washington. You have to look at the actual policies that are generated when Republicans and Democrats cooperate. And the track record isn’t very good.

Was TARP good legislation? Maybe for politically well-connected financial institutions, but not for taxpayers.

What about the supposedly bipartisan budget agreements of recent decades? In most cases, the result was that politicians banded together to take more money from taxpayers.

Or how about Bush’s No-Bureaucrat-Left-Behind education bill? Well, that was good news for the education establishment, but it certainly didn’t lead to better outcomes.

This doesn’t mean it’s always bad when the parties work together on an issue. Reagan’s economic program wouldn’t have passed Congress without a lot of support from Democrats. And transportation deregulation was a bipartisan operation during the Carter years, ably assisted by former Senator Ted Kennedy.

So my real message isn’t that bipartisanship is bad. Instead I’m simply saying that bipartisanship is akin to legislative productivity. You have to look at the legislation that’s being produced before you can make a reasoned assessment.

Now that we’ve made that serious point, let’s close with a couple of cartoons about the wrong kinds of bipartisanship.

Here’s Glenn McCoy with a scene from a school bathroom.

And here’s one from Lisa Benson, referencing the recently enacted “cromnibus.”

I don’t know the author of this final cartoon, but it’s also worth sharing.

If you like these types of cartoons, click here to see some gems from Lisa Benson and Gary Varvel. And there are also some funny cartoons about bipartisanship from Michael Ramirez and Glenn McCoy.

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I’m a big fan of federalism for both policy and political reasons.

Returning programs to the states is the best way of dealing with counterproductive income-redistribution policies such as welfare, Medicaid, and food stamps.

Federalism is also the right way of unwinding bad education schemes like Obama’s Common Core and Bush’s No Bureaucrat Left Behind.

And the same principle applies for transportation, natural disasters, and social issues such as drugs.

And I can’t resist pointing out, for the benefit of those who think such things matter, that federalism is also the system that is consistent with our Constitution’s restrictions on central government power.

Simply stated, federalism is good news because we get innovation, diversity, and experimentation. States that make wise choices will be role models for their peers. And it’s also worth noting that states that screw up will provide valuable lessons as well.

But sometimes a real-world example is the most compelling evidence of all. And the news that Vermont has cancelled its proposed single-payer healthcare scheme (as predicted by Megan McArdle) shows us why federalism is such a good concept.

Let’s start by reviewing what’s happened. Here are some excerpts from a report published by the Daily Caller.

Vermont Gov. Peter Shumlin is canceling his dream plan to create a single-payer health system in the state, he announced Wednesday. …“In my judgment, now is not the right time to ask our legislature to take the step of passing a financing plan for Green Mountain Care.” The problem is, of course, how to pay for it. Even while plans were moving forward for a 2017 launch of the single-payer system, to be called Green Mountain Care, Shumlin had held off on releasing a plan for how to pay for the system, waiting until his announcement Wednesday.

So why didn’t Shumlin simply call for a big tax hike? Or look for more handouts from Washington? Or what about those fanciful assumptions that socialist health care would be more efficient?

Well, that basically was the plan.

Tax hikes required to pay for the system would include a 11.5 percent payroll tax as well as an additional income tax ranging all the way up to 9.5 percent. Shumlin admitted that in the current climate, such a precipitous hike would be disastrous for Vermont’s economy. …the report also admits that the single-payer system won’t save money as Vermont officials had planned. While both previous reports on Green Mountain Care had assumed “hundreds of millions of dollars” in savings in the very first year of operation, Shumlin’s office is now admitting that’s “not practical to achieve.” …Shumlin also cited slow economic recovery in Vermont as reason to delay, and hopes to try again in the future. But its failure, especially on economic grounds, is a resounding defeat for single-payer advocates.

Yes, this is a “resounding defeat” for socialized health care.

But it’s important to understand why Shumlin’s plan collapsed. He and other politicians obviously figured out (notwithstanding their claims when running for office) that a huge tax hike, combined with “free” healthcare, was a recipe for state disaster.

Productive people and businesses would have emigrated, while freeloaders and scroungers would have immigrated. The state would have gone into a downward spiral.

So even though Shumlin is a hard-core leftist, and even though Vermont’s electorate is so statist that the state came in first place in the Moocher Index, all these advocates of socialized healthcare were forced to recognize real-world constraints imposed by the existence of other states.

So the productive people of Vermont (at least the ones that haven’t already escaped) should be very thankful for federalism. Competition among the states, as well as freedom of movement between states, is a wonderful check on the greed and foolishness of the political class.

The crowd in Washington, by contrast, has more flexibility to impose bad policy since moving from one country to another is far bigger step than simply moving from, say, California to Texas.

Nonetheless, this also explains why I like tax competition among nations. I want greedy politicians to be haunted to at least some degree by the fear of tax flight so that they will think twice before imposing new burdens. But that’s a subject we’ve reviewed on many occasions, so no need for further details.

The bottom line is that Vermont did face real-world competitive pressure. And that meant the state’s politicians didn’t think they could successfully raise enough money to finance socialist healthcare.

This reminds me of this famous Margaret Thatcher quote about other people’s money.

I’m disappointed that I couldn’t find a clip of her actually making that statement. But if you want to see the Iron Lady in action, you can click here or here.

Let’s conclude by noting that the nation with the most decentralization and federalism is Switzerland, and that country does very well notwithstanding having different languages and cultures.

Which helps to explain why federalism is a very practical solution to the ethnic division in Ukraine.

P.S. Even though the focus of today’s column is federalism rather than policy, I can’t resist pointing out that the single-payer system in the United Kingdom generates some truly horrifying results.

P.P.S. If socialized healthcare is so wonderful, then why do politicians from countries which have that system travel to the United States for treatment?

P.P.P.S. Shifting to another topic, I’ve written before that left wingers criticize tax havens, yet it seems every rich leftist utilizes low-tax jurisdictions. Well, Business Week reports that “corporate inversions” also were created by a leftist.

John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. …The first corporate “inversion,” as Carroll’s maneuver came to be known, was obscure then and is all but forgotten now. Yet at least 45 companies have followed the lead of Carroll’s client…and shifted their legal addresses to low-tax foreign nations.  …A committed liberal, he…once considered leaving the practice to work for antiwar candidate George McGovern’s 1972 presidential campaign. …McDermott’s chief financial officer at the time, says he sometimes puzzled over Carroll’s motivations. “It was always an enigma to me,” Lynott says. “We knew this guy was a Democrat, and yet he would take on the government in a New York minute over a tax issue. There was nothing liberal about his thinking as far as the tax code was concerned.” …The IRS fought the case for seven years, giving up in 1989 only after a federal appeals court upheld a U.S Tax Court decision in the company’s favor.

So I like what Mr. Carroll achieved, but I guess we have to say he was a hypocrite. But, then again, statists specialize in hypocrisy.

P.P.P.P.S. I can’t resist sharing one more unrelated item. The 2008 crisis presumably showed the downsides of too much debt.

Well, time for a quiz: Who do you think has responded most intelligently and least intelligently to the lessons from that crisis?

Your choices are households, financial institutions, corporations, and governments.

I imagine nobody will be surprised by this chart from the BBC.

So what lessons can we draw from the chart?

Well, politicians in developed nations have been raising taxes over and over again, so perhaps we should conclude that higher taxes simply lead to more debt because our “leaders” can’t resist spending other people’s money.

And that’s precisely the point. Experts such as Steve Hanke, Brian Wesbury, Constantin Gurdgiev, Fredrik Erixon, and Leonid Bershidsky have all pointed out the ever-increasing burden of government in Europe.

Higher taxes are only a “solution” if the goal is bigger government and more red ink.

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Like a lot of libertarians and small-government conservatives, I’m prone to pessimism. How can you be cheerful, after all, when you look at what’s been happening in our lifetimes.

New entitlement programs, adopted by politicians from all parties, are further adding to the long-run spending crisis.

The federal budget has become much bigger, luring millions of additional people into government dependency.

The tax code has become even more corrupt and complex, with more than 4,600 changes just between 2001 and 2012 according to a withering report from outgoing Senator Tom Coburn of Oklahoma.

And let’s not forget the essential insight of “public choice” economics, which tells us that politicians care first and foremost about their own interests rather than the national interest. So what’s their incentive to address these problems, particularly if there’s some way to sweep them under the rug and let future generations bear the burden?

And if you think I’m being unduly negative about political incentives and fiscal responsibility, consider the new report from the European Commission, which found that politicians from EU member nations routinely enact budgets based on “rosy scenarios.” As the EU Observer reported:

EU governments are too optimistic about their economic prospects and their ability to control public spending, leading to them continually missing their budget targets, a European Commission paper has argued. …their growth projections are 0.6 percent higher than the final figure, while governments who promise to cut their deficit by 0.2 percent of GDP, typically tend to increase their gap between revenue and spending by the same amount.

Needless to say, American politicians do the same thing with their forecasts. If you don’t believe me, just look at the way the books were cooked to help impose Obamacare.

But set aside everything I just wrote because now I’m going to tell you that we’re making progress and that it’s actually not that difficult to constructively address America’s fiscal problems.

First, let’s look at how we’ve made progress. I just wrote a piece for The Hill. It’s entitled “Republicans are Winning the Fiscal Fight” and it includes lots of data on what’s been happening over the past five years, including the fact that there’s been no growth in the federal budget.

You should read the entire thing for full context, but here are a few brief excerpts on why the left can’t be feeling very happy right now.

…Democrats presumably can’t be happy that the lion’s share of the Bush tax cuts were made permanent. …revenues are now projected to average only 18 percent of GDP over the next 10 years…a smaller tax burden than we had throughout the Clinton years. And you can’t finance big government in the long run without a lot more revenue. And they definitely can’t be happy that domestic discretionary spending is now below where it was during the Bush years, when measured as a share of GDP. And with sequester-enforced budget caps, it’s quite likely that number will drop even further. …Perhaps even more important, looking forward, is that House Republicans for four consecutive years have approved budget resolutions that assume genuine reform of Medicare and Medicaid. And they’ve won their biggest majority since before World War II, so GOPers can feel reasonably confident that voters (perhaps sobered up by the fiscal disarray in Europe) understand the need to modernize these programs.

By the way, the point about keeping taxes under control is critical. Simply stated, it’s virtually impossible for government to get much bigger without a stream of new revenue (or, in the case of a value-added tax, a river of new revenue).

Let’s now focus on the second issue, which is how we can maintain this progress.

Here’s a chart I put together back in September that showed projected revenue over the next 10 years (blue line). I then showed what happens if spending is left on autopilot and also what happens if policy makers simply restrain spending so that it grows 2 percent annually (gold line), which is actually a bit higher than inflation.

As you can see, it’s very simple to achieve a budget surplus. And we don’t even need the same amount of spending restraint that we enjoyed over the past five years!

The challenge, of course, is that Obama and many other politicians (including quite a few Republicans) don’t want government on a diet. After all, why let government “only” grow 2 percent each year when you can please the lobbyists, bureaucrats, cronyists, contractors, and other insiders by letting spending increase two or three times faster than inflation?

Fiscal probity isn’t easy. Genuine spending restraint not only means saying no to special interests and campaign contributors, it also means picking smart fights. In some cases, Obama and the left may dig in their heels and threaten a partial government shutdown in hopes of getting bigger budgets.

Sometimes such fights are unwise, but there’s a very strong case to be made that the GOP ultimately prevailed in the 1995 and 2013 shutdown battles.

The bottom line, as illustrated by this amusing A.F. Branco cartoon, is that Republicans shouldn’t automatically act like the French army if there’s a fight over something that really matters – such as a growing burden of government spending.

And it also means not falling back into bad habits. Republicans were profligate big spenders during the Bush years and it’s not easy to stay on the wagon of spending restraint.

This Lisa Benson cartoon is a good illustration of what will happen if GOPers cater too much to special interests.

For more information showing how it is simple to make progress, here’s my video explaining how simple it is to balance the budget with modest spending restraint. It’s several years old, so just keep in mind the chart above as you watch.

Though I hasten to add that the real goal isn’t balancing the budget. I’m far more interested in restoring a limited, constitutionally restrained federal government.

If we do that, fiscal balance is an easy and obvious consequence. In other words, if you deal with the underlying disease of too much government, you automatically eliminate the symptom of red ink.

P.S. Since I mentioned government shutdowns, I should point out some very good cartoons and jokes on that topic. They can be viewed here, here, here, here, and here.

P.P.S. On another topic, I’m disturbed that Sony has cancelled a movie simply because the crazy dictator of North Korea apparently was able to get his henchmen to hack into the studio’s computers. Sure, companies have to focus on the bottom line and make dispassionate decisions, but it’s still troubling.

President Obama could earn major praise if he undertook some big public gesture, such as showing The Interview at the White House, perhaps for some of the folks (such as Shin Dong Hyuk) who escaped that brutal regime.

In the meantime, here’s a funny, yet also sad, image on what happened.

Remember, this isn’t just a dictatorship that has impoverished people with total statism. It is also a regime that starves its people to the point where its army had to lower physical standards because so many young people were stunted by malnutrition.

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