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Archive for the ‘Welfare State’ Category

Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

Today, we’re going to peruse his writings on Denmark.

Here’s some of what he wrote earlier this month.

Denmark can teach us…about the possibilities of creating a decent society. …Denmark, where tax receipts are 46 percent of GDP compared with 26 percent in the U.S., is arguably the most social-democratic country in the world. According to conservative doctrine, the combination of high taxes and aid to “takers” must really destroy incentives both to create jobs and to take them in any case. …what Denmark shows is that you can run a welfare state far more generous than we do – beyond the wildest dreams of U.S. progressives – and still have a highly successful economy. Indeed, while GDP per capita in Denmark is lower than in the U.S. – basically because of shorter work hours.

And here’s what he wrote a couple of days ago.

American politics has been dominated by a crusade against big government; Denmark has embraced an expansive government role, with public spending more than half of G.D.P. American politicians fear talk about redistribution of income from the rich to the less well-off; Denmark engages in such redistribution on a scale unimaginable here. …Conservative ideology says that Denmark’s policy choices should be disastrous, that grass should be growing in the streets of Copenhagen. …But if Denmark is a hellhole, it’s doing a very good job of hiding that fact: I was just there, and it looks awfully prosperous. …The simple fact is that life is better for most Danes than it is for their U.S. counterparts.

Interestingly, Krugman acknowledges that Denmark isn’t really socialist. Instead, it simply has a big welfare state.

But is Denmark socialist? …Denmark doesn’t at all fit the classic definition of socialism, which involves government ownership of the means of production. It is, instead, social-democratic: a market economy where the downsides of capitalism are mitigated by government action, including a very strong social safety net. …The simple fact is that there is far more misery in America than there needs to be. Every other advanced country has universal health care and a much stronger social safety net than we do.

He thinks that is a good thing, of course, and was making the same argument (using the same headline) in 2015.

…the Danes get a lot of things right, and in so doing refute just about everything U.S. conservatives say about economics. …Denmark maintains a welfare state — a set of government programs designed to provide economic security — that is beyond the wildest dreams of American liberals. …working-age families receive more than three times as much aid, as a share of G.D.P., as their U.S. counterparts. To pay for these programs, Denmark collects a lot of taxes. …Overall, Denmark’s tax take is almost half of national income, compared with 25 percent in the United States. …It’s hard to imagine a better refutation of anti-tax, anti-government economic doctrine, which insists that a system like Denmark’s would be completely unworkable.

As far as I can tell, all his numbers about Denmark are accurate, but his analysis is wrong.

He wants readers to believe that the lesson from Denmark is that there are no adverse economic consequences when nations impose a big welfare state and high taxes.

But that’s not what Danish economic history tells us. As with other Nordic nations, Denmark became a rich nation when government was relatively small and taxes were modest.

And we know from historical data that economic performance significantly weakened after the fiscal burden of government was increased.

Moreover, lawmakers are now trying to restrain government spending.

The first thing to realize is that Denmark, as are the other Nordic countries, quite free markets, apart from their welfare state transfers and high government consumption. They tend to get rather high rankings on measures of the most free economies in the World. …Protection of property rights and the integrity of the legal system are very high by international standards, as is the soundness of the monetary system… Denmark has a long tradition for free trade… Credit markets are among the less regulated internationally. During the recent financial crisis, tax payers did not have to subsidize banks, and some banks were allowed to fail. The Danish labor market is very flexible: There is no legislated minimum wage, and there are few restrictions on hiring and firing.

Here’s the part that is a must-read.

Denmark did not become a rich country recently. …Danish per capita GDP relative to other countries reached a maximum 40-60 years ago… Denmark caught up to and overtook “old Europe” in the fifties, while it narrowed its gap to the US and other Western offsprings until the early 1970s, when the process of catching up came to a hold. …At the time Denmark became rich relative to the rest of the World, it was not a welfare state. In fact, Denmark has historically been a low tax country by international standards. Until the 1960s, the Danish tax revenue to GDP ratio was at the same level as the US, and lower than the British.

Unfortunately, policy veered in the wrong direction in the late 1960s, with very adverse consequences.

The sharp divergence in the Danish tax level really occurred in the second half of the 1960s, when first a left wing coalition government and then a right wing one increased the tax to GDP ratio by some ten percentage points. …government spending was to a large extent driven by increases in tax revenue stemming from the introduction of VAT and withholding taxes on wage income. …the welfare state attracted new clients and new programs were added, the economic crisis lead to increasing unemployment… By the early 1980s the economy was in very bad shape, with high unemployment, an inflationary deflation spiral, a huge and widening government deficit.

I can’t help but call your attention to Otto’s observation about how the VAT enabled a far larger burden of government.

But let’s not get sidetracked.

This chart shows how the tax burden in Denmark diverged from the United States.

So what’s the bottom line?

Denmark first became rich, and then introduced the programs, which make up the welfare state. The huge increase in government spending has been accompanied by deep structural problems, which has made it necessary to reform the Danish economy and welfare state ever since. It can hardly be claimed that introducing the welfare state made Denmark rich; rather it was the other way around. Denmark first became rich, and then authorities began to redistribute some of the wealth.

Amen. I made the same point back in 2011.

Writing for PJ Media, Tyler O’Neil reviews the good and bad in Denmark and also echoes Otto’s analysis.

A deeper look at the history and current affairs of Denmark and the surrounding countries tells a different story, however. These countries’ benefits arguably spring from their free-market pasts, not their brief dalliance with big government. …During the early 1900s and following the Great Depression, Scandinavia’s small government and free markets fostered a culture of hard work that paid huge dividends in terms of prosperity.

Unfortunately, starting about 50 years ago, Denmark (like many other nations in the region) adopted an expensive welfare state. With bad results.

…the 1960s – 1990s expansion of welfare states actually held the Nordic countries back. After their experiment with socialistic welfare states, “Nordic citizens now have unusually high levels of sickness absence (despite being healthy societies), high youth unemployment and a poor record for integrating migrants into the labour force,” Sanandaji explains. Big government has weakened the strong culture which enabled welfare states in the first place… In 2013, roughly 240,000 people — nine percent of the potential work force — were receiving disability checks, and about 33,500 of them were under 40.

I fully agree. Denmark’s welfare state has created a problem. Simply stated, there are too many people who depend on government compared to the number of taxpayers who finance government.

I sometimes use the example of how many people are pulling the wagon compared to the number of people riding in the wagon. The Danish version uses Viking ships.

Fortunately, now there’s an effort to move back in the right direction.

Denmark now outranks even the United States as a good place to do business. …In 2013, it reduced early-retirement plans, and cut the term for unemployment benefits from four years to two. …In recent years, all the Nordic countries have decreased their corporate tax rates — each one is lower than in the United States. They also support free trade, unlike American Socialists.

Let’s look at some specific examples of how Denmark is trying to undo the damage of excessive government.

Bloomberg reported last year about the ongoing effort to reduce the nation’s fiscal burden.

When a European government raises the pension age and makes cuts to welfare programs, it’s usually because of dire finances. In Denmark’s case, it’s because of ideology. …Driving the new government’s push is a desire to finance a major round of income tax cuts. “We want to promote a society in which it is easier to support yourself and your family before you hand over a large share of your income to fund the costs of society,” the government of Prime Minister Lars Lokke Rasmussen wrote in its manifesto. It’s all part of a Danish drift toward the political right… Reforms introduced by successive governments over the years have already ensured that Denmark’s expensive welfare state is sustainable for years to come, says Torben M. Andersen, a professor of economics at the University of Aarhus and a former government adviser. These include raising the retirement age to 67 years from 65 years by 2025.

Denmark is also cutting back on college subsidies.

As one of a handful of countries that offers free tuition to college students, Denmark grants students enormous freedom… But some Danes, especially older citizens already in the labor force, say the extra freedom can eliminate a crucial sense of urgency for 20-somethings to become adults. The country now deals with “eternity students” — people who stick around at college for six years or more without any plans of graduating, solely because they don’t have any financial incentive to leave. …The country has made some headway to counter eternity students. In 2015, the Danish government proposed and passed an amendment to the Study Progress Reform… Jakobsen said the amendment has definitely reduced the trend of eternity students.

Now let’s get to my contribution to this discussion.

A few years ago, I created a “statism spectrum” to show how countries differ when looking at total economic freedom (fiscal policy, trade policy, regulatory policy, monetary policy, and quality of governance).

And I pointed out that nations with onerous fiscal burdens can still rank relatively high if they have a very pro-market approach in other areas.

But I have to confess that my spectrum was a back-of-the-envelope exercise. I simply drew a line and then added six countries.

Time for some rigor. I downloaded the latest scores from the Fraser Institute’s Economic Freedom of the World and created this chart showing the relative ranking of all the countries (divided by category). As you can see, the United States and Denmark are both in the top category and they both have very similar levels of overall economic liberty.

And to put those numbers in context, here’s the same chart, but also showing France, Greece, and Venezuela.

In other words, there’s a lot to admire about Denmark. Yes, taxes are onerous and the burden of spending is still too high, but it’s nonetheless one of the most market-oriented countries in the world because of laissez-faire policies in other areas.

My bottom line is that Paul Krugman is right to praise Denmark.

My only gripe is that he likes the one thing that they’re doing wrong and overlooks all the things that make the country a relative success.

Moreover, he ignores all the recent efforts to reduce the fiscal burden of government, probably because that would require him to acknowledge that large public sectors are bad for growth.

P.S. Denmark is way ahead of the United States in its market-friendly, savings-based approach to retirement.

P.P.S. Denmark also ranks above America in protecting the right of private property.

P.P.P.S. But the United States does rank above Denmark when all policies are part of the equation, which presumably helps to explain why Americans are richer. And that also is probably why Danes in America earn a lot more than Danes in Denmark.

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Last September, I shared some very encouraging data showing how extreme poverty dramatically has declined in the developing world.

And I noted that this progress happened during a time when the “Washington Consensus” was resulting in “neoliberal” policies (meaning “classical liberal“) in those nations (confirmed by data from Economic Freedom of the World).

In other words, pro-market policies were the recipe for poverty reduction, not foreign aid or big government.

Sadly, the Washington Consensus has been supplanted. Bureaucracies such as the International Monetary Fund, the United Nations, and the Organization for Economic Cooperation and Development are now pushing a statist agenda based on the bizarre theory that higher taxes and more spending somehow produce prosperity.

To add insult to injury, some people now want to rewrite history and argue that free markets don’t deserve credit for the poverty reduction that already has occurred.

Esteban Ortiz-Ospina, writing for Our World in Data, wants readers to conclude that redistribution programs deserve credit.

…the share of people living in extreme poverty around the world has fallen continuously over the last two centuries. …many often say that globalization in the form of ‘free-market capitalism’ is the main force to be thanked for such remarkable historical achievement. …this focus on ‘free-market capitalism’ alone is misguided. …Governments around the world have dramatically increased their potential to collect revenues in order to redistribute resources through social transfers… The reach of governments has grown substantially over the last century: the share of total output that governments control is much larger today than a century ago.

And for evidence, Mr. Ortiz-Ospina included this chart.

I shared a version of this data back in June, asserting that the explosion of social welfare spending made this “the western world’s most depressing chart.”

So does Ortiz-Ospina have a compelling argument? Does poverty go down as welfare spending goes up?

Nope. Johan Norberg points out that there is a gaping flaw in this argument. An enormous, gigantic hole.

Wow. This isn’t just a flaw. It’s malpractice. It’s absurd to argue that welfare spending in developed nations somehow led to poverty reduction in developing countries.

I hope Mr. Ortiz-Ospina is just an inexperienced intern, because if he really understands the data, one might be forced to conclude that he’s dishonest.

But let’s set that issue aside. Johan closes his video by explaining that poverty in rich nations declined before modern welfare states. I want to expand on that point.

Johan cited Martin Ravallion, so I tracked down his work. And here’s the chart he put together, which I’ve modified to show (outlined in red) that extreme poverty basically disappeared between 1820 and 1930.

And guess what?

That was the period when there was no welfare state. Not only is that apparent from Our World in Data, it’s also what we see in Vito Tanzi’s numbers.

Here’s Tanzi’s table, which I first shared five years ago. And I’ve circled in red the 1880-1930 data to underscore that there was virtually no redistribution during the years poverty was declining.

The bottom line is that poverty in the western world fell during the period of small government. Yet some people want to put the cart before the horse. They’re making the absurd argument that post-1950s welfare spending somehow reduced poverty before the 1930s.

That’s as absurd as Paul Krugman blaming a 2008 recession in Estonia on spending cuts that took place in 2009.

P.S. For those who want U.S.-specific data, it’s worth noting that dramatic reductions in American poverty all occurred before Washington launched the so-called “War on Poverty.”

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Last week, I shared very grim data, going all the way back to 1880, on the growth of the welfare state.

I even claimed that the accompanying graph was the “western world’s most depressing chart” because it showed the dramatic increase in the burden of government spending for redistribution programs.

And I didn’t even mention that the numbers likely will get even worse because of changing demographics.

Now it’s time for the western world’s second-most depressing chart. Like the first chart, the data for this second chart comes from “Our world in data,” only this time it shows the relentless and astounding (in a depressing way) expansion in tax burdens starting in 1868. It only shows four countries, but other western nations would show the same pattern.

What isn’t shown in this chart is that the tax burden used to be reasonable because governments generally did not have income taxes.

The United Kingdom was an early adopter, but France, Sweden, and the United States didn’t impose that onerous levy until the 1900s. And it’s no coincidence that the tax burden exploded once politicians learned to exploit that source of revenue.

An obvious lesson is that it is never a good idea to give politicians a new source of revenue. We see in the above chart what happened once nations imposed income taxes. We’ve also seen increases in fiscal burdens in nations that imposed value-added taxes (which is why Americans should fight to their dying breaths before allowing that levy in the United States).

From the perspective of politicians, they like new sources of revenue because that increases “tax capacity,” which is an Orwellian term that describes their ability to grab more money from the economy’s productive sector.

And here’s another chart from “Our world in data” showing how income taxes and VATs (along with income-tax withholding) have become ubiquitous.

Very depressing trends. Reminds me of the biased grading of tax regimes from the World Bank.

Let’s close with the tiny bit of good news from the website. Here’s a chart showing how top rates for the personal income tax dropped substantially between 1979 and 2002.

This happened, needless to say, because of tax competition. As globalization expanded, it became easier and easier for taxpayers to move themselves and/or their money from high-tax nations to low-tax jurisdictions.

Politicians thus were forced to lower tax rates so the geese with the golden eggs didn’t fly away.

Sadly, updated versions of this chart now show top tax rates heading in the wrong direction, in large part because tax havens have been weakened and politicians no longer feel as much competitive pressure.

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Last week, I shared a graph showing that there are more guns than people in the United States, and I wrote that it was the “most enjoyable” chart of the year, mostly because it gets my leftist friends so agitated.

But I’m more likely to share gloomy visuals.

  • The “most depressing” chart about Denmark, which shows a majority of the population lives off government.
  • A “very depressing” chart about the United States, which shows how big business profits from cronyism.
  • The “most depressing” chart about Japan, which shows that the tax burden has nearly doubled since 1965.

Now it’s time to add to that list. There’s a website called “Our World in Data,” which is a great resource if you’re a policy wonk who likes numbers. But some numbers are quite depressing.

For instance,if you peruse the “public spending” page, you’ll find a chart showing the dramatic expansion of redistribution spending as a share of economic output.

These numbers are very similar to the table I shared from Vito Tanzi back in 2013, which isn’t surprising since Professor Peter Lindert is the underlying source for both sets of data.

While the above chart is depressing to a libertarian, it’s nonetheless instructive because it confirms my argument that the western world became rich when government was very small and redistribution was tiny or even nonexistent.

For instance, nations in North America and Western Europe largely made the transition from agricultural poverty to middle-class prosperity during the “golden century” between the Napoleanic wars and World War I. And that was a period when redistribution spending basically didn’t exist and most nations didn’t even have income taxes (the U.S. didn’t make that mistake until 1913).

And even as recently as 1960, welfare states were very small compared to their current size. Indeed, redistribution spending in western nations averaged only about 10 percent of economic output, about half the size of today’s supposedly miserly American welfare state.

These points are important because some folks on the left misinterpret Wagner’s Law and actually try to argue that bigger government is good for growth.

P.S. South Korea has been a great success story for the past five decades, but that redistribution trendline is very worrisome.

P.P.S. The trendline for Greece helps to explain why that nation is bankrupt.

P.P.P.S. The chart shows that Canada is better than the United States, though that may not last since Canada’s current Prime Minister is seeking to undermine his nation’s competitive advantage.

P.P.P.P.S. While fiscal trends in the western world have been unfavorable, that bad news has been offset by positive trends for trade liberalization. Whether we see a big step backwards because of Trump remains to be seen.

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America has a major dependency problem. In recent decades, there’s been a significant increase in the number of working-age adults relying on handouts.

This is bad news for poor people and bad news for taxpayers. But it’s also bad news for the nation since it reflects an erosion of societal capital.

For all intents and purposes, people are being paid not to be productive.

Guided by the spirit of Calvin Coolidge, we need to reform the welfare state.

Professor Dorfman of the University of Georgia, in a column for Forbes, pinpoints the core problem.

The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. In a study for ProPublica, Amy Goldstein documents that people who lost their jobs and participated in a federal job training program were less likely to be employed afterward than those who lost their jobs and did not receive any job training. That is, the job training made people worse off instead of better. …Right now, the government cannot teach anyone how to find a fish, let alone catch one.

And Peter Cove opines on the issue for the Wall Street Journal.

…the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits. The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. …Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%.

Interestingly, European nations seem to be more interested in fixing the problem, perhaps because they’ve reached the point where reform is a fiscal necessity.

Let’s look at what happened when the Dutch tightened benefit rules.

A fascinating new study from economists in California and the Netherlands sheds light on how welfare dependency is passed from one generation to the next – and how to save children from lives of idleness.

A snowball effect across generations could arise if welfare dependency is transmitted from parents to their children, with potentially serious consequences for the future economic situation of children. …there is little evidence on whether this relationship is causal. Testing for the existence of a behavioural response, where children become benefit recipients because their parents were, is difficult… Our work overcomes these identification challenges by exploiting a 1993 reform in the Dutch Disability Insurance (DI) programme… The 1993 reform tightened DI eligibility for existing and future claimants, but exempted older cohorts currently on DI (age 45+) from the new rules. This reform generates quasi-experimental variation in DI use… Intuitively, the idea is to compare the children of parents who are just over 45 years of age to children whose parents are just under 45. .

Here’s the methodology of their research.

The first step is to understand the impact of the 1993 reform on parents. Figure 1 shows that parents who were just under the age 45 cut-off, and therefore subject to the harsher DI rules, are 5.5 percentage points more likely to exit DI by the year 1999 compared to parents just over the age 45 cut-off. These treated parents saw a 1,300 euro drop in payments on average. …the reform changed other outcomes as well. There is a strong rebound in labour earnings.

This chart from their research captures the discontinuity.

Here are the main results.

The second step is to see how children’s DI use changed based on whether the reform affected their parents. We measure a child’s cumulative use of DI as of 2014, by which time they are 37 years old on average. Figure 2 reveals a noticeable jump in child DI participation at the parental age cut-off of 45. There is an economically significant 1.1 percentage point drop for children if their parent was exposed to the reform, which translates into an 11% effect relative to the mean child participation rate of 10%. …welfare cultures, defined as a causal intergenerational link, exist.

This second chart illustrates the positive impact.

But here’s the most important part of the research.

Reducing access to redistribution to parents is a good way of boosting income and education for children.

…we examine whether a child’s taxable earnings and participation in other social support programmes change. Cumulative earnings up to 2014 rise by approximately €7,200 euros, or a little less than 2%, for children of parents subject to the less generous DI rules. In contrast, we find no detectable change in cumulative unemployment insurance receipt, general assistance (i.e. traditional cash welfare), or other miscellaneous safety net programs. Looking at a child’s educational attainment, there is intriguing evidence for anticipatory investments. When a parent is subject to the reform which tightened DI benefits, their child invests in 0.12 extra years of education relative to an overall mean of 11.5 years. …these findings provide suggestive evidence that children of treated parents plan for a future with less reliance on DI in part by investing in their labour market skills.

And it’s also worth noting that taxpayers benefit when welfare eligibility is restricted.

These strong intergenerational links between parents and children have sizable fiscal consequences for the government’s long term budget. Cumulative DI payments to children of the targeted parents are 16% lower. This is a substantial additional saving for the government’s budget, especially since there is no evidence that children substitute these reductions in DI income for additional income from other social assistance programmes. Furthermore, there is a fiscal gain resulting from the increased taxes these children pay due to their increased labour market earnings. Overall, we calculate that through the year 2013, children account for 21% of the net fiscal savings of the 1993 Dutch reform in present discounted value terms. This share is projected to increase to 40% over time.

Ryan Streeter of American Enterprise Institute explains that other European nations also are reforming.

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement. Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system. …Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Amen.

For what it’s worth, I think we’ll be most likely to get good results if we get Washington out of the redistribution business.

In effect, block grant all means-tested programs to the states and then phase out the federal funding. That would give states the ability to experiment and they could learn from each other about the best way of helping the truly needy while minimizing incentives for idleness.

P.S. This WIzard-of-Id parody is a very good explanation of why handouts discourage productive work.

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According to research from the Bank for International Settlements, the long-term fiscal outlook for the United Kingdom is very grim. The data generated by the International Monetary Fund and the Organization for Economic Cooperation and Development isn’t quite as dour, but those bureaucracies also show very significant long-run fiscal challenges.

The problem in the U.K. is the same as the problem in the United States. And France. And Germany. And Japan. Simply stated, the welfare state is becoming an ever-larger burden in large part because the elderly population is expanding in developed nations compared to the number of potential taxpayers.

The good news, as noted in this BBC story, is that some folks in the United Kingdom realize this is bad news for young people.

Lord Willetts…said the contract between young and old had “broken down”. Without action, young people would become “increasingly angry”.

The bad news is that these folks apparently think you solve the problem of young-to-old redistribution by adding a layer of old-to-young redistribution.

I’m not joking.

A £10,000 payment should be given to the young and pensioners taxed more, a new report into inter-generational fairness in the UK suggests. The research and policy organisation, the Resolution Foundation, says these radical moves are needed to better fund the NHS and maintain social cohesion. …The foundation’s Intergenerational Commission report calls for an NHS “levy” of £2.3bn paid for by increased national insurance contributions by those over the age of 65. It says that all young people should receive a £10,000 windfall at the age of 25 to help pay for a deposit on a home, start a business or improve their education or skills.

To be fair, proponents of this idea are correct about young people getting a bad deal from the current system. And they are right about older people getting more from government than they pay to government.

“There’s no avoiding the pressures for more spending on healthcare and social care, the question is how we meet those pressures,” he replied. “Extra borrowing is unfair on the younger generation. “Extra taxes on the working population – when especially younger workers have not really seen any increase in their pay – will be very unfair. “It so happens that the older people who will benefit most from extra spending on health care have got some resources, so at low rates, it’s reasonable to expect them to contribute.

But I fundamentally disagree with their conclusion that bigger government is the answer.

“It is better than any of the alternatives.”

For what it’s worth, what’s happening in the U.K. is an example of Mitchell’s Law. Young people are getting a bad deal because of programs created by government.

But rather than proposing to unwind the programs that caused the problem, the folks at the Resolution Foundation have decided that creating additional programs financed by additional taxes is the way to go.

By the way, you won’t be surprised to learn that the group also has other bad ideas.

The report calls for the scrapping of the council tax system, replacing it with a new property tax which would raise more money from wealthier homeowners. The proceeds would be used to halve stamp duty for first-time buyers.

Let’s close by looking at some interesting data about the attitudes of the young.

…a poll undertaken for the Intergenerational Commission also suggested people were more pessimistic in Britain about the chances of the next generation having “better lives” than the one before it – compared with almost any other country.

Here’s the chart showing data for the U.K. and several other nations.

Congratulations to France for having the most pessimistic young people (maybe this is why so many of them would move to the U.S. if they had the chance).

And I think the South Koreans are too glum and the Chinese are too optimistic. The Italians also are too upbeat. But otherwise these numbers generally make sense.

P.S. I was very pessimistic about the U.K. in 2012, but had a more upbeat assessment last summer. Now the pendulum has now swung back in the other direction.

P.P.S. If the Brits screw up Brexit, I’ll be even more downbeat about the nation’s outlook.

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I’m conflicted.

I’ve repeatedly expressed skepticism about the idea of governments providing a “basic income” because I fear the work ethic will (further) erode if people automatically receive a substantial chunk of money.

Moreover, I also fear that a basic income will lead to an ever-expanding burden of government spending, particularly once net beneficiaries figure out they can vote themselves more money.

Given these concerns, I should be happy about this report from the New York Times.

For more than a year, Finland has been testing the proposition that the best way to lift economic fortunes may be the simplest: Hand out money without rules or restrictions on how people use it. The experiment with so-called universal basic income has captured global attention… Now, the experiment is ending. The Finnish government has opted not to continue financing it past this year, a reflection of public discomfort with the idea of dispensing government largess free of requirements that its recipients seek work. …the Finnish government’s decision to halt the experiment at the end of 2018 highlights a challenge to basic income’s very conception. Many people in Finland — and in other lands — chafe at the idea of handing out cash without requiring that people work. …Finland’s goals have been modest and pragmatic. The government hoped that basic income would send more people into the job market to revive a weak economy. …The basic income trial, which started at the beginning of 2017 and will continue until the end of this year, has given monthly stipends of 560 euros ($685) to a random sample of 2,000 unemployed people aged 25 to 58. Recipients have been free to do as they wished… The Finnish government was keen to see what people would do under such circumstances. The data is expected to be released next year, giving academics a chance to analyze what has come of the experiment.

The reason I’m conflicted is that the current welfare state – both in the United States and other developed nations – is bad for both taxpayers and poor people.

So I like the idea of experimentation. There has to be a better way of alleviating genuine suffering without trapping poor people in dependency or punishing taxpayers.

Indeed, one of my arguments for radical decentralization in America is that states will try different approaches and we’ll have a much better chance of learning what works and what doesn’t.

And maybe we’ll learn that there are some benefits of providing a basic income. But, as reported by the U.K.-based Guardian, it’s unclear whether the Finnish experiment lasted long enough or was comprehensive enough to teach us anything.

The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system…it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system… Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

I will be interested to see whether researchers generate any conclusions when they look at the two years of data from the Finnish experiment.

That being said, there already has been some research that underscores my concerns.

The OECD is not my favorite international bureaucracy, but its recent survey on Finland included some sobering estimates on the cost of a nationwide basic income.

In a basic income scenario, a lump-sum benefit replaces a number of existing benefits, financed by increasing income taxation by nearly 30% or around 4% of GDP. …the basic income requires significant increases to income taxation. …Financing a basic income at a meaningful level thus would require considerable additional tax revenue, and heavier taxation of income would at least partially undo any improvement in work incentives.

And in a report on basic income last year, the OECD poured more cold water on the idea.

…large tax-revenue changes are needed to finance a BI at meaningful levels, and tax reforms would therefore need to be an integral part of budget-neutral BI proposals. …abolishing tax-free allowances and making BI taxable means that everybody would pay income tax on the BI, and on all their other income. Tax burdens would go up for most people as a result, further increasing tax-to-GDP ratios that are currently already at a record-high in the OECD area. …There are also major concerns about unintended consequences of a BI. An especially prominent one is that unconditional income support would reduce the necessity for paid work.

Indeed, it’s difficult to see how work incentives aren’t adversely affected. Why go through the hassle of being employed when you can sit at home and play computer games all day?

P.S. Given the option of voting on a basic income in 2016, Swiss voters overwhelmingly rejected the notion.

P.P.S. Former Vice President Joe Biden actually agrees with me about one of the downsides of basic income.

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