Archive for the ‘United Kingdom’ Category

One of the great insights of “public choice” is that politicians engage in self-serving behavior just like everyone else.

But there’s a profound difference between them and us. In the private economy, we can only make ourselves better off by providing value to others. In government, by contrast, politicians oftentimes make themselves better off by providing unearned benefits to various interest groups.

This elementary insight is a good starting point for those who want to understand how Washington (mal)functions.

And these behavioral insights don’t change when you cross national borders, which is why I periodically share examples of bizarre boondoggles as part of my series on “Great Moments in Foreign Government”. Here are some examples of prior editions.

Today, we have a special version of this series from the British Isles.

We’ll start with a story, from the U.K.-based Sunday Times, about a voluntary tax scheme in a rich part of London.

Westminster city council said it would be writing to 15,000 of its wealthiest homeowners asking them to make a voluntary donation on top of their council tax. The initiative comes amid warnings that a crisis in local government funding is likely to drive five councils into insolvency within the next 12 months, with 10 running out of money within two years. …The begging letters scheme, dubbed the “Westminster community contribution”, will see letters sent to all 15,000 band H properties, worth about £1m and above. Nickie Aiken, leader of Westminster council, said she had decided to tap the wealthy for donations because “they have asked me, ‘Why can’t we pay more council tax?’ We are giving people the option. It is an opportunity to invest in their neighbourhood.” …A total of 904 people replied.

My immediate reaction is that there are 904 nitwits in Westminster.

But, to be fair, it doesn’t say they responded by sending extra money to the local council. Maybe they scrawled obscenities on the notice and returned it, which would have been my preferred response.

But I’m guessing many of them did cough up some cash, which makes them more foolish than the taxpayers of Norway. And even more foolish than hypocritical leftists in the United States.

It’s also frustrating that there’s no data in the story on why local councils are feeling a budget pinch. I’m guessing that they’re in trouble because spending has climbed much faster than inflation (similar to what happened where I live in Fairfax County, Virginia). So why reward that overspending with additional payments?

Now let’s head across the Irish Sea.

The Irish Times has a story about how a program that supposedly was designed to help homeless people actually is lining the pockets of well-to-do property owners.

The Government’s homeless family hub solution is not only a short-term fix for a long-term crisis, it’s a shocking deal for taxpayers that benefits private operators. …doesn’t “hub” have a cosy ring to it? There will be a total of 18 family accommodation hubs in Dublin, nine of which include hotels and B&Bs already in use being “adapted”. …Let’s take the former Mater Dei site as a prime example. Dublin City Council (DCC) earmarked €4.5 million to refurbish the former college complex to house 50 families… Sources say the project is likely to substantially overrun due to “many extras”… The problem is, after ploughing millions into a magnificent revamp, the council must hand the property back to the archdiocese in less than three years. …This is mirrored in every one of the family hubs, the longest lease being just five years. It starts to look like an incredible deal for the private owners. They get back a terrifically refurbished, furnished and equipped building, paid for by taxpayers, that can be rented out for profit. Everything goes back to the owner… On top of the deal of a lifetime, DCC is paying rent on the site, a figure it described as “nominal” but not nominal enough to make public.

Cronies getting rich(er) thanks to programs that supposedly were designed to help the poor? As Inspector Renault said in Casablanca, “I’m shocked, shocked”!

Probably as shocked as he was to learn that Obamacare cost estimates were wrong and that childcare subsidies led to higher costs in the U.K.

Sadly, insiders always figure out how to line their pockets as government gets bigger. It’s a feature, not a bug.

Last but not least, let’s travel to Scotland.

In the U.K.-based Times, we learn that the government is so incompetent that it has a hard time ripping off European taxpayers for farm subsidies.

Scottish ministers have appealed to Europe for help in heading off a looming crisis in farm subsidy payments for the second year running. Discussions have taken place with the European Commission to set up “contingency plans” in case Scottish farmers once again missed out on their payouts. An extension to the end-of-the-month deadline for processing payments is vital if the Scottish government is to avoid being hit with millions of pounds in fines. …The first minister is likely to be asked what her government is doing to make sure farmers get their payments on time. Scottish ministers came in for extensive criticism last year after an IT failure delayed European agriculture subsidy payments to thousands of farmers.

What makes this story extra depressing is that the supposed Conservative opposition doesn’t question the wisdom of handouts.

…the Scottish government had asked for a deadline extension earlier this week, prompting anger from opposition politicians. Ruth Davidson, the Scottish Conservative leader,…added: “It’s a disgrace that so many farmers are still waiting for payments, and it looks like, for the second year running, the SNP is going to have to go cap-in-hand to Europe and ask for special treatment.”

And it goes without saying that the welfare recipients…oops, I mean farmers…are anxious to know when their handouts will arrive.

Scott Walker, the chief executive of the National Farmers’ Union in Scotland, said: “Everyone who is due a payment simply wants to know when it will arrive and that is a reasonable demand.”


One of the reasons I was sympathetic to Scottish independence is that the entitlement mindset in the country may have been disrupted if they lost subsidies from the central government in London. Redistribution isn’t as fun when you’re taking money from your own pockets.

However, that wouldn’t have put an end to handouts from the statists in Brussels, assuming that Scotland would have been part of the European Union. So I’ll never be without things to write about. That’s good for me, bad for Europe.

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If I was a citizen of the United Kingdom, I would have voted to leave the European Union for the simple reason that even a rickety lifeboat is better than a slowly sinking ship.

More specifically, demographic changes and statist policies are a crippling combination for continental Europe, almost surely guaranteeing a grim future, and British voters wisely decided to escape. Indeed, I listed Brexit as one of the best things that happened in 2016.

This doesn’t mean the U.K. has ideal policies, but Brexit was a good idea precisely because politicians in London will now have more leeway and incentive to liberalize their economy.

Though I wonder whether Prime Minister May and the bumbling Tories will take advantage of the situation.

The Financial Times has a report that captures the real issue driving Brexit discussions. Simply stated, the European Union is scared that an independent U.K. will become more market-friendly and thus put competitive pressure on E.U. welfare states.

The EU is threatening sanctions to stop Britain undercutting the continent’s economy after Brexit…the bloc wants unprecedented safeguards after the UK leaves to preserve a “level playing field” and counter the “clear risks” of Britain slashing taxes or relaxing regulation. Brussels…wants…to enforce restrictions on taxation…and employment rights. …the EU negotiators highlight the risk of Britain ‘undermining Europe as an area of high social protection’…the UK is “likely to use tax to gain competitiveness” and note it is already a low-tax economy with a “large number of offshore entities”. …On employment and environmental standards, the EU negotiators highlight the risk of Britain “undermining Europe as an area of high social protection”.

In case you don’t have a handy statism-to-English dictionary handy, you need to realize that “level playing field” means harmonizing taxes and regulations at very high level.

Moreover, “employment rights” means regulations that discourage hiring by making it very difficult for companies to get rid of workers.

And “high social protection” basically means a pervasive and suffocating welfare state.

To plagiarize from the story’s headline, these are all policies that belong in a bonfire.

And the prospect of that happening explains why the politicians and bureaucrats in continental Europe are very worried.

…senior EU diplomats, however, worry that the political expectations go beyond what it is possible to enforce or agree. “This is our big weakness,” said one. Theresa May, the British prime minister, last year warned the EU against a “punitive” Brexit deal, saying Britain would fight back by setting “the competitive tax rates and the policies that would attract the world’s best companies and biggest investors”.

Sadly, Theresa May doesn’t seem very serious about taking advantage of Brexit. Instead, she’s negotiating like she has the weak hand.

Instead, she has the ultimate trump card of a “hard Brexit.” Here are four reasons why she’s in a very strong position.

First, the U.K. has a more vibrant economy. In the latest estimates from the Fraser Institute’s Economic Freedom of the World, the United Kingdom is #6.

And how does that compare to the other major economies of Europe?

Well, Germany is #23, Spain is #36, France is #52, and Italy is #54.

So it’s easy to understand why the European Union is extremely agitated about the United Kingdom becoming even more market oriented.

Indeed, the only area where the U.K. is weak is “size of government.” So if Brexit led the Tories to lower tax rates and shrink the burden of government spending, it would put enormous pressure on the uncompetitive welfare states on the other side of the English Channel.

Second, the European Union is horrified about the prospect of losing membership funds from the United Kingdom. That’s why there’s been so much talk (the so-called divorce settlement) of ongoing payments from the U.K. to subsidize the army of bureaucrats in Brussels. A “hard Brexit” worries British multinational companies, but it worries European bureaucrats even more.

Third, the European Union has very few options to punitively respond because existing trade rules (under the World Trade Organization) are the fallback option if there’s no deal. In other words, any protectionist schemes (the “sanctions” discussed in the FT article) from Brussels surely would get rejected.

Fourth, European politicians may hate the idea of an independent, market-oriented United Kingdom, but the business community in the various nations of continental Europe will use its lobbying power to fight against self-destructive protectionist policies and other punitive measures being considered by the spiteful political class.

P.S. Here’s a Brexit version of the Bayeux Tapestry that probably won’t be funny unless one is familiar with the ins and outs of British politics.

P.P.S. Here are some easier-to-understand versions of Brexit humor.

P.P.P.S. And here’s some mockery of senior politicians of the European Commission.

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I realize that we’re in the midst of an important tax battle in Washington and that I should probably be writing about likely amendments to the Senate tax bill.

But long-time readers know that I’m bizarrely preoccupied by international tax issues (I would argue for very good reasons since global tax competition is a way to discipline greedy politicians and because I want the power of governments to be constrained by national borders).

So I can’t resist commenting on a Washington Post story about the tax implications of the upcoming wedding of Prince Harry and Meghan Markle.

It may seem like a modern fairy tale, but the upcoming wedding of Britain’s Prince Harry to American actress Meghan Markle will come with some mundane hurdles. Perhaps most inconveniently for the British royals, this transatlantic partnership could end up involving the United States’ Internal Revenue Service.

Most readers probably wonder how and why the IRS will be involved. After all, Ms. Markle no longer will be living in the United States or earning income in the United States after she marries the Prince.

But here’s the bad news (for the millions of Americans who live overseas, not just Ms. Markle): The United States imposes “worldwide taxation,” which means the IRS claims the right to tax all income earned by citizens, even if those citizens live overseas and earn all their income outside of America.

…there already has been widespread speculation that the union of Prince Harry and Markle eventually could result in some British royal children wielding American passports. But there’s a big obstacle in the way: American tax laws. …The United States’ citizenship-based taxation system is unusual: Only Eritrea has a similar system. It’s a relic of the Civil War and the Revenue Act of 1862, which called for the taxing of U.S. citizens abroad.

Here’s what this means for the royal family.

Markle’s American citizenship could open up the secretive finances of the royal family to outside scrutiny. If she remains a U.S. citizen, Markle will have to file her taxes to the IRS every year. And if she has more than $300,000 in assets at any point during the tax year — a likely scenario, given her successful acting career and her future husband — she will be expected to annually file a document called Form 8938 that will reveal the detail of these assets, which could include foreign trusts. …Although Markle’s tax information would not become public once sent to the United States, it would leave the royal family open not only to IRS review but also the risk that the information could leak, said Dianne Mehany, a tax lawyer at Caplin & Drysdale.

So what’s the solution if the royal family wants to avoid the greedy and intrusive IRS?

Ms. Markle will need to copy thousands of other overseas Americans and renounce her citizenship.

…the royal family employs some of the country’s best tax consultants. …”My guess is that she’ll be pressured by the Royal family to renounce [her U.S. citizenship], even if she’d rather not,” Spiro added. In many ways, that solution may be the simplest. And if Markle does give up her citizenship, she won’t be alone. Treasury Department data show that 5,411 people chose to expatriate in 2016 — a 26 percent year-over-year increase and potentially a historic high — and experts expect that number to keep rising because of the increasing tax burdens placed on U.S. citizens living abroad.

And it’s embarrassing to acknowledge that the United States has a very barbaric practice (used by evil regimes such as Nazi Germany and Soviet Russia) of extorting funds from Americas who are forced to give up citizenship.

She…would be subject to a potentially considerable exit tax.

This is adding injury to injury.

But Ms. Markle can be comforted by the fact that she’s not an outlier. Because of America’s bad worldwide tax regime (and especially because of FATCA, which makes enforcement of that bad system especially painful), an ever-growing number of overseas Americans have been forced to give up their citizenship.

Maybe as a wedding present to Prince Harry, American politicians can junk America’s terrible worldwide tax regime. That doesn’t require dramatic change, but why not fix a bunch of problems at once? I’ll simply point out that the flat tax is based on the common-sense approach of territorial taxation (governments only tax economic activity inside national borders).

P.S. This issue also impacts America’s Olympic athletes.

P.P.S. And Santa Claus as well!

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Since I’m in London for a couple of speeches, I’ve taken advantage of this opportunity to make sure I’m up to speed on Brexit.

Regular readers may recall that I supported the U.K.’s decision to leave the European Union. Simply stated, the European Union is a slowly sinking ship. Getting in a lifeboat doesn’t guarantee a good outcome, I noted, but at least there’s hope.

The European Union’s governmental manifestations…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.

Others reached the same conclusion.

“Black Swan” author Nassim Nicholas Taleb…told CNBC’s “Power Lunch” the EU has become a “metastatic and rather incompetent bureaucracy” that is too intrusive. “The way they’ve been building it top down from Brussels is doomed to fail. This is 2016. They are still thinking 1950 economics,” said Taleb, who is also the author of “Antifragile” and is an advisor to Universa Investments. Taleb has warned about an EU breakup for some time, calling it a horrible, stupid project back in 2012.

That being said, there is a lot of angst in the U.K. about what will happen during the divorce process, in part because of the less-than-stellar performance of the Tory leadership.

There are three things, however, that British politicians need to remember.

First, the EU bureaucrats are terrified at the prospect of losing $10 billion of annual payments from the U.K., which is why they are desperately trying to convince politicians in London to cough up a big pile of money as part of a “divorce” settlement.

And “desperately” is probably an understatement.

The UK…contributions to the EU do come to over €10 billion a year. That is a substantial fiscal hole for the European Commission to plug… The Commission would prefer not to reduce expenditure since the structural funds and agricultural subsidies it distributes help to justify the EU’s existence. …it is not surprising that the Brexit divorce bill has become a sticking point in the negotiations. If the amount is big enough, it could tide the EU over for a few years. In Brussels, a problem kicked down the road is treated as a problem solved. This gives the British some leverage because it is most unlikely that the Commission will have lined up any new sources of funding, or agreed what it can cut, before March 29, 2019, when negotiations have to be completed. With no deal, the EU might end up with nothing at all.

Second, European politicians are terrified that the U.K., which already has the world’s 10th-freest economy, will slash tax rates and become even more competitive in a post-Brexit world.

If you don’t believe me, maybe you’ll believe European officials who say the same thing.

European leaders will insist that the UK rules out tax dumping as part of any trade deal struck during Brexit negotiations… Matthias Machnig, the German deputy economy minister, called for a “reasonable framework” in tax and regulation, and warning “a race to the bottom in tax and regulation matters would make trade relations difficult”. Donald Tusk, the European Council president, also warned this morning that a deal must “…encompass safeguards against unfair competitive advantages through, inter alia, fiscal, social and environmental dumping”. The fear is that unless the trade deal which binds the UK into the European standards on tax, competition and state aid the UK will lead a regulatory “race to the bottom”.

Third, failure to reach a deal (also know as a “hard Brexit”) isn’t the end of the world. It’s not even a bad outcome. A hard Brexit simply means that the U.K. trades with Europe under the default rules of the World Trade Organization. That’s not complete, unfettered free trade, but it means only modest trade barriers. And since Britain trades quite successfully with the rest of the world under those rules, there’s no reason to fear a collapse of trade with Europe.

Moreover, don’t forget that many industries in Europe will pressure their politicians to continue free trade because they benefit from sales to U.K. consumers.

Around one in seven German cars is exported to the UK. Around 950,000 newly registered vehicles in the UK last year were made in Germany. As many as 60,000 automotive jobs in Germany are dependent on exports to the UK. Deloitte have explored the potential effect of a “tariff war” on the industry. …German politicians are realising this. The Bavarian Minister for Economic Affairs, Ilse Aigner, has said that “Great Britain is one of the most important trading partners in Bavaria. We must do everything we can to eliminate the uncertainties that have arisen.” …The Minister is correct. …A comprehensive free trade agreement is not only vital, but should be easy to achieve. In other words, spiteful protectionism from the Commission would accomplish nothing but impoverishing all sides.

The bottom line is that the U.K. has plenty of negotiating power to get a good outcome.

So what does this mean? How should British politicians handle negotiations, considering that they would like free trade with Europe?

Part of the answer is diplomatic skill. British officials should quietly inform their counterparts that they understand a hard Brexit isn’t a bad outcome. And they should gently remind EU officials that a hard Brexit almost certainly guarantees a more aggressive agenda of tax cuts and deregulation.

But remember that it’s in the interest of U.K. policymakers to adopt good policy regardless of what deal (if any) is made with the European bureaucrats.

The first thing that should happen is for British politicians to adopt a low-tax model based on Singapore. Some experts in the U.K. are explicitly advocating this approach.

I call this the Singapore effect. When Singapore separated from the Malaysian Federation in 1965, it apparently faced a grim future. But the realisation that no one was going to do it any favours acted as a spur to effective government – with spectacular results. We could do the same. We need a strategy that lays out the path to reductions in corporation tax, lower personal tax.

Marian Tupy of the Cato Institute explains why copying Singapore would be a very good idea.

Why Singapore? Let’s look at a couple of statistics. In 1950, GDP per capita adjusted for inflation and purchasing power parity was $5,689.91 in Singapore. It was $11,920.58 in the U.K. Average income in Singapore, in other words, amounted to 48 percent of that in the U.K. In 2016, income in Singapore was $82,168.33 and $42,287.17 in the U.K. Put differently, Singaporeans earned 94 percent more than the British. During the intervening years, Singaporean incomes rose by 1,344 percent, while British incomes rose by 256 percent. …the “threat” of Singaporean tax rates and regulatory framework ought not to be a mere negotiating strategy for the British government vis-a-vis the EU. It ought to be a goal of the British decision makers—regardless of what the EU decides!

Here’s a chart from Marian’s article.

Or the U.K. could copy Hong Kong, as a Telegraph columnist suggests.

Our political leaders still seem to lack a vision of what Britain can achieve outside the EU… Perhaps they are lacking in inspiration. If so, …Hong Kong…is now one of the richest places in the world, with income per capita 40 per cent higher than Britain’s.

And much of the credit belongs to John Cowperthwaite, who unleashed great prosperity in Hong Kong by limiting the role of government.

Faced with…the approach being taken in much of the West: deficit financing, industrial planning, state ownership of industry, universal welfare and higher taxation. How much of this did the British civil servant think worth transposing to Hong Kong? Virtually nothing. He had a simple alternative: government spending depended on government revenues, and this in turn was determined by the strength of the economy. Therefore, the vital task for government was to facilitate growth. …He believed in the freest possible flow of goods and capital. He kept taxes low in order that savings could be reinvested in businesses to boost growth. …Cowperthwaite’s view was that higher government spending today destroys the growth of tomorrow. Indeed, over the last 70 years Hong Kong has limited the size of the state to below 20 per cent of GDP (in Britain it is over 40 per cent) and growth has been substantially faster than in the UK. He made a moral case for limiting the size of government, too.

In other words, the United Kingdom should seek comprehensive reforms to reduce the burden of government.

That includes obvious choices like lower tax rates and less red tape. And it also means taking advantage of Brexit to implement other pro-market reforms.

One example is that the U.K. will now be able to assert control over territorial waters. That should be immediately followed by the enactment of a property rights-based system for fisheries. It appears that Scottish fishermen already are agitating for this outcome.

The Scottish Fishermen’s Federation says the UK’s exit from the European Union will boost jobs in the sector, reports The Guardian. It’s chief executive Bertie Armstrong said the exit will give them “the ability to recover proper, sustainable, rational stewardship through our own exclusive economic zone for fisheries”.

Let’s close with some Brexit-related humor.

I already shared some examples last year, and we can augment that collection with this video. It’s more about USexit, but there’s some Brexit material as well.

And here’s some more satire, albeit unintentional.

The President of the European Commission is so irked by Trump’s support for Brexit that he is threatening to campaign for secession in the United States.

In an extraordinary speech the EU Commission president said he would push for Ohio and Texas to split from the rest of America if the Republican president does not change his tune and become more supportive of the EU. …A spokesman for the bloc later said that the remarks were not meant to be taken literally, but also tellingly did not try to pass them off as humorous and insisted the EU chief was making a serious comparison.

I have no idea why Juncker picked Ohio and Texas, but I can state with full certainty that zero people in either state will care with a European bureaucrat thinks.

And speaking of accidental satire, this tweet captures the mindset of the critics who wanted to pretend that nativism was the only reason people were supporting Brexit.

Last but not least, we have another example of unintentional humor. The pro-tax bureaucrats at the OECD are trying to convince U.K. lawmakers that tax cuts are a bad idea.

The head of tax at the Organization for Economic Co-operation and Development, which advises developed nations on policy, said the UK could use its freedom from EU rules to slash corporate tax but the political price would be high. …”A further step in that direction would really turn the UK into a tax haven type of economy,” he said, adding that there were practical and domestic political barriers to doing this. …The UK is already in the process of cutting its corporate tax rate to 17 percent.

Though maybe I shouldn’t list this as unintentional humor. Maybe some British politicians will be deterred simply because some tax-free bureaucrats in Paris expressed disapproval. If so, the joke will be on British workers who get lower wages as a result of foregone investment.

By the way, here’s a reminder, by Diana Furchtgott-Roth in the Washington Examiner, of why Brexit was the right choice.

As we celebrate Independence Day on July 4, we can send a cheer across the pond to the British, who declared independence from the European Union on June 23. For the British, that means no more tax and regulatory harmonization without representation. Laws passed by Parliament will no longer have to be EU-compatible. It even means they will be able to keep their high-efficiency kettles, toasters, hair dryers and vacuum cleaners. As just one example of the absurdity of EU regulation, vacuum cleaners with over 1600 watts were banned by Brussels in 2014, and those over 900 watts are scheduled to be phased out in 2017. Brussels bureaucrats say that these vacuum cleaners use too much energy. No matter that the additional energy cost of a 2300-watt vacuum cleaner compared with a 1600-watt model is less than $20 a year, that it takes more time to vacuum with a low-energy model, and, most important, people should be able to choose for themselves how they want to spend their time and money. I, for one, prefer less time housecleaning.

Amen. As much as I despise the busybodies in Washington for subjecting me to inferior light bulbs, substandard toiletssecond-rate dishwashersweak-flow showerheads, and inadequate washing machines, I would be far more upset if those nanny-state policies were being imposed by some unaccountable international bureaucracy.

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I wrote yesterday about a very depressing development in the United Kingdom. Politicians in that country – including some supposed fiscal conservatives – are contemplating a big expansion in the burden of government spending in order to give pay hikes to the bureaucracy.

What makes this so unfortunate is that the country has been making fiscal progress. Ever since 2010, government spending has grown by an average of 1.6 percent annually. And since the private economy has expanded at a faster pace, this period of restraint has satisfied my golden rule. In other words, the public sector – though still very large – is now a smaller burden on the private sector.

This progress could be quickly reversed, though, with a new spending binge. And it would be especially foolish to throw in the towel just to give more money to government employees. Just like in the U.S., bureaucrats already are overcompensated compared to their counterparts in the productive sector of the economy.

Let’s take a closer look at whether U.K. policymakers should end “austerity” and expand the relative burden of government spending.

The Centre for Policy Studies in London has examined the issue, and this new research from CPS debunks the notion that there should be large increases in bureaucrat compensation.

But since we covered that topic yesterday, let’s focus instead on what CPS discovered when reviewing the impact of spending restraint on various economic aggregates.

…when examining OECD countries that were left with a large budget deficit in 2010 (those countries with a deficit of over 5% of GDP in 2010), it appears that there is a strong correlation between those countries that cut spending by a higher degree, on average, and countries which achieved a larger reduction in deficit, higher average growth rates, a larger fall in proportionate unemployment and marginally better wage growth (see Figures 5, 6, 7 and 8). Of course, correlation does not necessarily mean causation. However, this provides strong evidence that there is no link between austerity and lower growth, higher unemployment and weaker wage growth.

Let’s look at the charts referenced in the excerpt.

We’ll start with Figure 5, which looks at relationship between spending restraint and deficit reduction. Nobody should be surprised to see that the symptom of red ink shrinks when there’s a reduction in the underlying disease of too much government spending.

I think the most important data is contained in Figure 6, which maps the relationship between economic growth and spending restraint. As you can see, a lower burden of government spending is associated with better economic performance.

There’s also a connection between smaller government and lower joblessness, as shown in Figure 7.

Last but not least, Figure 8 shows the positive relationship between lower spending and higher wages.

As explained in the CPS report, correlation is not causation. But since these results are in sync with research from academic scholars (and even research from left-leaning bureaucracies such as the IMF, World Bank, and OECD), the only prudent conclusion is that the U.K. should not give up on fiscal responsibility.

And perhaps the real lesson is that a constitutional spending cap should be enacted whenever a consensus for good policy materializes. That way, there’s a much lower risk of backsliding when politicians get weak-kneed.

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One of my favorite charts shows how nations achieve great results when they engage in multi-year periods of spending restraint.

The most important benefit is that the burden of government shrinks relative to the private sector, but it’s also worth noting that the symptom of red ink begins to disappear when there is a serious effort to deal with the underlying disease of excessive spending.

But sharing this chart also a bittersweet experience since it shows – in almost all cases – that it is just a matter of time before politicians go back to fiscal profligacy.

This is why I’m a huge fan of a permanent spending cap, ideally as part of a nation’s constitution.  Jurisdictions that have adopted this approach, such as Hong Kong and Switzerland, have very strong long-run fiscal performance rather than just temporary blips of good policy.

At the risk of understatement, it’s increasingly obvious that the United Kingdom needs this kind of permanent structural reform.

As you can see from this chart I shared back in February, there’s been some decent spending restraint in that country ever since 2010.

Let’s augment those numbers. I pulled together the data on government spending from the OECD, the IMF, and the UK government. They all have slightly different methodologies with slightly different numbers, but they all tell the same story.

Ever since 2010, the burden of government spending has expanded by an average of about 1.6 percent annually. Spending is still growing, needless to say, but the private sector has been growing faster, so British policymakers have been satisfying my golden rule.

And because the productive sector of the economy has grown faster than government, this means that relative burden of spending has declined. Which is exactly what we see in this chart.

That’s the good news.

The bad news is that politicians are tired of being responsible. They are salivating at the prospect of a new spending binge. Even Tory politicians now want to play Santa with other people’s money.

The U.K.-based Times has some of the unpleasant details.

Ministers are pushing to delay or abandon a series of tax cuts to fund an increase in public sector pay, The Times has learnt. Philip Hammond, the chancellor, is being urged to scrap commitments to reduce corporation tax and raise the thresholds for the personal allowance and the 40 per cent income tax rate. …At a meeting of the political cabinet last week, Jeremy Hunt, the health secretary, Justine Greening, the education secretary, and Sir Patrick McLoughlin, the party chairman, are understood to have called for more money for public sector workers.

Opening the spending spigot would be a terrible mistake. Especially to finance higher pay for bureaucrats.

The Wall Street Journal recently opined on this new threat to fiscal responsibility on the other side of the Atlantic.

…the Prime Minister’s Tories now want to abandon their claim to fiscal discipline. Rather than blame a feckless campaign, wobbly Tory leaders have decided that voters are exhausted with “austerity” and government employees are happy to step in with spending demands. Those government workers and their patrons in the opposition Labour Party are demanding an end to the 1% annual pay-rise cap imposed by former Prime Minister David Cameron and Chancellor George Osborne in 2013 after several years of pay freezes.

Even worse, they want to cancel tax cuts and/or impose tax hikes to finance more money for the bureaucracy.

…cabinet grandees Boris Johnson and Michael Gove…seem willing to pay for it by reducing scheduled corporate tax-rate cuts or increasing individual taxes by reducing the threshold at which the second-highest 40% rate applies.

You won’t be surprised to learn that British bureaucrats (just like their American cousins) are not underpaid compared to workers in the economy’s productive sector.

Britain’s government workers aren’t suffering from a pay crisis compared to their peers in the private (that is, productive) economy. For most of the period since 2000, average weekly nominal earnings for public employees have exceeded the private average, according to the Office for National Statistics. And that excludes government pensions that are far more generous than what most private employees enjoy. Government workers were also shielded from the worst of the post-2008 downturn. The 1% cap amounted to steady nominal wage growth while private wages fell sharply…. Government workers were also spared the worst of the job cuts private employers imposed. …The 1% nominal pay cap mainly has given private workers an opportunity to catch up to government pay. …Voters are frustrated by an economic recovery that has largely failed to deliver inflation-adjusted earnings growth. But the solution isn’t to further stifle wage growth in the private economy by raising taxes to benefit public employees.

Tim Worstall also explains that the bureaucracy is not suffering from a lack of compensation.

We’ve just had a massive recession and thus we are indeed worse off. That’s what a recession is all about. So the question should be: are we all sharing that pain? We are not. Public sector pay has fallen by less than private. The people paying the tax have suffered more than those who eat the tax – hardly a good argument in favour of tax-eater pay rises. …It is also true, as the IFS points out, that public sector pay rose substantially in the 2000 to 2005 period. Pay rose more and then pay fell less. I simply can’t see an argument for a public sector pay rise or the lifting of that cap here.

My colleague at the Cato Institute, Ryan Bourne, is a citizen of the United Kingdom, and he points out that one of the problems is that bureaucrat pay levels are determined nationally, which makes no sense when the cost of living varies widely across the country.

….they should phase out national pay bargaining where it remains in the public sector. Previous research by Allison Wolf has shown the high cost of having national pay scales and bargaining. …Poorer regions…suffer as very high pay relative to the private sector crowds out private sector growth.

Ryan explains that Sweden successfully adopted this reform.

Sweden shows the solution. There, collective bargaining was entirely replaced by individual contracts between staff and their local public sector employer, with little fuss. If applied here, managers would then have genuine flexibility in the creation of new posts. It would liberate them to set pay to reflect more accurately local conditions, while varying wages to fulfil difficult positions.

Of course, the ideal situation would be genuine federalism, with local communities raising their own funds and then deciding how lavishly to compensate the bureaucrats they hire. The U.K. actually took a baby step in that direction years ago by giving greater autonomy to Scotland.

I’ll close with a rather depressing observation. It was only two months ago that I suggested Tories might be poised to make big policy improvements in the United Kingdom. Now it appears that they’ll be competing with the Labour Party on how to spend other people’s money. The great Margaret Thatcher is probably spinning in her grave.

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Writing about the sub-par single-payer healthcare system in the United Kingdom, Paul Krugman infamously claimed that,“In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.”

I’ve pointed out that there are plenty of “scare stories” about the National Health Service that are completely true. And completely scary.

But don’t take my word for it.

Just click hereherehereherehereherehereherehere, herehereherehereherehere, here, or here if you want examples.

To be fair, there surely are horror stories from every health care system. Humans are imperfect, after all.

But I suspect shoddy care is more common when healthcare providers get a salary from the government. Under such an arrangement, patients are a burden rather than a source of revenue.

Set that aside, however, because there’s a feature of the U.K.’s single-payer system that is reprehensible and it has nothing to do with the quality (or lack thereof) of care.

The UK-based Daily Mail reports on this very disturbing case.

The parents of terminally-ill baby Charlie Gard are ‘utterly distraught’ and facing fresh heartbreak after losing their final appeal in the European Court of Human Rights. Chris Gard, 32, and Connie Yates, 31, wanted to take their 10-month-old son – who suffers from a rare genetic condition and has brain damage – to the US to undergo a therapy trial. …the couple, from Bedfont, west London, raised almost £1.4million so they could take their son to America but a series of courts ruled in favour of the British doctors. …the ECHR rejected a last-ditch plea and their ‘final’ decision means the baby’s life support machine will be switched off. …It comes after a High Court judge in April ruled against a trip to America and in favour of Great Ormond Street doctors. …Specialists in the US have offered a therapy called nucleoside. …barrister Richard Gordon QC, who leads Charlie’s parents’ legal team, …said parents should be free to make decisions about their children’s treatment unless any proposal poses a risk of significant harm. …Charlie’s parents have raised nearly £1.4million to pay for therapy in America.

Ian Tuttle of National Review explains what’s really at stake in this case.

Any day now, they’ll kill Charlie Gard. …Charlie’s parents have raised enough money from private donations to fund the experimental treatment, but the court decision prohibits his removal to the U.S. …successive courts in the United Kingdom and in Europe simultaneously found that Connie Yates and Chris Gard had devoted themselves unhesitatingly to their son’s welfare for ten months, and also that Yates and Gard could not be trusted to act in their son’s best interests. …pertinent to this case, under what circumstances should the tightest bonds of affection — those between parent and child — be subordinated to the judgment of the state?

The part that astounds me (in a very bad way) is that the courts won’t allow the parents to bring their son to the United States.

Their not asking or expecting the taxpayers to pick up the cost. They’ve raised money to cover the experimental treatment. Yet the government won’t let them try to save their son’s life.

Even if the doctors are right and the experimental treatment fails, why shouldn’t the parents be allowed to do the medical equivalent of throwing a Hail Mary at the end of a football game?

I can’t even imagine what the parents must be thinking. If some government official said I had to allow one of my kids to die and that I didn’t have the right to try anything and everything to avert that outcome, I don’t even want to think of what I might do.

I used to think policies such as asset forfeiture or IRS abuses were the worst form of government thuggery. But

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