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Archive for the ‘Europe’ Category

I have a love-hate relationship with corporations.

On the plus side, I admire corporations that efficiently and effectively compete by producing valuable goods and services for consumers, and I aggressively defend those firms from politicians who want to impose harmful and destructive forms of taxes, regulation, and intervention.

On the minus side, I am disgusted by corporations that get in bed with politicians to push policies that undermine competition and free markets, and I strongly oppose all forms of cronyism and coercion that give big firms unearned and undeserved wealth.

With this in mind, let’s look at two controversies from the field of corporate taxation, both involving the European Commission (the EC is the Brussels-based bureaucracy that is akin to an executive branch for the European Union).

First, there’s a big fight going on between the U.S. Treasury Department and the EC. As reported by Bloomberg, it’s a battle over whether European governments should be able to impose higher tax burdens on American-domiciled multinationals.

The U.S. is stepping up its effort to convince the European Commission to refrain from hitting Apple Inc. and other companies with demands for possibly billions of euros… In a white paper released Wednesday, the Treasury Department in Washington said the Brussels-based commission is taking on the role of a “supra-national tax authority” that has the scope to threaten global tax reform deals. …The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.” The commission’s spokesman said Wednesday that EU law “applies to all companies operating in Europe — there is no bias against U.S. companies.”

As you can imagine, I have a number of thoughts about this spat.

  • First, don’t give the Obama Administration too much credit for being on the right side of the issue. The Treasury Department is motivated in large part by a concern that higher taxes imposed by European governments would mean less ability to collect tax by the U.S. government.
  • Second, complaints by the US about a “supra-national tax authority” are extremely hypocritical since the Obama White House has signed the Protocol to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which effectively would create a nascent World Tax Organization (the pact is thankfully being blocked by Senator Rand Paul).
  • Third, hypocrisy by the US doesn’t change the fact that the European Commission bureaucrats are in the wrong because their argument is based on the upside-down notion that low tax burdens are a form of “state aid.”
  • Fourth, Europeans are in the wrong because the various national governments should simply adjust their “transfer pricing” rules if they think multinational companies are playing games to under-state profits in high-tax nations and over-state profits in low-tax nations.
  • Fifth, the Europeans are in the wrong because low corporate tax rates are the best way to curtail unproductive forms of tax avoidance.
  • Sixth, some European nations are in the wrong if they don’t allow domestic companies to enjoy the low tax rates imposed on multinational firms.

Since we’re on the topic of corporate tax rates and the European Commission, let’s shift from Brussels to Geneva and see an example of good tax policy in action. Here are some excerpts from a Bloomberg report about how a Swiss canton is responding in the right way to an attack by the EC.

When the European Union pressured Switzerland to scrap tax breaks for foreign companies, Geneva had most to lose. Now, the canton that’s home to almost 1,000 multinationals is set to use tax to burnish its appeal. Geneva will on Aug. 30 propose cutting its corporate tax rate to 13.49 percent from 24.2 percent…the new regime will improve the Swiss city’s competitive position, according to Credit Suisse Group AG. “I could see Geneva going up very high in the ranks,” said Thierry Boitelle, a lawyer at Bonnard Lawson in the city. …A rate of about 13 percent would see Geneva jump 13 places to become the third-most attractive of Switzerland’s 26 cantons.

This puts a big smile on my face.

Geneva is basically doing the same thing Ireland did many years ago when it also was attacked by Brussels for having a very low tax rate on multinational firms while taxing domestic firms at a higher rate.

The Irish responded to the assault by implementing a very low rate for all businesses, regardless of whether they were local firms or global firms. And the Irish economy benefited immensely.

Now it’s happening again, which must be very irritating for the bureaucrats in Brussels since the attack on Geneva (just like the attack on Ireland) was designed to force tax rates higher rather than lower.

As a consequence, in one fell swoop, Geneva will now be one of the most competitive cantons in Switzerland.

Here’s another reason I’m smiling.

The Geneva reform will put even more pressure on the tax-loving French.

France, which borders the canton to the south, east and west, has a tax rate of 33.33 percent… Within Europe, Geneva’s rate would only exceed a number of smaller economies such as Ireland’s 12.5 percent and Montenegro, which has the region’s lowest rate of 9 percent. That will mean Geneva competes with Ireland, the Netherlands and the U.K. as a low-tax jurisdiction.

Though the lower tax rate in Geneva is not a sure thing.

We’ll have to see if local politicians follow through on this announcement. And there also may be a challenge from left-wing voters, something made possible by Switzerland’s model of direct democracy.

Opposition to the new rate from left-leaning political parties will probably trigger a referendum as it would only require 500 signatures.

Though I suspect the “sensible Swiss” of Geneva will vote the right way, at least if the results from an adjoining canton are any indication.

In a March plebiscite in the neighboring canton of Vaud, 87.1 percent of voters backed cutting the corporate tax rate to 13.79 percent from 21.65 percent.

So I fully expect voters in Geneva will make a similarly wise choice, especially since they are smart enough to realize that high tax rates won’t collect much money if the geese with the golden eggs fly away.

Failure to agree on a competitive tax rate in Geneva could result in an exodus of multinationals, cutting cantonal revenues by an even greater margin, said Denis Berdoz, a partner at Baker & McKenzie in Geneva, who specializes in tax and corporate law. “They don’t really have a choice,” said Berdoz. “If the companies leave, the loss could be much higher.”

In other words, the Laffer Curve exists.

Now let’s understand why the development in Geneva is a good thing (and why the EC effort to impose higher taxes on US-based multinational is a bad thing).

Simply stated, high corporate tax burdens are bad for workers and the overall economy.

In a recent column for the Wall Street Journal, Kevin Hassett and Aparna Mathur of the American Enterprise Institute consider the benefits of a less punitive corporate tax system.

They start with the theoretical case.

If the next president has a plan to increase wages that is based on well-documented and widely accepted empirical evidence, he should have little trouble finding bipartisan support. …Fortunately, such a plan exists. …both parties should unite and demand a cut in corporate tax rates. The economic theory behind this proposition is uncontroversial. More productive workers earn higher wages. Workers become more productive when they acquire better skills or have better tools. Lower corporate rates create the right incentives for firms to give workers better tools.

Then they unload a wealth of empirical evidence.

What proof is there that lower corporate rates equal higher wages? Quite a lot. In 2006 we co-wrote the first empirical study on the direct link between corporate taxes and manufacturing wages. …Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 22 years, confirmed that the corporate tax is for the most part paid by workers. …There has since been a profusion of research that confirms that workers suffer when corporate tax rates are higher. In a 2007 paper Federal Reserve economist Alison Felix used data from the Luxembourg Income Study, which tracks individual incomes across 30 countries, to show that a 10% increase in corporate tax rates reduces wages by about 7%. In a 2009 paper Ms. Felix found similar patterns across the U.S., where states with higher corporate tax rates have significantly lower wages. …Harvard University economists Mihir Desai, Fritz Foley and Michigan’s James R. Hines have studied data from American multinational firms, finding that their foreign affiliates tend to pay significantly higher wages in countries with lower corporate tax rates. A study by Nadja Dwenger, Pia Rattenhuber and Viktor Steiner found similar patterns across German regions… Canadian economists Kenneth McKenzie and Ergete Ferede. They found that wages in Canadian provinces drop by more than a dollar when corporate tax revenue is increased by a dollar.

So what’s the moral of the story?

It’s very simple.

…higher wages are relatively easy to stimulate for a nation. One need only cut corporate tax rates. Left and right leaning countries have done this over the past two decades, including Japan, Canada and Germany. Yet in the U.S. we continue to undermine wage growth with the highest corporate tax rate in the developed world.

The Tax Foundation echoes this analysis, noting that even the Paris-based OECD has acknowledged that corporate taxes are especially destructive on a per-dollar-raised basis.

In a landmark 2008 study Tax and Economic Growth, economists at the Organization for Economic Cooperation and Development (OECD) determined that the corporate income tax is the most harmful tax for economic growth. …The study also found that statutory corporate tax rates have a negative effect on firms that are in the “process of catching up with the productivity performance of the best practice firms.” This suggests that “lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth.”

Sadly, there’s often a gap between the analysis of the professional economists at the OECD and the work of the left-leaning policy-making divisions of that international bureaucracy.

The OECD has been a long-time advocate of schemes to curtail tax competition and in recent years even has concocted a “base erosion and profit shifting” initiative designed to boost the tax burden on businesses.

In a study for the Institute for Research in Economic and Fiscal Issues (also based, coincidentally, in Paris), Pierre Bessard and Fabio Cappelletti analyze the harmful impact of corporate taxation and the unhelpful role of the OECD.

…the latest years have been marked by an abundance of proposals to reform national tax codes to patch these alleged “loopholes”. Among them, the Base Erosion and Profit Shifting package (BEPS) of the Organization for Economic Cooperation and Development (OECD) is the most alarming one because of its global ambition. …The OECD thereby assumes, without any substantiation, that the corporate income tax is both just and an efficient way for governments to collect revenue.

Pierre and Fabio point out that the OECD’s campaign to impose heavier taxes on business is actually just a back-door way of imposing a higher burden on individuals.

…the whole value created by corporations is sooner or later transferred to various individuals, may it be as dividends (for owners and shareholders), interest payments (for lenders), wages (for employees) and payments for the provided goods and services (for suppliers). Second, corporations as such do not pay taxes. …at the end of the day the burden of any tax levied on them has to be carried by an individual.

This doesn’t necessarily mean there shouldn’t be a corporate tax (in nations that decide to tax income). After all, it is administratively simpler to tax a company than to track down potentially thousands – or even hundreds of thousands – of shareholders.

But it’s rather important to consider the structure of the corporate tax system. Is it a simple system that taxes economic activity only one time based on cash flow? Or does it have various warts, such as double taxation and deprecation, that effectively result in much higher tax rates on productive behavior?

Most nations unfortunately go with the latter approach (with place such as Estonia and Hong Kong being admirable exceptions). And that’s why, as Pierre and Fabio explain, the corporate income tax is especially harmful.

…the general consensus is that the cost per dollar of raising revenue through the corporate income tax is much higher than the cost per dollar of raising revenue through the personal income tax… This is due to the corporate income tax generating additional distortions. … Calls by the OECD and other bodies to standardize corporate tax rules and increase tax revenue in high-tax countries in effect would equate to calls for higher prices for consumers, lower wages for workers and lower returns for pension funds. Corporate taxes also depress available capital for investment and therefore productivity and wage growth, holding back purchasing power. In addition, the deadweight losses arising from corporate income taxation are particularly high. They include lobbying for preferential rates and treatments, diverting attention and resources from production and wealth creation, and distorting decisions in corporate financing and the choice of organizational form.

From my perspective, the key takeaway is that income taxes are always bad for prosperity, but the real question is whether they somewhat harmful or very harmful. So let’s close with some very depressing news about how America’s system ranks in that regard.

The Tax Foundation has just produced a very helpful map showing corporate tax rates around the world. All you need to know about the American system is that dark green is very bad (i.e., a corporate tax rate that is way above the average) and dark blue is very good.

And to make matters worse, the high tax rate is just part of the problem. A German think tank produced a study that looked at other major features of business taxation and concluded that the United States ranked #94 out of 100 nations.

It would be bad to have a high rate with a Hong Kong-designed corporate tax structure. But we have something far worse, a high rate with what could be considered a French-designed corporate tax structure.

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The United States is laboring through the weakest economic recovery since the Great Depression.

Median household income is stagnant and labor-force participation is dismal.

Sounds awful, right?

Compared to the strong growth of the pro-market Reagan years and pro-market Clinton years, it is awful.

But maybe we should count our blessings

Here’s a chart from a presentation. by economists from the European Central Bank, and it shows how much the United States has grown since 1999 compared to Japan and euro nations.

We’ve enjoyed nearly twice as much growth as Europe and almost three times as much growth as Japan. Which is remarkable since those countries aren’t as rich as the United States and they should grow faster according to convergence theory.

So while it’s true that Obamanomics hasn’t been good for the United States, it’s apparently not as bad as Abenomics in Japan and Hollandenomics (and Renzinomics and Tsiprasnomics) in Europe.

Allan Meltzer explains why Europe is lagging in an article for the Hoover Institution.

Europe has become the model for how democratic capitalism can give way to the welfare state. Following a surge of market-driven growth after World War II, there was a rise across the continent in income redistribution and regulations intended to protect workers and consumers, and to achieve “fairness.” From the 1960s onward, high tax rates and heavy regulations slowed economic growth. And many welfare state programs became roadblocks to economic progress by resisting reforms and prolonging the current European recession. …France and Italy are not as far along to disaster as Greece, but their welfare systems are also difficult to reduce to regain competitiveness. …Monetary policy cannot overcome real, structural problems. Spain and Ireland showed that EU members can restore growth most effectively by making…painful real changes… Sluggish growth will continue until EU officials adopt policies that encourage private investment.

It’s depressing to think that some American politicians want to copy European failure.

Some of the candidates in the 2016 presidential race offer more welfare state benefits as a remedy for current voter malaise. The promise is that the way to make everyone better off is by taxing high incomes and distributing more to others. That’s the route that many in Europe took. Instead of the promised happy outcome, much of Europe got slow growth and high unemployment and an ever greater need to restore competitiveness by reducing the expanded welfare state. …Prime Minister Thatcher often said, “The welfare state will end when they run out of YOUR money.” If she was right, the end for Europe is here. And the lesson for the United States is to adopt less costly policies before debt markets force the change. …the lesson for the United States is that we will not escape the problems of the welfare state.

Even the left-wing bureaucrats at the OECD sort of admit Europe is falling behind.

I’ve previously shared data from the OECD showing much higher living standards in the US than in Europe, and here are some excerpts from a recent report on global migration patterns for high-skilled workers.

…migrants to the EU are younger and less well educated than those in other OECD destinations. Of the total pool of highly-educated third-country migrants residing in EU and OECD countries, the EU hosts less than one-third (31%), while more than half (57%) are in North America. …most importantly, many labour migrants are not coming to the EU under programmes for skilled workers. …EU Member States covered by EU legal migration policies received annually less than 80 thousand highly qualified third country labour migrants. By comparison, Canada and Australia have annual admissions under their selective economic migration programmes for highly-qualified workers of 60 thousand each.

In the section on recommendations, you won’t be surprised to learn that the OECD failed to suggest pro-market reforms.

There’s boilerplate language about streamlining the process for high-skill immigrants, but nothing about the stifling tax burdens and expensive welfare states that cause European economies to be so stagnant and unappealing.

One very visible manifestation of inferior living standards in Europe is that people generally have very cramped housing conditions compared to the United States (even Americans in poverty have more living space than the average European).

And to make matters worse, air conditioning is the exception not the rule.

Amusingly, Europeans pretend to feel superior about their summertime misery, as reported by the Washington Post.

Whereas many Americans would probably never consider living or working in buildings without air conditioning, many Germans think that life without climate control is far superior. …many Europeans visiting the U.S. frequently complain about the “freezing cold” temperatures inside buses or hotels. …Europe thinks America’s love of air-conditioning is actually quite daft. …according to the Environmental Protection Agency, …demand for air-conditioning has only  increased over the past decades. …the United States consumes more energy for air conditioning than any other country. …Europeans are generally more used to warmer room temperatures because most of them grew up without any air-conditioning.

As one might expect, the issue is being used by climate alarmists.

Another factor that may explain Europe’s sniffy reaction toward American cooling is the continent’s climate change awareness. According to a 2014 survey, a majority of Europeans would welcome more action to stop global warming. Two thirds of all E.U. citizens said that economies should be transformed in an environmentally-friendly manner. Cooling uses much more energy than heating, which is why many Europeans prefer sweating for a few days… America’s air-conditioning addiction may also have another negative side effect: It will make it harder for the U.S. to ask other countries to continue to abstain from using it to save energy. …”If everyone were to adopt the U.S.’s air-conditioning lifestyle, energy use could rise tenfold by 2050,” Cox added, referring to the 87-percent ratio of households with air-conditioning in the United States.

I’m much more tolerant of heat than the average American, so I probably could survive in a world without air conditioning.

But I hope that day never arrives and I continue to enjoy the full benefits of living in a first-world nation.

Let’s close with a fascinating map showing populations changes in Europe from 2001-2011. It’s in German, but all you need to know is that dark red means a 2-percent-plus increase in population while dark blue means a decline of at least 2 percent.

France and Ireland have population growth, as well as (to a lesser extent) Northern Italy and Poland.

But take a look at Portugal, Northwestern Spain, Eastern Germany, and the non-Polish portions of Eastern Europe. You’ll understand why I fret about demographic crisis in both Western Europe and Eastern Europe.

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There are no simple answers to Islamist terrorism, particularly when individual nutjobs are determined to kill a  bunch of innocent people.

But I know that some answers to the problem are wrong. So when politicians like Hillary Clinton say we should have more gun control, I side with police chiefs who recognize that an armed citizenry is a much more effective approach.

Simply stated, we’re dealing with evil people who want to maximize death, so they pick out places where they are less likely to encounter armed resistance.

The European response to terrorism is especially insipid. Law-abiding people are disarmed while terrorists have no problems obtaining all the guns they need.

Which leads to terrible consequences with tragic regularity.

I’m not sure how to categorize this sarcastic look at how Europe responds to a terror attack compared to how Texas responds, but it does make the key point that it’s better to shoot back than die meekly.

Consider this the terrorism version of the joke comparing how the governors of Texas and California respond to a coyote attack.

Though this is a deadly serious issue, not a joking matter.

P.S. If you want some genuine terror-related humor, look at the bottom of this post.

P.P.S. And if you want something truly pathetic, look at how statists try to rationalize terrorism.

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I realize that there are important issues to analyze, but it’s utterly depressing to focus on Trump’s protectionist agenda or Hillary’s redistribution agenda.

So let’s escape the dismal reality of American politics and enjoy some laughs about Britain’s glorious decision to escape the sinking ship of the European Union.

We’ll start with a parody video featuring the head of the National Socialist Workers Party (PG-13 warning that there are some naughty words).

Very well done.

Not let’s enjoy some more clever satire.

We’ll start with this depiction of what was supposed to happen according to the statist practitioners of Project Fear.

Speaking of Project Fear, here’s some related humor.

And I very much enjoy this cartoon showing that Obama’s attempt to convince Britons to remain in the EU was about as successful as his efforts to convince Americans to like the failed Obamacare program.

Last but not least, I can’t resist sharing this image since I’ve repeatedly used the escape-from-a-sinking-ship metaphor.

P.S. If you enjoyed the Hitler parody, other examples of this genre include:

P.P.S. And if you enjoy European-themed humor, here’s my collection (some of it involving – GASP! – stereotypes):

P.P.P.S. This is sad rather than funny, but here are examples of government-created human rights in Europe. Similarly, if you compare bizarre statements and behavior from the two leading bureaucrats at the European Commission, you’ll understand why the Britons were wise to escape.

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What an amazing vote. The people of the United Kingdom defied the supposed experts, rejected a fear-based campaign by advocates of the status quo, and declared their independence from the European Union.

Here are some takeaway thoughts on this startling development.

1. The UK has voted to leave a sinking ship. Because of unfavorable demographics and a dirigiste economic model, the European Union has a very grim future.

2. Brexit is a vote against centralization, bureaucratization, and harmonization. It also is a victory for more growth, though the amount of additional long-run growth will depend on whether the UK government seizes the opportunity for lower taxes, less red tape, and a smaller burden of government.

3. President Obama once again fired blanks. Whether it was his failed attempt early in his presidency to get the Olympic Games in Chicago or his feckless attempt in his final year to get Britons to remain in the EU, Obama has a remarkably dismal track record. Maybe I can get him to endorse the Boston Red Sox, thus ensuring the Yankees make it to the World Series?

4. Speaking of feckless foreign leaders, but I can’t resist the temptation to point out that the Canadian Prime Minister’s reaction to Brexit wins a prize for vapidity. It would be amusing to see Trudeau somehow justify this absurd statement, though I suspect he’ll be too busy expanding government and squandering twenty-five years of bipartisan progress in Canada. Potential mea culpa…I can’t find proof that Trudeau actually made this statement. Even with the excuse that I wrote this column at 3:00 AM, I should have known better than to believe something I saw on Twitter (though I still think he’s vapid).

5. Nigel Farage and UKIP have voted themselves out of a job. A common joke in Washington is that government bureaucracies never solve problems for which they were created because that would eliminate their excuse for existing. After all, what would “poverty pimps” do if there weren’t poor people trapped in government dependency? Well, Brexit almost surely means doom for Farage and UKIP, yet they put country above personal interest. Congratulations to them, though I’ll miss Farage’s acerbic speeches.

6. The IMF and OECD disgracefully took part in “Project Fear” by concocting hysterical predictions of economic damage if the U.K. decided to get off the sinking ship of the European Union. To the extent there is some short-term economic instability over the next few days or weeks, those reckless international bureaucracies deserve much of the blame.

7. As part of his failed effort to influence the referendum, President Obama rejected the notion of quickly inking a free-trade agreement with the UK. Now that Brexit has been approved, hopefully the President will have the maturity and judgement to change his mind. Not only should the UK be first in line, but this should be the opportunity to launch the Global Free Trade Association that my former Heritage Foundation colleagues promoted last decade. Unfettered trade among jurisdictions with relatively high levels of economic freedom, such as the US, UK, Australia, Switzerland, New Zealand, Chile, etc, would be a great way of quickly capturing some of the benefits made possible by Brexit.

8. David Cameron should copy California Governor Jerry Brown. Not for anything recent, but for what he did in 1978 when voters approved an anti-tax referendum known as Proposition 13. Brown naturally opposed the referendum, but he completely reversed himself after the referendum was approved. By embracing the initiative, even if only belatedly, he helped his state and himself. That would be the smart approach for Cameron, though there’s a distinct danger that he could do great harm to himself, his party, and his country by trying to negotiate a deal to somehow keep the UK in the EU.

9. Last but not least, I’m very happy to be wrong about the outcome. I originally expected that “Project Fear” would be successful and that Britons would choose the devil they know over the one they don’t know. Well, I’m delighted that Elizabeth Hurley and I helped convince Britons to vote the right way. We obviously make a good team.

Joking aside, the real credit belongs to all UK freedom fighters, even the disaffected Labour Party voters who voted the right way for wrong reasons.

I’m particularly proud of the good work of my friends Allister Heath of the Telegraph, Eamonn Butler of the Adam Smith Institute, Dan Hannan of the European Parliament, and Matthew Elliott of Vote Leave. I imagine Margaret Thatcher is smiling down on them today.

Now it’s on to the second stage of this campaign and convincing California to declare independence from the United States!

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On June 23, the people of the United Kingdom will have the opportunity to restore sovereignty and protect democracy by voting in a national referendum to leave the European Union.

They should choose “leave” over “remain.”

The European Union’s governmental manifestations (most notably, an über-powerful bureaucracy called the European Commission, a largely powerless but nonetheless expensive European Parliament, and a sovereignty-eroding European Court of Justice) are – on net – a force for statism rather than liberalization.

Combined with Europe’s grim demographic outlook, a decision to remain would guarantee a slow, gradual decline.

A vote to leave, by contrast, would create uncertainty and anxiety in some quarters, but the United Kingdom would then have the ability to make decisions that will produce a more prosperous future.

Leaving the EU would be like refinancing a mortgage when interest rates decline. In the first year or two, it might be more expensive because of one-time expenses. In the long run, though, it’s a wise decision.

From an American perspective, George Will has been especially insightful and eloquent. Here are some excerpts from a recent column in the Washington Post.

Lord Nigel Lawson… is impatient with the proposition that it is progress to transfer to supra-national institutions decisionmaking that belongs in Britain’s Parliament. …The Remain camp correctly says that Britain is richer and more rationally governed than when European unification began. The Leave camp, however, correctly responds that this is largely in spite of the E.U. — it is because of decisions made by British governments, particularly Margaret Thatcher’s, in what is becoming a shrinking sphere of national autonomy. In 1988, Thatcher said: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European super-state exercising a new dominance from Brussels.”

Here’s a good visual of what’s happening. What began as a good idea (free trade) has become a bad idea (economic union) and may become an even worse idea (common government).

Here’s what Dan Hannan, a British Member of the European Parliament, wrote on the issue. He’s very pro-Europe, but understands that does not mean European-wide governance is a good idea.

I’m emotionally drawn to Europe. I speak French and Spanish and have lived and worked all over the Continent. I’ve made many friends among…committed Euro-federalists. …they are also decent neighbours, loyal companions and generous hosts. I feel twinges of unease about disappointing them, especially the anglophiles. But, in the end, the head must rule the heart.

Dan identifies six reasons why it is sensible to leave.

Here are relevant portions of his arguments, starting with the fact that the EU is becoming a super-state..

The EU has acquired, one by one, the attributes and trappings of nationhood: a president and a foreign minister, citizenship and a passport, treaty-making powers, a criminal justice system, a written constitution, a flag and a national anthem. It is these things that Leavers object to, not the commerce and co-operation that we would continue to enjoy, as every neighbouring country does.

Second, it is only pro-trade for members, not the wider world.

The EU is not a free-trade area; it is a customs union. The difference may seem technical, but it goes to the heart of the decision we face. Free-trade areas remove barriers between members and, economists agree, tend to make participants wealthier. Customs unions, by contrast, erect a common tariff wall around their members, who surrender the right to strike individual trade deals. …Britain is one of only two of 28 member states that sell more to the rest of the world than to the EU. We have always been especially badly penalised by the EU’s Common External Tariff. Unlike Switzerland, which enjoys free trade with the EU at the same time as striking agreements with China and other growing economies… It’s a costly failure. In 2006, the EU was taking 55 per cent of our exports; last year, it was down to 45 per cent. What will it be in 2030 — or 2050?

Third, the advocates of common government are candid about their ultimate goals.

The Five Presidents’ Report sets out a plan for the amalgamation of fiscal and economic policies… The Belgian commissioner Marianne Thyssen has a plan for what she calls ‘social union’ — i.e. harmonisation of welfare systems. …These are not the musings of outlandish federalist think tanks: they are formal policy statements by the people who run Brussels.

Fourth, Europe is stagnant.

…in 1973, the states that now make up the EU accounted for 36 per cent of the world economy. Last year, it was 17 per cent. Obviously, developing economies grow faster than advanced ones, but the EU has also been comprehensively outperformed by the United States, Canada, Australia and New Zealand. …Why tie ourselves to the world’s slowest-growing continent?

Fifth, there are examples of very successful non-EU nations in Europe.

…we can get a better deal than…Switzerland…and Norway…; on the day we left, we’d become the EU’s single biggest export market. …They trade freely with the EU…they are self-governing democracies.

And last but not least, a decision to remain will be interpreted as a green light for more centralization, bureaucratization, and harmonization.

A Remain vote will be…capitulation. Look at it from the point of view of a Euro-federalist. Britain would have demanded trivial reforms, failed to secure even those, and then voted to stay in on unchanged terms. After decades of growling and snarling, the bulldog would have rolled over and whimpered. …With the possibility of Brexit off the table, there will be a renewed push to integration, on everything from migrant quotas to a higher EU budget.

Dan’s bottom line is very simple.

We have created more jobs in the past five years than the other 27 states put together. How much bigger do we have to be, for heaven’s sake, before we can prosper under our own laws?

Roland Smith, writing for the U.K.’s Adam Smith Institute, produced The Liberal Case for Leave. Needless to say, he’s looking at the issue from the classical liberal perspective, not the statist American version.

Anyhow, here’s some of what he wrote.

…the 1970s turned out to be an odd period where many things that seemed like good ideas at the time turned out not to be. …While there may have been an element of truth about EEC membership in the 1970s that seduced many subsequent sceptics…our timing for joining “the club” could not have been worse. …globalisation was beginning to eat into the logic of a political European Union at the very point it was striding towards statehood with a single euro currency. …the European single market is being rapidly eclipsed. …The EU is therefore increasingly becoming a pointless middleman as a vast new global single market takes over.

Here’s a chart from the article showing the European Union’s rapidly falling share of global economic output.

Mr. Smith does not think it’s smart to link his country’s future to a declining bloc of nations.

We are now less dependent than ever on our closest trading partners in Europe and this trend is marching relentlessly onward. For the first 40 years of our membership, the majority — over 60% — of UK exports went to the EU. But in 2012, for the first time, that figure dropped below 50%. It is now at 45% and continues to sink. …The demographics of the European continent, alongside the dysfunctional euro and its insidious effects across Europe have also played a large part in this change… This situation and these trends are not going to change.

Here’s his conclusion.

This Brexit vision is therefore a global, outward-looking and ambitiously positive one. It eschews the inward-looking outlook of…the Remain lobby… So a parochial inward-looking “little Europe” and a demographically declining one, ranged against an expansive, liberal and global outlook. …The crux of the matter is that we in Britain want trade and cooperation; our EU partners want merger and a leashed hinterland.

These are strong arguments, so why does Prime Minister David Cameron want to remain?

And why is he joined by the hard-left leader of the Labour Party (actually, that’s easy to answer given the shared leftist orientation of both Jeremy Corbyn and EU officials), along with most big companies and major unions?

Most of them, if asked, will argue that a vote to leave the EU will undermine the economy. They’ll cite estimates of lower economic output from the International Monetary Fund, the Organization for Economic Cooperation and Development, the British Treasury, and other sources.

To be blunt, these numbers lack credibility. A pro-centralization, pro-EU Prime Minister asked for numbers from a bureaucracy he controls. As critics have pointed out, the goal was to produce scary numbers rather than to produce real analysis.

And the numbers from the international bureaucracies are even more laughable. The IMF is a left-wing organization with a dismal track record of sloppy and disingenuous output. And the OECD also is infamous for a statist perspective and dishonest data manipulation.

Indeed, the palpable mendacity of these numbers has probably boomeranged on supporters of the EU. Polls show that voters don’t believe these hysterical and overwrought numbers.

Instead, they laugh about “Project Fear.”

Yet, as reported by John Fund of National Review, the EU crowd is doubling down in their panic to frighten people.

…the organizers of Project Fear have gone into overdrive. European Council President Donald Tusk said in an interview with the German newspaper Bild that radical anti-European forces will be “drinking champagne” if Brexit passes.  …Tusk said. “As a historian I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.”

End of western civilization? Seriously?

Gee, why not also predict a zombie apocalypse?

These chicken little predictions are hard to take seriously when Britons can look at other nations in Europe that are prospering outside the European Union.

Consider Norway. Advocates of the EU claimed horrible results if the country didn’t join. Needless to say, those horrible results never materialized.

This doesn’t mean there aren’t honest people who sincerely think it would be a mistake to leave the European Union.

Indeed, a survey by the Centre for Macroeconomics found very negative views.

Almost all panel members thought that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, which would put the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agree that there would be substantial negative long-term consequences.

Other economists seem to agree.

Four of them produced an article for VoxEU, and here’s some of what they wrote.

The possibility of the UK leaving the EU has generated an unusual degree of consensus among economists. …analysis from the Bank of England, to the OECD, to academia has all shown that Brexit would make us economically worse off. The disagreement is mainly over the degree of impoverishment… The one exception is…Professor Patrick Minford of Cardiff University, who argues that Brexit will raise the UK’s welfare by 4% as a result of increased trade… Minford’s policy recommendation is that following a vote for Brexit, the UK should not bother striking new trade deals but instead unilaterally abolish all its import tariffs… we know of no cases where an industrialised country has ever implemented full unilateral liberalisation – and for good reason. Persuading other countries to reduce their trade barriers is easier if you can also say you’re going to reduce your own as part of the deal. If we’re committed to going naked into the world economy, other countries are unlikely to follow suit voluntarily. …In reality, the UK will still continue to trade extensively with our closest geographical neighbours, it’s just that the higher trade barriers mean that we will do less of it.

Other establishment voices are convinced that the United Kingdom would be crazy to leave the EU.

Robert Samuelson, in his Washington Post column, views it as a form of national suicide because of existing economic ties to continental Europe.

Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. …Leaving the E.U. would be an act of national insanity. It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U. members, would probably rise. Meanwhile, Britain would become less attractive as a production platform for the rest of Europe, so that new foreign direct investment in the U.K. — now $1.5 trillion — would fall. Also threatened would be London’s status as Europe’s major financial center, home (for example) to 78 percent of E.U. foreign exchange trading. With the U.K. out of the E.U., some banking activities might move to Frankfurt or other cities. …Brexit is an absurdity. But it is a potentially destructive absurdity. It creates more uncertainty in a world awash in uncertainty.

Allister Heath of the Daily Telegraph disagrees with these proponents of the status quo.

David Cameron and George Osborne have been claiming, over and again, that those of us who support Brexit have lost the economic argument. …utter nonsense. …The free-market, cosmopolitan, pro-globalisation economic case for leaving is stronger than ever… The hysterical studies claiming that Brexit would ruin us are grotesque caricatures, attempts at portraying a post-Brexit Britain as a nation that suddenly decided to turn its back on free trade and foreigners. …a Brexit would almost certainly mean the UK remaining in the European Economic Area (EEA), like Norway: we would be liberated from much political interference, be allowed to forge our own free-trade deals while retaining the single market’s Four Freedoms. Europe’s shell-shocked corporate interests would demand economic and trade stability of its equally traumatised political classes, and they would get it. …with supply-side reforms at home, the UK would become more, rather than less, attractive to global capital. The Treasury, OECD and IMF’s concocted Armageddon scenarios wouldn’t materialise. Remain has only won the economic argument in the sense that most economists and the large institutions that employ them support their side.

And Allister points out that the supposed consensus view of economists has been wildly wrong in the past.

Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right. In 1999, The Economist wrote to the UK’s leading academic practitioners of the dismal science to find out whether it would be in our national economic interest to join the euro by 2004. Of the 165 who replied, 65 per cent said that it would. Even more depressingly, 73 per cent of those who actually specialised in the economics of the EU and of monetary union thought we should join – the experts among the experts were the most wrong. Britain would have gone bust had we listened… The vast majority of economists did not foresee or predict the financial crisis or the Great Recession or the eurozone crisis. Yet they now have the chutzpah to behave as if they should be treated like philosopher kings… Remember the Twenties? The economics profession overwhelmingly failed to see the great bubble and subsequent crash and depression. The Thirties? It messed up on just about everything. …In the Sixties and subsequently, Paul Samuelson’s best-selling, dominant economics textbook was predicting that the Soviet Union’s GDP per capita would soon catch up with America’s. The Seventies? Most economists didn’t know how stagflation could even be possible. The Eighties? The profession opposed Thatcherism and the policies that saved the UK; infamously, 364 economists attacked Thatcher’s macroeconomic policies in the 1981 Budget and then kept getting it wrong. …The problem this time around is that Remain economists assume that leaving the EU would mean reducing globalisation and halting most immigration. They assume that there are only costs and no benefits from leaving the EU…the EU’s anti-democratic institutions are unsustainable and thus pose a great threat to the liberal international economic order its UK supporters claim to be defending.

The debate among economists is mostly focused on trade.

With that in mind, this television exchange is very enlightening.

In other words, nations all over the world trade very successfully without being in the European Union, so this view that somehow the United Kingdom can’t do likewise is a triumph of theory over reality.

It’s way past time to wrap this up, but there are a few additional items I can’t resist sharing.

A British parliamentarian (akin to a member of Congress in the U.S.) is understandably unhappy that some Americans, most notably President Obama, are interfering in the Brexit election.

Here are parts of Chris Grayling’s column in the Washington Post.

Imagine if you were told that the United States should join an American Union bringing together all the nations of North and South America. It would have its own parliament — maybe in Panama City, a place on the cusp of the two halves of the Americas. That American Parliament would have the power to make the majority of your laws. A Supreme Court of the Americas in Panama would outrank the U.S. Supreme Court and take decisions that would be mandatory in the United States. …That is, more or less, where Britain finds itself today.

Sensible Americans obviously wouldn’t like that state of affairs.

And we would be even more unhappy if that Superstate of the Americas kept grabbing more power, which is exactly what’s happening across the Atlantic.

It decrees that any citizen of any European country can come and live and work in Britain — and that if they do, we must give them free health care and welfare support if they need it. Millions have done so. …it is moving closer and closer to becoming a single government for Europe, and indeed many of its key players — leaders such as Germany’s Angela Merkel and France’s François Hollande — have that as a clear goal. Britain has a small minority of the voting rights, and loses out almost every time.

Allister Heath adds more wisdom to the discussion.

He’s especially mystified by those who think the EU is a force for liberalization.

Bizarrely, given the EU’s appalling record, these folk see Brussels as the last guardian of enlightenment values; the only way to save the project, they believe, is rule by a transnational nomenklatura. …Remainians are petrified that the British public would…vote the wrong way: for protectionism, nationalisation, xenophobia and stupidity. We would…support idiotic, growth-destroying and socially unacceptable policies. Astonishingly, given the Continent’s collectivist history, such folk equate membership of the EU with free trade and Britain’s Leave camp with protectionism. It’s a breathtaking error of judgement… They cannot grasp that there are other, better ways of opening markets than from within the EU, and that in any case it is just about as far from a libertarian project as it is possible to imagine. …pro-EU Left and Right agree that the people are dangerous, that they must be contained and that, slowly but surely, entire areas of public policy should be hived off beyond the reach of the British electorate. The strategy is to impose top-down restraints and to subcontract decision-making to external bodies… European institutions are actually the antithesis of true liberalism.

Let’s end with some passages from another George Will column.

Michael Gove, secretary of justice and leader of the campaign for Brexit — Britain’s withdrawal from the E.U. — anticipates a “galvanizing, liberating, empowering moment of patriotic renewal.” …American conservatives would regard Britain’s withdrawal from the E.U. as the healthy rejection of political grandiosity. …If Britons vote to remain in the E.U., this might be the last important decision made at British ballot boxes because important decisions will increasingly be made in Brussels. The E.U.’s “democracy deficit” is…the point of such a state. …Under Europe’s administrative state, Gove says “interest groups are stronger than ever” and they prefer social stasis to the uncertainties of societies that welcome the creative destruction of those interests that thrive by rent-seeking. …most of binding law in Britain — estimates vary from 55 percent to 65 percent — arises not from the Parliament in Westminster but from the European Commission in Brussels. The E.U. has a flag no one salutes, an anthem no one sings, a president no one can name, a parliament that no one other than its members wants to have more power (which must be subtracted from national legislatures), a capital of coagulated bureaucracies that no one admires or controls, a currency that presupposes what neither does nor should exist (a European central government administering fiscal policy), and rules of fiscal behavior (limits on debt-to-gross domestic product ratios) that few if any members obey and none have been penalized for ignoring. …the 23rd of June can become Britain’s Fourth of July — a Declaration of Independence. If Britain rejects continuing complicity in the E.U. project — constructing a bland leviathan from surrendered national sovereignties — it will have…taken an off-ramp from the road to serfdom.

Well said.

If I lived in the United Kingdom, I would vote to leave the European Union.

Simply stated, the European project is controlled by statists and the one good thing it provides (free trade between members) is easily overwhelmed by the negative things it imposes (protectionism against outsiders, tax harmonization, horrible agriculture subsidies, bad fisheries policy, etc).

Moreover, the continent is demographically dying.

The bottom line is that the European Union is a sinking ship. This cartoon is a bit flamboyant, but it captures my overall sentiments.

If I had lots of money and was confident of the outcome, I would learn the words to this song and fly to London so I could sing in celebration on June 23rd.

Alas, just as I predicted the Scots wouldn’t vote for independence, I fear the scare campaign ultimately will succeed and Britons will vote to remain on the sinking ship of the European Union.

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Changing demographics is one of the most powerful arguments for genuine entitlement reform.

When programs such as Social Security and Medicare (and equivalent systems in other nations) were first created, there were lots of young people and comparatively few old people.

And so long as a “population pyramid” was the norm, reasonably sized welfare states were sustainable (though still not desirable because of the impact on labor supply, savings rates, tax policy, etc).

In most parts of the world, however, demographic profiles have changed. Because of longer life expectancy and falling birth rates, population pyramids are turning into population cylinders.

This is one of the reasons why there is a fiscal crisis in Southern European nations such as Greece. And there’s little reason for optimism since the budgetary outlook will get worse in those countries as their versions of baby-boom generations move into full retirement.

But while Southern Europe already has been hit, and while the long-run challenge in Northern European nations such as France has received a lot of attention, there’s been inadequate focus on the problem in Eastern Europe.

The fact that there’s a major problem surprises some people. After all, isn’t the welfare state smaller in these countries? Haven’t many of them adopted pro-growth reforms such as the flat tax? Isn’t Eastern Europe a success story considering that the region was enslaved by communism for many decades?

To some degree, the answer to those questions is yes. But there are two big challenges for the region.

First, while the fiscal burden of government may not be as high in some Eastern European countries as it is elsewhere on the continent (damning with faint praise), those nations tend to rank lower for other factors that determine overall economic freedom, such as regulation and the rule of law.

Looking at the most-recent edition of Economic Freedom of the World, there are nine Western European nations among the top 30 countries: Switzerland (#4), Ireland (#8), United Kingdom (#10), Finland (#19), Denmark (#22), Luxembourg (#27), Norway (#27), Germany (#29), and the Netherlands (#30).

For Eastern Europe, by contrast, the only representatives are Romania (#17), Lithuania (#19), and Estonia (#22).

Second, Eastern Europe has a giant demographic challenge.

Here’s what was recently reported by the Financial Times.

Eastern Europe’s population is shrinking like no other regional population in modern history. …a population drop throughout a whole region and over decades has never been observed in the world since the 1950s with the exception of…Eastern Europe over the last 25 consecutive years.

Here’s the chart that accompanied the article. It shows the population change over five-year periods, starting in 1955. Eastern Europe (circled in the lower right) is suffering a population hemorrhage.

By the way, it’s not like the trend is about to change.

If you look at global fertility data, these nations all rank near the bottom. And they also suffer from brain drain since a very smart person, even from fast-growing, low-tax Estonia, generally can enjoy more after-tax income by moving to an already-rich nation such as Switzerland or the United Kingdom.

So what’s the moral of the story? What lessons can be learned?

There are actually three answers, only two of which are practical.

  • First, Eastern European nations can somehow boost birthrates. But nobody knows how to coerce or bribe people to have more children.
  • Second, Eastern European nations can engage in more reform to improve overall economic liberty and thus boost growth rates.
  • Third, Eastern European nations can copy Hong Kong and Singapore (both very near the bottom for fertility) by setting up private retirement systems.

The second option obviously is good, and presumably would reduce – and perhaps ultimately reverse – the brain drain.

But the third option is the one that’s absolutely required.

The good news is that there’s been some movement in that direction. But the bad news is that reform has taken place only in some nations, and usually only partial privatization, and in some cases (like Poland and Hungary) the reforms have been reversed.

And even if full pension reform is adopted, there’s still the harder-to-solve issue of government-run healthcare.

Eastern Europe has a very grim future.

P.S. I’m a great fan of the reforms that have been adopted in some of the nations in Eastern Europe, but none of them are small-government jurisdictions. Yes, the welfare state in Eastern European countries is generally smaller than in Western European nations, but it’s worth noting that every Eastern European nation in the OECD (Czech Republic, Estonia, Hungary, Poland, Slovakia, and Slovenia) has a larger burden of government spending than the United States.

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