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Archive for the ‘Canada’ Category

If you look at the methodology behind the major measures of economic liberty, such as Economic Freedom of the World and Index of Economic Freedom, you’ll notice that each nation’s regulatory burden is just as important as the overall fiscal burden.

Yet there doesn’t seem to be adequate appreciation for the importance of restraining red tape. I’ve tried to highlight the problem with some very depressing bits of information.

Unfortunately, these bad numbers are getting worse.

We start with the fact that there’s a natural tendency for more intervention in Washington because of the Obama Administration’s statist orientation.

That’s the bad news. The worse news is that this tendency to over-regulate is becoming more pronounced as Obama’s time in office is winding down.

I’ve already opined on the record levels of red tape emanating from Washington, but it’s getting even worse in the President’s final year.

Here’s what the Wall Street Journal recently wrote about the regulatory wave.

…government-by-decree that is making Mr. Obama the most prolific American regulator of all time. Unofficially, Mr. Obama’s Administration has once again broken its own record by issuing a staggering 82,036 pages of new and proposed rules and instructions in the Federal Register in 2015. …That would not only eclipse Mr. Obama’s record of 81,405 set in 2010; it would also give him six of the seven most prolific years of regulating in the history of the American republic. He’s a champion when it comes to limiting economic freedom, and American workers have the slow growth in jobs and wages to prove it. …His Administration is also in a class by itself in issuing de facto rules as “notices” or “guidance” that are ignored by businesses at their peril. …And there’s much more to come.

Amen. The WSJ is correct to link the regulatory burden with anemic economic performance.

As I point out in this interview, red tape is akin to sand in the economy’s gears.

By the way, I can’t resist emphasizing that the Nordic nations, much beloved by Bernie Sanders and other leftists, generally are more free market than the United States on non-fiscal issues.

In other words, they have a more laissez-faire approach on matters such as regulation.

Now let’s try to quantify the cost of all this red tape.

The Washington Examiner reports on some new research.

The price of the Obama administration’s regulatory burden hit just shy of $200 billion last year, or $784 million for every day his government was open for business, according to a new analysis by American Action Forum.

To make matters worse, as I noted in the interview, I very much suspect the bulk of that new regulation was not accompanied by cost-benefit analysis. So the supposed benefits will be small and the actual costs will be high.

Let’s move from the general to the specific. The Heritage Foundation has a list of the worst regulations from last year. Here are some of the highlights, though lowlights would be a better term.

  • …a ban by New Jersey on sales of tombstones by churches — adopted in March at the behest of commercial monument makers.
  • Certain New York restaurants now have to include warnings on their menus about the sodium content in many popular dishes.
  • The Occupational Safety and Health Administration…expanded its mandate in June by declaring that businesses should allow employees to use whichever restroom corresponds to their “gender identity.”
  • …the Environmental Protection Agency and Army Corps of Engineers expanded their own jurisdiction to regulate virtually every wet spot in the nation.

And there are plenty more if you really want to get depressed.

But let’s not dwell on bad news. Instead, we’ll close by highlighting a potentially helpful bit of regulatory reform north of the border. Here are some blurbs from a story in the Washington Examiner.

…look to Canada for lessons from its experiment with regulatory budgeting. What is regulatory budgeting? It’s a process that seeks to use traditional budget concepts to better manage regulatory costs. The goal is to require government departments and agencies to prioritize and manage “regulatory expenditures,”… Regulatory budgeting imposes hard caps on departments and agencies and requires that new regulatory policies fit within their respective budgets. It may not be a silver bullet to the U.S. government’s regulatory profligacy, but with strong political leadership and a proper design, it can arrest the growth of new regulations and bring greater accountability, discipline and transparency to the process. …Departments and agencies are given a “baseline” calculation of regulatory requirements and the costs they impose on individuals and businesses, and then are expected to live within their respective budgets. This means — at least, in the case of the federal experiment — that any new regulatory requirements be offset by eliminating existing ones with equivalent “costs.” An independent, third-party panel verifies the government’s year-over-year compliance.

And it appears this new system is yielding dividends.

Over the past two years, the federal government estimates the system has saved Canadian businesses more than C$32 million in administrative burden, as well as 750,000 hours spent dealing with “red tape.” Most importantly, regulatory budgeting has gradually contributed to a more disciplined regulatory process by rewarding departments and agencies for finding lower-cost options and for making existing requirements smarter and less burdensome.

Hmmm…, maybe I should consider escaping to Canada rather than Australia if (when?) America falls apart.

In addition to this sensible approach on regulatory reform, Canada is now one of the world’s most economically free nations thanks to relatively sensible policies involving spending restraint, corporate tax reform, bank bailouts, the tax treatment of saving, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

Though things are now heading in the wrong direction, which is unfortunate for our northern neighbors.

P.S. While the regulatory burden in the United States is stifling and there are some really inane examples of silly rules (such as the ones listed above), I think Greece and Japan win the record if you want to identify the most absurd specific examples of red tape.

P.P.S. Though I suspect America wins the prize for worst regulatory agency and most despicable regulatory practice.

P.P.P.S. Here’s what would happen if Noah tried to comply with today’s level of red tape when building an ark.

P.P.P.P.S. Just in case you think regulation is “merely” a cost imposed on businesses, don’t forget that bureaucratic red tape is the reason we’re now forced to use inferior light bulbs, substandard toilets, second-rate dishwashers, and inadequate washing machines.

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While there are many things I admire about Scandinavian nations, I’ve never understood why leftists such as Bernie Sanders think they are great role models.

Not only are income levels and living standards higher in the United States, but the data show that Americans of Swedish origin in America have much higher incomes than the Swedes who still live in Sweden. And the same is true for other Nordic nations.

The Nordics-to-Nordics comparisons seem especially persuasive because they’re based on apples-to-apples data. What other explanation can there be, after all, if the same people earn more and produce more when government is smaller?

The same point seems appropriate when examining how people of Chinese origin earn very high incomes in Hong Kong, Singapore, Taiwan, and the United States (all places with reasonably high levels of economic liberty), but are relatively poor in China (where there is still far too much government control over economic affairs).

Again, what possible explanation is there other than the degree of economic freedom?

Let’s now look at two other examples of how leftist arguments fall apart when using apples-to-apples comparisons.

A few years ago, there was a major political fight in Wisconsin over the power of unionized government bureaucracies. State policy makers eventually succeeded in curtailing union privileges.

Some commentators groused that this would make Wisconsin more like non-union Texas. And the Lone Star States was not a good role model for educating children, according to Paul Krugman.

This led David Burge (a.k.a., Iowahawk) to take a close look at the numbers to see which state actually did a better job of educating students. And when you compare apples to apples, it turns out that Longhorns rule and Badgers drool.

…white students in Texas perform better than white students in Wisconsin, black students in Texas perform better than black students in Wisconsin, Hispanic students in Texas perform better than Hispanic students in Wisconsin. In 18 separate ethnicity-controlled comparisons, the only one where Wisconsin students performed better than their peers in Texas was 4th grade science for Hispanic students (statistically insignificant), and this was reversed by 8th grade. Further, Texas students exceeded the national average for their ethnic cohort in all 18 comparisons; Wisconsinites were below the national average in 8… Not only did white Texas students outperform white Wisconsin students, the gap between white students and minority students in Texas was much less than the gap between white and minority students in Wisconsin. In other words, students are better off in Texas schools than in Wisconsin schools – especially minority students.

This is what I call a devastating debunking.

Though Krugman routinely invites mockery, and I’ve enjoyed exposing his disingenuous, sloppy, and dishonest use of data on issues such as Obamanomics, California jobs, American fiscal policy, Greek economics, U.S. and U.K. austerity, German fiscal policy, Estonian economics, British fiscal policy, inflation, European austerity, the financial crisis, and the Heritage Foundation.

Gee, with all these examples, I wonder if there’s a pattern?

Our second example showing the value of apples-to-apples comparisons deals with gun control.

Writing for PJ Media, Clayton Cramer compares murder rates in adjoining American states and Canadian provinces. he starts by acknowledging that a generic US-v.-Canada comparison might lead people to think gun rights are somehow a factor in more deaths.

…for Canada as a whole, murder rates are still considerably lower than for the United States as a whole. For 2011, Canada had 1.73 homicides per 100,000 people; the United States had 4.8 murders and non-negligent homicides per 100,000 people.

But he then makes comparisons that suggest guns are not a relevant factor.

…look at murder rates for Canadian provinces and compare them to their immediate American state neighbors. When you do that, you discover some very curious differences that show gun availability must be either a very minor factor in determining murder rates, or if it is a major factor, it is overwhelmed by factors that are vastly more important.

Gun ownership is easy and widespread in Idaho, for instance, but murder rates are lower than in many otherwise similar Canadian provinces.

I live in Idaho.  In 2011, our murder rate was 2.3 per 100,000 people.  We have almost no gun-control laws here. You need a permit to carry concealed in cities, but nearly anyone who may legally own a firearm and is over 21 can get that permit.  We are subject to the federal background check on firearms, but otherwise there are no restrictions. Do you want a machine gun? And yes, I mean a real machine gun, not a semiautomatic AR-15. There is the federal paperwork required, but the state imposes no licensing of its own.  I have friends with completely legal full-automatic Thompson submachine guns. Surely with such lax gun-control laws, our murder rate must be much higher than our Canadian counterparts’ rate. But this is not the case: I was surprised to find that not only Nunavut (21.01) and the Northwest Territories (6.87) in Canada had much higher murder rates than Idaho, but even Nova Scotia (2.33), Manitoba (4.24), Saskatchewan (3.59), and Alberta (2.88) had higher murder rates.

The same is true for other states (all with laws that favor gun ownership) that border Canada.

What about Minnesota? It had 1.4 murders per 100,000 in 2011, lower than not only all those prairie provinces, but even lower than Canada as a whole.  Montana had 2.8 murders per 100,000, still better than four Canadian provinces and one Canadian territory.  When you get to North Dakota, another one of these American states with far less gun control than Canada, the murder rate is 3.5 per 100,000, still lower than Manitoba, Saskatchewan, the Northwest Territories, and Nunavut.  And let me emphasize that Minnesota, Montana, and North Dakota, like Idaho, are all shall-issue concealed-weapon permit states: nearly any adult without a felony conviction or a domestic violence misdemeanor conviction can obtain a concealed weapon permit with little or no effort.

The takeaway from this evidence (as well as other evidence I have shared) is that availability of guns doesn’t cause murders.

Other factors dominate.

P.S. Regarding the gun control data shared above, some leftists might be tempted to somehow argue that American states with cold weather somehow are less prone to violence. That doesn’t make sense since the Canadian provinces presumably are even colder. Moreover, that argument conflicts with this bit of satire comparing murder rates in chilly Chicago and steamy Houston.

P.P.S. In his role as Iowahawk, David Burge has produced some great political satire, including extortion by Obama’s teleprompter, the bible according to Obama, mockery of the Obama campaign’s life-of-Julia moocher, and (my favorite) the video about a government-designed car.

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In recent weeks, the bureaucrats at both the International Monetary Fund and the Organization for Economic Cooperation and Development have recommended that politicians should have a green light to supposedly stimulate growth by increasing the burden of government spending.

keynesian-fire1Since the lavish (and tax-free) salaries for IMF and OECD bureaucrats are made possible by those same politicians, it’s hardly a surprise that the international bureaucracies cranked out their justifications for bigger government.

Now it’s time to see which nations actually decide to roll the dice with a Keynesian spending binge, and it looks like Canada is at the top of the list.

As reported by Bloomberg, the new Prime Minister thinks more spending will “stimulate” growth.

Canadian Prime Minister Justin Trudeau is urging global leaders to rely more on government spending…to spur growth… He also defended his plan to go willingly into the red. …Trudeau’s arrival on the global scene and his endorsement of deficits marks a sharp about face from his predecessor, Stephen Harper. Along with German Chancellor Angela Merkel and U.K. Prime Minister David Cameron, Harper championed the budget austerity alliance within the Group of Seven that often clashed with the U.S. on fiscal policy.

Needless to say, the former Canadian Primer Minister was right and Obama was – and still is – wrong.

And while they certainly aren’t advocates of small government, Angela Merkel and David Cameron also were wise to impose a modest bit of spending restraint in recent years.

Now we’ll see what happens to Canada as government gets bigger.

Here are some of the specific details about Trudeau’s proposed spending binge.

Trudeau, 44, hinted he is considering expanding on pledges that have his country on pace for a deficit of nearly C$30 billion ($22.3 billion) in the fiscal year that begins April 1. Having promised C$10.5 billion in new spending during the campaign…”we need to be investing intelligently in infrastructure, in money in the pockets of the middle class, to grow the economy,” Trudeau said of the fiscal situation.

And he explicitly invokes the discredited Keynesian argument that a larger burden of government spending somehow boosts economic performance.

Statistics Canada reported that output grew just 1.2 percent in 2015, down from 2.5 percent in 2014. To Trudeau, that’s a reason to spend more instead of tightening up to eliminate the deficit, as Harper had argued in last year’s election campaign. “Cuts would have been terrible for the economy,” Trudeau said.

What makes the Canadian developments so tragic is that the country has been a comparative success story in recent decades.

Canada is now one of the world’s most economically free nations thanks to relatively sensible policies involving spending restraint, corporate tax reform, bank bailouts, the tax treatment of saving, regulatory restraint, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

Most remarkable, the country’s biggest progress on spending actually took place when Trudeau’s party was in charge in the 1990s.

And now Trudeau wants to reverse course and put Canada’s progress at risk.

P.S. It’s good news (or, to be more accurate, a lesser form of bad news) that Trudeau’s Keynesian agenda involves infrastructure spending since there’s at least a possibility that such outlays may generate a positive return. If he was proposing a lot of redistribution spending, by contrast, that would represent bad policy from both a micro and macro perspective.

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When people think about government regulation, it’s understandable that they focus on things that impact their everyday lives.

Most of us, for instance, are irked by government’s war against modern life. Bureaucratic pinheads in Washington think they have the right to plague us with crummy dishwashers, inferior light bulbssubstandard toilets, and inadequate washing machines.

But what matters more is the way that onerous regulation throws sand in the gears of the economy, slowing growth and undermining job creation. And no matter how you slice the data, there’s no escaping the conclusion that American competitiveness is suffocating because of red tape and regulation from Washington.

Here are some very depressing bits of information I’ve shared in the past.

So what’s President Obama’s plan to deal with this regulatory morass?

Well, he wants to make matters worse. I’m not joking. Here are some excerpts from a report in The Hill.

President Obama is moving to complete scores of regulations as he looks to cement key parts of his legacy… The White House quietly released its formal rulemaking schedule late last week, revealing the administration’s latest plans for regulations currently in the works at agencies across the federal government. …Obama has no intentions of slowing down the process during his final year in office. …Critics, however, say the President has already issued far too many burdensome regulations. …the administration has finalized about one rule a day since Obama took office and estimates the compliance costs associated with those rules to total about $700 billion.

What makes this so depressing is that the Mercatus Center has new research showing that the regulatory burden is especially harmful to entrepreneurs and small businesses.

Here are some of the findings from this new study.

…a 10 percent increase in the intensity of regulation as measured by the RegData index leads to a statistically significant 0.5 percent decrease in overall firm births. …regulation deters hiring overall. A 10 percent increase in regulation is associated with a statistically significant 0.9 percent decrease in hiring. …Regulation leads to a statistically significant reduction in hiring and firm births for firms overall and for small firms. …our results suggest that from 1998 to 2011, increased federal regulation reduced the entry of new firms by 1.2 percent and reduced hiring by 2.2 percent. That result implies that returning to the level of regulation in effect in 1998 would lead to the creation of 30 new firms and the hiring of 530 new employees every year for an average industry.

So who benefits from red tape?

Other than bureaucrats and lobbyists, the big winner is big business.

…we find that large incumbents are actually less likely to die when their industry becomes more regulated. That finding suggests that incumbents, in particular, benefit from increasing levels of regulation and provides support for the idea that incumbents might actively seek increasing regulation to deter entry and limit competition (consistent with capture theory).

The good news is that a growing number of people are recognizing the need to deal with excessive regulation.

I don’t think many people would accuse Professor Noah Smith of Stony Brook University of being a libertarian, yet he makes a strong case for regulatory relief in a recent Bloomberg column.

Republicans should stop focusing so much on taxes and devote more attention to deregulation. …Although it’s very difficult to measure the amount of regulation across the economy, there are more and more areas that are cause for concern. For example, the scope of occupational licensing, which economists mostly believe is a drag on growth, is startling, and seems to have no good reason behind it. …Another concern is environmental regulation…local development opponents are often able to use costly environmental reviews to block needed infrastructure. A third area is zoning. As the incentives for density have risen, zoning regulation has become an increasing burden on growth.

He lists additional items, such as the approval process at the FDA for new drugs and all the Byzantine red tape required by the Sarbanes-Oxley law, and he also makes the very important point that cost-benefit analysis is necessary since not all regulations are created equal.

So what’s the solution to this mess?

Research from the folks at Mercatus points to some possible solution.

First and foremost, cut the budgets for regulatory agencies. If there’s less money, there will be fewer bureaucrats with fewer resources.

Here’s a very persuasive chart from a Mercatus report showing the correlation between regulatory budgets and the burden of red tape.

By the way, notice how regulatory spending exploded during the Bush years. Yet another bit of data showing that statist Republicans can be even worse for the economy than statist Democrats.

But I’m digressing. Let’s now look at another potential way of reining in the regulatory state.

Another study from Mercatus looks at a policy in Canada that put an aggregate cap on red tape.

Canada recently became the first country in the world to legislate a cap on regulation. The Red Tape Reduction Act, which became law on April 23, 2015, requires the federal government to eliminate at least one regulation for every new one introduced. Remarkably, the legislation received near-unanimous support across the political spectrum: 245 votes in favor of the bill and 1 opposed.

The nationwide legislation was based on an experiment in British Columbia.

When the BC government first introduced the Reform Policy in 2001, two regulatory requirements had to be eliminated for every one introduced. …today the policy calls for eliminating one requirement for every new one introduced. …requiring regulators to…eliminate…regulatory requirements for every new one introduced represented a dramatic change in thinking about regulation in BC: It put the onus on the government to…reduce the total amount of regulation.

And this policy apparently was very successful.

There is no question that BC’s economic performance improved markedly after 2001 in contrast to the “dismal decade” of the 1990s. The province went from being one of the worst performing in the country to being among the best. …economic growth in BC was 1.9 percentage points below the Canadian average between 1994 and 2001 but 1.1 percentage points above the Canadian average between 2002 and 2006. BC’s real GDP growth was lower than Canada’s as a whole in six of the nine years between 1992 and 2000, but BC’s GDP grew faster than Canada’s every year between 2002 and 2008.

What’s the key takeaway lesson?

Well, just as a spending cap is the right approach to fiscal policy, a regulatory cap also is the right way to deal with red tape.

…a hard cap on the total amount of regulatory requirements…has forced a discipline that did not previously exist, a discipline that has helped change the culture within government to one where regulators see their job as focusing on the most important rules.

Gee, what a radical idea. Requiring the folks in Washington to set priorities and make tradeoffs!

P.S. I guess we can add regulatory reform to our good-things-we-can-learn-from-Canada collection, along with spending restraint, corporate tax reform, bank bailouts, reducing double taxation, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

P.P.S. Since we just reviewed research on how big corporations can benefit by supporting regulations that will disproportionately hurt their small competitors, you probably won’t be surprised to learn that some of those same big companies support tax hikes that will be especially damaging to small businesses.

P.P.P.S. While I suspect America wins the prize for worst regulatory agency and most despicable regulatory practice, Japan almost surely wins the prize for the oddest regulation.

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Just like I have a Bureaucrat Hall of Fame and a Moocher Hall of Fame to draw attention to spectacular cases of overpaid sloth and entitled dependency, I may have to set up something similar to commemorate bizarre examples of government-manufactured human rights.

Most recently, for example, I cited a case in European courts dealing with whether obese people should have “preferential rights.”

Our newest example comes from Canada, where a so-called “human rights adjudicator” has decided that drunks are entitled to “accommodations” for their “special needs.”

A health-care aide’s alcohol addiction qualifies as a disability, and her employer was wrong to fire her… Linda Horrocks is entitled to be reinstated, get three years back pay and an additional $10,000 for injury to her dignity, independent adjudicator Sherri Walsh said in a report released Tuesday. “The issue for determination in this matter is…whether (the employer) made reasonable efforts to accommodate the complainant as soon as it was aware that she had a disability and special needs associated with that disability,” Walsh wrote. …Walsh ruled that alcohol addiction amounts to a disability under the human rights code.

Wow, so guess we have the answer to the question of how “human rights” are protected in Canada.

Sounds like a great deal…so long as one is willing to ignore the right of business owners and shareholders to choose their employees.

Though we shouldn’t laugh too much at the Canadians. After all, the EEOC in the United States made a similar decision restricting the right of a trucking company to weed out a drunk driver.

In other words, the natural tendency of most politicians and bureaucrats is to make odd choices.

If you want to read more “great moments in human rights,” here’s an ever-growing list.

P.S. Since today’s target was a foolish policy in Canada, I feel somewhat obliged to point out that our neighbors to the north have more economic freedom than the United States, in large part because various Canadian governments have done a good job reducing the burden of government spending and dramatically lowering the corporate tax burden.

P.P.S. Canada also can teach us important lessons on other issues, such as bank bailouts, the tax treatment of savings, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

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It would require several people, working around the clock, to provide daily updates about the bizarre and senseless actions of the crowd in Washington.

And you’d need many additional people to monitor the foolish decisions in state capitals.

I certainly try to do my small part, sharing example of jaw-dropping vapidity by our overseers in government (especially in New York City and California).

But I don’t like to discriminate, which is why I periodically highlight inane behavior by foreign bureaucrats and politicians. And we have two perfect examples today. We’ll start north of the border.

Here are some passages from a CBC report about nanny-state overkill from Canada (h/t: Lenore Skenazy).

Clayton, 8, and Kristopher Cadieux, 10, started their business last summer, digging up worms and selling them as bait for $2.50 per dozen. But after a complaint from a neighbour, the brothers received a note from the city saying they were breaking a bylaw and had to shut down their business. The mayor of Cornwall, Leslie O’Shaughnessy, explained that the bylaw requires all personal business sales be conducted within the home, without outdoor signage. …The city told the brothers to move their business inside their home, and to take down their signs on their front lawn. …Kristopher said the worm enterprise only brought in about $34 a month last summer, and he doesn’t understand why he and his brother are being told they can’t sell worms from their front lawn.

How dare these kids display entrepreneurship.They’re almost as bad as the Canadian kid who got in trouble for stopping a knife attack.

But I still think America wins the prize for teaching kids bad lessons. After all, local government officials have heroically thwarted rogue operators of unregulated and unlicensed lemonade stands, in California, Georgia, and Oregon!

Without adequate government supervision, you never know what might happen. If you allow kids to engage in voluntary exchange, maybe that will be the gateway step to other forms of anti-social behavior. Such as snow removal without government approval. Or giving topless haircuts without a cosmetology license!

Our second example of foreign government stupidity comes from the United Kingdom, which is infamous for astounding – and embarrassing – episodes of political correctness.

But this latest example, reported by the U.K.-based Metro, represent the ultimate triumph of the P.C. culture (h/t: Amy Alkon).

…according to one school, Wonder Woman and her Golden Lasso of Truth are…not suitable lunchbox fodder. According to Redditor twines18, who posted a copy of the letter and offending lunchbox on Imgur, the lunchbox contravened the schools dress code which states children aren’t allowed to bring ‘violent images’ into the building. The letter states: ‘We have defined “violent characters” as those who solve problems using violence. Super heroes certainly fall into that category.’

Part of me is convinced this is a joke, but it seems legit.

And let’s remember this is coming from a nation where anti-gun fanaticism results in jaw-dropping displays of government stupidity.

Anyhow, here’s the letter that was sent to the parents.

So solving problems using violence is bad?

I guess that means this school doesn’t teach the kids about World War II. After all, Churchill and other U.K. leaders obviously took the wrong approach. I’m sure a big group hug would have sufficed to stop Hitler and the rest of the National Socialists.

P.S. Speaking of England, the U.K.-based Spectator reports that local universities have an unfortunate habit of filling the heads of foreign students with very bad economic theories. And when those students gain power in their home countries, you get very bad results.

Varoufakis was a product of British universities. He read economics at Essex and mathematical statistics at Birmingham, returning to Essex to do a PhD in economics. With the benefit of his British university education he returned to Greece and, during his short time in office, obliterated the nascent recovery.But Varoufakis is not alone. Plenty of other visitors to our universities have been influenced by the teaching here and returned to their countries to wreak havoc. Jawaharlal Nehru, the first prime minister of an independent India…was influenced by British intellectuals such as George Bernard Shaw, a socialist, Bertrand Russell, who once remarked ‘communism is necessary to the world’, and John Maynard Keynes. He returned to India and started to put the ideology into practice with state planning, controls and regulations. This was a calamity. …Julius Nyerere, president of Tanzania,…read economics and history at Edinburgh (as did Gordon Brown). Naturally he was surrounded by leftist academics and apparently ‘encountered Fabian thinking’ in particular. The experience made it all but inevitable that Tanzania would endure a bloated bureaucracy, shortages and miserably low growth. …the London School of Economics can rightly claim more than its share, of course. Jomo Kenyatta, first prime minister of Kenya after independence, went there. …overblown, corrupt state industries and attempted import substitution took their toll, so that GDP growth per capita was low and, in some years, negative. …Pierre Trudeau…came to the LSE for his doctorate. He did not finish it but the LSE nonetheless gave him a finishing course in leftist economics. Under his rule, Canada introduced wage and price controls while inflation, unemployment and the national debt all rose. Zulfikar Ali Bhutto, variously president and prime minister of Pakistan, went to…Oxford. …once he had gained power, declaring ‘socialism is our economy’, he nationalised the steel, chemical, cement and banking industries along with the flour, rice and cotton mills. Economic growth slowed to a crawl.

Wow, what a rogue’s gallery of statist politicians.

Though, to be fair, I don’t think you automatically get bad ideas by studying economics in the United Kingdom. It’s a function of being “taught” be misguided professors.

After all, just think what must happen to foreign students in America who take classes from Paul Krugman. If these examples (here, here, here, herehereherehereherehere, herehere, and here) are any indication, they probably experience un-learning.

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Back in 2012, I shared some superb analysis from Investor’s Business Daily showing that the United States never would have suffered $1 trillion-plus deficits during Obama’s first term if lawmakers had simply exercised a modest bit of spending restraint beginning back in 1998.

And the IBD research didn’t assume anything onerous. Indeed, the author specifically showed what would have happened if spending grew by an average of 3.3 percent, equal to the combined growth of inflation plus population.

Remarkably, we would now have a budget surplus of about $300 billion if that level of spending restraint continued to the current fiscal year.

This is a great argument for some sort of spending cap, such as the Swiss Debt Brake or Colorado’s Taxpayer Bill of Rights.

But let’s look beyond the headlines to understand precisely why a spending cap is so valuable.

If you look at the IBD chart, you’ll notice that revenues are not very stable. This is because they are very dependent on the economy’s performance. During years of good growth, revenues tend to rise very rapidly. But when there’s a downturn, such as we had at the beginning and end of last decade, revenues tend to fall.

But you don’t have to believe me or IBD. Just look at federal tax revenues over the past 30 years. There have been seven years during which nominal tax revenues have increased by more than 10 percent. But there also have been five years during which nominal tax revenue declined.

This instability means that it doesn’t make much sense to focus on a balanced budget rule. All that means is that politicians can splurge during the growth years. But when there’s a downturn, they’re in a position where they have to cut spending or (as we see far too often) raise taxes.

But if there’s a spending cap, then there is a constraint on the behavior of politicians. And assuming the spending cap is set at a proper level, it means that – over time – there will be shrinking levels of red ink because the burden of government spending will grow by less than the average growth rate of the private economy.

In other words, compliance with my Golden Rule!

Let’s look at other examples.

Why did Greece get in fiscal trouble? The long answer has to do with ever-growing government and ever-increasing dependency. But the short answer, at least in part, is that a growing economy last decade generated plenty of tax revenue, but rather than cut taxes and/or pay down debt, Greek politicians went on a spending binge, which then proved to be unsustainable when there was an economic slowdown.*

This is also why California periodically gets in fiscal trouble. During years when the economy is growing and generating tax revenue, the politicians can’t resist the temptation to spend the money, oftentimes creating long-run spending obligations based on the assumption of perpetually rapid revenue growth. These spending commitments then prove to be unaffordable when there’s a downturn and revenues stop growing.

And as you can see from the accompanying graph, this creates a very unstable fiscal situation for the Golden State. Revenue spikes lead to spending spikes. During a downturn, by contrast, revenues are flat or declining, and this puts politicians in a position of either enacting serious spending restraint or (as you might predict with California) imposing anti-growth tax hikes.

And, in the long run, the burden of spending rises faster than the private sector.

We have another example to add to our list, thanks to some superb research from Canada’s Fraser Institute.

They recently released a study examining fiscal policy in the energy-rich province of Alberta. In particular, the authors (Mark Milke and Milagros Palacios) look at the rapid growth of spending between the fiscal years 2004/05 and 2013/14.

By the mid-2000s, even though the province was again spending at a level that contributed to deficits in the early 1990s, after 2004/05 the province allowed program spending to escalate even further and beyond inflation and population growth. The result was that by 2013/14, the province spent $10,967 per person on government programs. That was $2,002 higher per person than in 2004/05.

Why did the burden of spending climb so quickly? The simple answer is that bigger government was enabled by tax revenue generated by a prospering energy industry.

Over a nine-year period, politicians spent money based on an assumption that high energy prices were permanent and that tax revenues would always be surging.

But now that energy prices have fallen, politicians are suddenly facing a fiscal shortfall. Simply stated, there’s no longer enough revenue for their spending promises.

This fiscal mess easily could have been avoided if the fecklessness of Alberta politicians had been constrained by some sort of spending cap.

The experts at the Fraser Institute explain how such a limit would have precluded today’s dismal situation.

Had the province increased program spending after 2004/05 but within population growth plus inflation, by 2013/14 the province would have spent $35.9 billion on programs. Instead, the province spent $43.9 billion, an $8 billion difference in that year alone. That $8 billion difference is significant. In recent interviews, Alberta Premier Jim Prentice has warned that the drop in oil prices has drained $7 billion from expected provincial government revenues. Thus, past decisions to ramp up program spending mean that additional provincial spending (beyond inflation and population growth) is at least as responsible for current budget gap as the decline in revenues.

And here’s a chart from the study showing how much money would have been saved with modest fiscal restraint.

Unfortunately, that’s not what happened. So now today’s politicians have to deal with a mess that is a consequence of profligate politicians during prior years.**

…the decision by the province to spend (on programs) above the combined effect of population growth and inflation between 2005/06 and 2013/14 inclusive built in higher annual spending obligations, that, once revenues declined, would open up a fiscal gap in the province’s budget. As of 2013/14, the result of spending more on programs than inflation plus population growth combined would warrant meant program expenses were $8 billion higher in that year alone. The province’s past fiscal choices have now severely constricted present choices on everything from balanced budgets to tax relief to additional capital spending. If the province wishes to have a better menu of choices in the future, it must, obviously, control expenditures more carefully.

Since I’ve shared all sorts of bad examples of how nations get in trouble by letting spending grow too fast over time, let’s look at a real-world example of a spending cap in action.

As you can see from the chart, Switzerland has enjoyed great success ever since voters imposed the debt brake.

Indeed, while many other European nations are in fiscal crisis because of big increases in the burden of government spending, the Swiss have experienced economic tranquility in part because the size of the public sector has gradually declined.

The key lesson isn’t that spending restraint is good, though that obviously is important. The most important takeaway is that spending restraint appears to be sustainable only if there is some sort of permanent external constraint on politicians. Like the debt brake. Or like Article 107 of Hong Kong’s Basic Law.

Remember, there are many nations that have enjoyed good results because of multi-year periods of spending restraint. But many of those countries saw their gains evaporate because policies then moved in the wrong direction.

*Greek politicians also took advantage of low interest rates last decade (a result of joining the euro currency) to engage in plenty of debt-financed government spending, which meant the economy was even more vulnerable to a crisis when revenues stopped growing.

**Some of today’s politicians in Alberta are probably long-term incumbents who helped create the mess by over-spending between 2004/05 and today, so I wouldn’t be surprised if they opted for destructive tax hikes instead of long-overdue spending restraint.

P.S. On a totally separate topic, it appears some towns in New York are listening to the sage advice of Walter Williams on the topic of secession.

Here are some excerpts from an editorial published by the Wall Street Journal.

Some 15 towns have announced they want to secede from New York and become part of neighboring Pennsylvania. …The towns occupy four counties in New York State’s “Southern Tier,” just across the Pennsylvania state line. Pennsylvania allows fracking for natural gas… That part of Pennsylvania is booming. Upstate New York, as anyone who drives through it can attest, is an economic bummer. …Governor Cuomo has created an American version of the Cold War’s East Berlin—with economic life booming on one side of the divide, while an anti-economic ideology stifles it on the other.

Unfortunately, New York’s East Berliners will have to pick up and move if they want to benefit from better policy in the Keystone State.

There is no chance the secessionists will succeed, needing approval from the legislatures of New York, Pennsylvania and the U.S.

Another option, of course, is to decentralize decision making so that local communities can decide policy rather than faraway politicians in a state capitol.

That’s the approach that perhaps would have averted the catastrophe we now see in Ukraine, so why not try it in places where the stakes are simply jobs rather than life and death?

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