Feeds:
Posts
Comments

Posts Tagged ‘Big Government’

Maybe it’s just because I’m a wonk, but it seems that comparing long-run growth rates in various nation sets up a slam-dunk argument for the superiority of free markets and small government.

Whether it’s North Korea vs. South Korea, Cuba vs. Chile, or Ukraine vs. Poland, nations with bigger governments and more intervention inevitably decline compared to market-oriented alternatives.

That’s very compelling evidence, in my humble opinion, but I wonder whether it’s not overly persuasive because it’s too dry and analytical.

Maybe I should focus more on the human cost of statism. And not just by sharing data about low levels of per-capita GDP. Perhaps it would help to explain what that means for the lives of ordinary people.

Venezuela certainly would be a perfect (in a bad way) example.

The Associated Press explains that big government and statism aren’t working very well, particularly for the most vulnerable members of Venezuelan society.

Tens of thousands of Venezuelans poured into neighboring Colombia to buy food and medicine on Saturday after authorities briefly opened the border that has been closed for almost a year. A similar measure last week led to dramatic scenes of the elderly and mothers storming Colombian supermarkets and highlighted how daily life has deteriorated for millions in Venezuela, where the economy has been in a freefall.

That certainly sounds grim, but that story doesn’t fully capture how bad life has become for ordinary people.

Here are some excerpts from a BBC report on the government-created misery in Venezuela.

Travelling through the country this month I saw endless queues of people trying to buy food – any food – at supermarkets and other government-run shops. I was stopped at a roadblock in the middle of the countryside by people who said they had eaten nothing but mangoes for three days. I saw the hopeless expression of a mother, who had been eating so little that she was no longer able to breastfeed her baby.

What a miserable tragedy.

The reporter shares information on his own family and other people he met.

…it was my family who really brought it home to me. My brother told me all his trousers were now too big. My father – never one to grumble – let slip that things were “really tough”. My mother, meanwhile, confessed that sometimes she only eats once a day. They all live in different parts of Venezuela, but none of them is getting enough to eat. It’s a nationwide problem. …a young mother, Liliana, …admitted to going to bed in tears on days when she had been unable to give her two children any dinner. In western Venezuela, in the oil-rich province of Zulia, I visited several small towns where people didn’t know what they would eat the following day.

What a horrifying life.

Imagine if you were a parent in Venezuela and you couldn’t find food for your children? That shouldn’t be happening in the 21st century.

Unsurprisingly, deprivation and economic chaos are now the norm.

A study by three of the country’s main universities indicates…that “extreme poverty” has jumped by 53% since 2014. …The country’s official inflation rate was 180% in December, the last time a figure was made public, but the IMF estimates it will be above 700% by the end of the year.

Considering that Venezuela is in last place for Economic Freedom of the World, none of this should be surprising.

But remember that we want to focus today on the human cost of statism, not just broad measures of economic mismanagement.

And this chart from the BBC on food riots certainly is a persuasive piece of evidence.

Here’s the part that shows the mess was created by bad government policies, with price controls being a major culprit.

…the government years ago fixed the price of many basic goods, such as flour, chicken, or bread. But Venezuelans can only buy the goods at these fixed prices once a week, depending on the final digit of the number on their national identity card. …Because there is a risk of the goods running out, people often arrive at supermarkets in the early hours of the morning, or even earlier. At 6am one morning in Caracas, I met a man who had already been in the queue for three hours. …”I’m hoping to get rice, but sometimes I’ve queued and then been unable to buy anything because the rice runs out before I get in,” he said.

In a sad example of Mitchell’s Law as the failure of one bad policy leads to the imposition of another bad policy.

President Nicolas Maduro[‘s]…latest step has been to create Local Committees of Supplies and Production, better known by the Spanish acronym, CLAP. The CLAPs essentially mean that the government will stop sending imported food to supermarkets and start handing it over to local community councils. …The ultimate aim of the CLAPs is to create self-sustaining communities, where people grow their own food. …a member of a colectivo – a group of hardcore government supporters, often armed, …agreed in the end to show me what the CLAP was aiming to achieve. I was taken to see a barren field – “which we aim to have ready for crops in eight months” – and several chili plants waiting to be planted. It was, to say the least, disheartening.

In other words, Venezuela apparently is creating a sure-to-fail mixture of autarky and collective agriculture.

Even Ayn Rand didn’t think to include something that crazy in her dystopian novel, Atlas Shrugged.

Let’s wrap up with a CNN story about a new “jobs” program from the thugs in Caracas.

In a vaguely-worded decree, Venezuelan officials indicated that public and private sector employees could be forced to work in the country’s fields for at least 60-day periods, which may be extended “if circumstances merit.” …President Nicolas Maduro is using his executive powers to declare a state of economic emergency. …According to the decree from July 22, workers would still be paid their normal salary by the government and they can’t be fired from their actual job. …Venezuela…is grappling with the lack of basic food items like milk, eggs and bread. People wait hours in lines outsides supermarkets to buy groceries and often only see empty shelves. …Venezuela is the world’s worst economy, according to the IMF. It’s expected to shrink 10% this year and inflation is projected to rise over 700%. Beyond food shortages, hospitals are low on supplies, causing many patients to go untreated and some to die.

Wow, I’m not even sure where to start. The fact that people are dying because of horribly sub-standard care? The fact that the government is engaging in a form of quasi-slavery by forcing people to work on farms? Or the fact that bad government policy is the reason for the disaster?

As I contemplated these questions, it got me thinking about the varying degrees of statism and the harmful impact on ordinary people.

So, with apologies to fans of Dante’s Inferno, I put together the Five Circles of Statist Hell. The first layer is relatively benign, featuring nations such as France that sap an economy’s vitality with lots of feel-good programs. Then you get countries that belong in the second layer, which is characterized by economies that are actually declining rather than merely stagnating.

And the next layer is where Venezuela is today, with systemic misery and poverty. In other words, the nations in this layer already have declined and have lots of suffering.

But it’s always possible to decline even further. If Venezuela doesn’t reverse some of the awful policies that are causing chaos today, it’s just a matter of time before the country joins North Korea is a state of pervasive deprivation and even starvation.

And the only thing worse than that is the final layer of statist hell, which features countries that actually butcher their own citizens.

By the way, let’s not forget the “useful idiots” who have justified and/or praised Venezuela’s brutal government. I’ve previously cited the misguided words of Joseph Stiglitz.

Well, Joe Kennedy also deserves our scorn and disdain. The former politician actually mourned the death of the evil slug who is most responsible for the mess in Venezuela.

Former congressman Joe Kennedy (D-Mass.) is mourning the death of Venezuelan President Hugo Chavez today, praising Chavez as someone who made a difference for poor people. …Kennedy also said that “some of the wealthiest people on our planet have more money than they can ever reasonably expect to spend.” Kennedy joins Rep. Jose Serrano (D-N.Y.) among the few American politicians to praise Chavez after his death Tuesday.

How disgusting and unseemly. Makes the Che sycophants seems like moral giants.

Read Full Post »

I’m still in China, as part of a week-long teaching assignment about markets, entrepreneurship, economics, and fiscal policy at Northeastern University in Shenyang.

One point that I’ve tried to get across to the students is that China should not copy the United States. Or France, Japan, or Sweden. To be more specific, I warn them that China won’t become rich if it copies the economic policies that those nations have today.

Instead, I tell them that China should copy the economic policies – very small government, trivial or nonexistent income taxes, very modest regulation – that existed in those nations back in the 1800s and early 1900s. That’s when America and other western countries made the transition from agricultural poverty to industrial prosperity.

In other words, pay attention to the polices that actually produced prosperity, not the policies that happen to be in place in 2016. With this in mind, I’m delighted to share a new National Review column about the ostensibly wonderful Nordic Model from Nima Sanandaji. He starts by noting that statists are big fans of nations such as Sweden and Denmark.

Ezra Klein, the editor of the liberal news website Vox, wrote last fall that “Clinton and Sanders both want to make America look a lot more like Denmark — they both want to…strengthen the social safety net.” … Bill Clinton argues that Finland, Sweden, and Norway offer greater opportunities for individuals… Barack Obama recently…explain[ed] that “in a world of growing economic disparities, Nordic countries have some of the least income inequality in the world.”

Sounds nice, but there’s one itsy-bitsy problem with the left’s hypothesis.

Simply stated, everything good about Nordic nations was already in place before the era of big government.

…the social success of Nordic countries pre-dates progressive welfare-state policies. …their economic and social success had already materialized during a period when these countries combined a small public sector with free-market policies. The welfare state was introduced afterward.

Here are some of the key factoids about fiscal policy.

…in 1960, the tax rate in [Denmark] was merely 25 percent of GDP, lower than the 27 percent rate in the U.S. at the time. In Sweden, the rate was 29 percent, only slightly higher than in the U.S. In fact, much of Nordic prosperity evolved between the time that a capitalist model was introduced in this part of the world during the late 19th century and the mid 20th century – during the free-market era.

And here’s the data about equality (though I think it’s far more important to worry about the degree of upward mobility rather than whether everyone has a similar amount of income).

…high levels of income equality evolved during the same period. Swedish economists Jesper Roine and Daniel Waldenström, for example, explain that “most of the decrease [in income inequality in Sweden] takes place before the expansion of the welfare state and by 1950 Swedish top income shares were already lower than in other countries.” A recent paper by economists Anthony Barnes Atkinson and Jakob Egholt Søgaard reaches a similar conclusion for Denmark and Norway.

Our friends on the left think that government-run healthcare deserves the credit for longer lifespans in the Nordic world.

Nima explains that the evidence points in the other direction.

In 1960, well before large welfare states had been created in Nordic countries, Swedes lived 3.2 years longer than Americans, while Norwegians lived 3.8 years longer and Danes 2.4 years longer. Today, after the Nordic countries have introduced universal health care, the difference has shrunk to 2.9 years in Sweden, 2.6 years in Norway, and 1.5 years in Denmark. The differences in life span have actually shrunk as Nordic countries moved from a small public sector to a democratic-socialist model with universal health coverage.

Not to mention that there are some surreal horror stories in those nations about the consequences of putting government in charge of health care.

Here’s the evidence that I find most persuasive (some of which I already shared because of an excellent article Nima wrote for Cayman Financial Review).

Danish Americans today have fully 55 percent higher living standard than Danes. Similarly, Swedish Americans have a 53 percent higher living standard than Swedes. The gap is even greater, 59 percent, between Finnish Americans and Finns. Even though Norwegian Americans lack the oil wealth of Norway, they have a 3 percent higher living standard than their cousins overseas. …Nordic Americans are more socially successful than their cousins in Scandinavia. They have much lower high-school-dropout rates, much lower unemployment rates, and even slightly lower poverty rates.

Nima concludes his article by noting the great irony of Nordic nations trying to reduce their welfare states at the same time American leftists are trying to move in the other direction.

Nordic-style democratic socialism is all the rage among Democrat activists as well as with liberal intellectuals and journalists. But in the Nordic countries themselves, this ideal has gradually lost its appeal. …During the past few decades, the Nordic countries have gradually been reforming their social systems. Taxes have been cut to stimulate work, public benefits have been limited in order to reduce welfare dependency, pension savings have been partially privatized, for-profit forces have been allowed in the welfare sector, and state monopolies have been opened up to the market. In short, the universal-welfare-state model is being liberalized. Even the social-democratic parties themselves realize the need for change.

The net result of these reforms is that the Nordic nations are a strange combination of many policies that are very good (very little regulation, very strong property rights, very open trade, and stable money) and a couple of policies that are very bad (an onerous tax burden and a bloated welfare state).

I’ve previously shared (many times) observations about the good features of the Nordic nations, so let’s take a closer look at the bad fiscal policies.

Sven Larson authored a study about the Swedish tax system for the Center for Freedom and Prosperity. The study is about 10 years old, but it remains the best explanation I’ve seen if you want to understand the ins and outs of taxation in Sweden.

Here’s some of what he wrote, starting with the observation that the fiscal burden used to be considerably smaller than it is in America today.

Sweden was not always a high-tax nation. …the aggregate tax burden after World War II was modest.

But then things began to deteriorate.

…over the next four decades, there was a relentless increase in taxation. The tax burden first reached 50 percent of economic output in 1986 and has generally stayed above that level for the past 20 years.

Though Sven points out that Swedish politicians, if nothing else, at least figured out that it’s not a good idea to be on the wrong side of the Laffer Curve (i.e., they figured out the government was getting less revenue because tax rates were confiscatory).

A major tax reform in 1991 significantly lowered the top marginal tax rate to encourage growth. The top rate had peaked at 87 percent in 1979 and then gradually dropped to 65 percent in 1990 before being cut to 51 percent in 1991. Subsequent tax increases have since pushed the rate to about 57 percent.

In the interest of fairness, let’s acknowledge that there are a few decent features of the Swedish tax system, including the absence of a death tax or wealth tax, along with a modest tax burden on corporations.

But the bottom line is that Sweden’s overall tax system (and the same can be said of Denmark and other Nordic nations) is oppressive. And the system is oppressive because governments spend too much. Indeed, the welfare state in Sweden and Denmark is as large as the infamous French public sector.

To be sure, the Swedes and Danes partially offset the damage of their big welfare states by having hyper-free market policies in other areas. That’s why they rank much higher than France in Economic Freedom of the World even though all three nations get horrible scores for fiscal policy.

Let’s close by circling back to the main premise of this column. Nima explained that good things happened in the Nordic nations before the welfare state exploded in size.

So I decided to see if we could ratify his hypothesis by checking the growth numbers from the impressive Angus Maddison database. Here’s a chart showing the average growth of per-capita GDP in Denmark and Sweden in the 45 years before 1965 (the year used as an unofficial date for when the welfare state began to metastasize) compared to the average growth of per-capita GDP during the 45 years since 1965.

Unsurprisingly, we find that the economy grew faster and generated more prosperity when government was smaller.

Gee, it’s almost as if there’s a negative relationship between the size of government and the health of the economy? What a novel concept!

P.S. All of which means that there’s still no acceptable response for my two-question challenge to the left.

P.P.S. Both Sweden and Denmark have been good examples for my Golden Rule, albeit only for limited periods.

Read Full Post »

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.

Read Full Post »

Over the years, I’ve shared some clever images, jokes, and cartoons to expose the flawed mindset of those who hope to achieve coerced equality of outcomes with redistribution and high tax rates.

The size of a pizza vs the share of a slice.

The modern version of the Little Red Hen.

Washington’s Byzantine welfare state.

Chuck Asay’s overburdened tractor.

A left-wing nursery rhyme.

The Wizard-of-Id parody.

Two pictures showing how the welfare state begins and ends.

A socialist classroom experiment (including a video version).

The economics of redistribution in one image.

As you can see, this is a common-sense issue. When you give people money on the condition that they don’t earn much money, you create a perverse incentive for them to be unproductive.

Especially since, when people work more and earn more, they get hit by a combination of fewer handouts and more taxes. The net result is very high implicit marginal tax rates, in some cases rising above 100 percent.

Needless to say, it’s very foolish to have a welfare state that puts people in this untenable situation where the welfare state becomes a form of economic quicksand.

And it’s also foolish to punish the people who are pulling the wagon with high tax rates and pervasive double taxation of income that is saved and invested.

Russell Jaffe, one of our Cato interns, helpfully cranked out a clever little image showing how redistribution is bad for both those who receive and those who pay.

No wonder the welfare state and War on Poverty have been bad news for both taxpayers and poor people.

And the problem is getting worse, not better.

Let’s begin to wrap up. I shared a Thomas Sowell quote at the beginning to today’s column.

Now let’s read some of his analysis.

He aptly and succinctly summarized why redistribution is a no-win proposition (h/t: Mark Perry).

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. …It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. …Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly. …We have all heard the old saying that giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future.

So what’s the bottom line?

The simple (and correct) answer is to dismantle the welfare state. State and local governments should be in charge of “means-tested” programs, ideally with much less overall redistribution (a goal even some Scandinavian nations are trying to achieve).

In effect, the goal should be to replicate the success of the Clinton-era welfare reform, but extending the principle to all redistribution programs (Medicaid, food stamps, EITC, etc).

P.S. Some honest leftists admit that the welfare state cripples independence and self reliance.

P.P.S. For those who like comparisons, you can peruse which states provide the biggest handouts and also which nations have the most dependency.

P.P.P.S. To end on a sour note, our tax dollars are being used by the Paris-based OECD to produce junk research that argues more tax-financed redistribution somehow is good for growth.

Read Full Post »

Something doesn’t add up. People like me have been explaining that California is an example of policies to avoid. Depending on my mood, I’ll refer to the state as the France, Italy, or Greece of the United States.

But folks on the left are making the opposite argument.

A writer for the Huffington Post tells readers that California is proof that the blue-state model can work.

Many factors contribute to California’s preeminence; one being its liberalism. Republicans don’t like to acknowledge California’s success. …The state’s job growth outpaced the nation’s in the first nine months of last year. California’s non-farm employment of 15.7 million people is at an all-time high. …California’s economy has thrived in spite of relatively high taxes and stringent regulations.

Meanwhile, a couple of columnists for the Washington Post are doing a victory dance based on recent California numbers.

…the…experiences of California…run counter to a popular view, particularly among conservative economists, that tax cuts tend to supercharge growth and tax increases chill it. California’s economy grew by 4.1 percent in 2015, according to new numbers from the Bureau of Economic Analysis, tying it with Oregon for the fastest state growth of the year. That was up from 3.1 percent growth for the Golden State in 2014, which was near the top of the national pack. …almost no one can say that raising taxes on the rich killed that recovery.

And let’s not forget that Paul Krugman attacked me two years ago for failing to acknowledge the supposed success story of job creation in California. I thought he made a very silly argument since the Golden State at that time had the 5th-highest unemployment rate in the nation.

But Krugman and the other statists cited above do have a semi-accurate point. There are some statistics showing that California has out-performed many other states over the past couple of years. Let’s look at the numbers. The St. Louis Federal Reserve Bank has a helpful website filled with all sorts of economic data, including figures from the Bureau of Economic Analysis on per-capita income in states.

I selected California for the obvious reason, but also Texas (since it’s often seen as the quintessential “red state”) and Kansas (which has become infamous for a big tax cut). And, lo and behold, if you look at what’s happened to per-capita income in those states, California has enjoyed the most growth.

Is this evidence that high taxes and a big welfare state are good for growth?

Hardly. California’s numbers only look decent because the state fell into a deep hole during the recession. And, generally speaking, a severe recession almost always is followed by good numbers, even if an economy is simply getting back to where it started.

So let’s expand on the above numbers and look at what’s happened not just over the past five years, but also since 2000 and 2005.

And if you look at California’s relative performance over a 10-year period or 15-year period, all of a sudden the Golden State looks a bit tarnished.

By the way, these numbers are not adjusted for either inflation or for cost of living. The former presumably doesn’t matter for our purposes since changing to inflation-adjusted dollars wouldn’t alter the rankings. Meanwhile, the data on cost of living would matter for comparative living standards (for instance, $46,745 in Texas probably buys more than $52,651 in California), but remember that we’re focusing on changes in per-capita income (i.e., which state is enjoying the most growth, regardless of starting point or how much money can buy in that state).

In any event, the numbers clearly show there’s more long-run growth in Texas and Kansas, and it’s long-run growth rates that really matter if you want more prosperity and higher living standards for people.

But let’s not stop there. Our left-wing friends frequently tell us that per-capita income numbers are sometimes a poor measure of overall prosperity since a few rich people can skew the average.

It’s better, they tell us, to look at median household income since that’s a measure of the well-being of ordinary people. And we can get those numbers (only through 2014, though adjusted for inflation) from the Census Bureau. What does this data show for Texas, California, and Kansas?

As you can see, California is in last place, regardless of whether the starting point is 2000, 2005, or 2010. In other words, California may have enjoyed some decent growth in recent years as it got a bit of a bounce from its deep recession, but it appears that the benefits of that growth have mostly gone to the Hollywood crowd and the Silicon Valley folks. I guess this is the left-wing version of “trickle down” economics.

Perhaps most interesting, the short-run numbers show that tax-cutting Kansas has a comfortable lead over tax-hiking California.

If that trend continues, then over time we can expect that the long-run numbers will begin to diverge as well.

Let’s close by looking at some analysis about those two states for those who want some additional perspective.

Victor David Hanson, a native Californian, has a pessimistic assessment of his state. Here’s some of what he wrote for Real Clear Politics.

The basket of California state taxes — sales, income and gasoline — rates among the highest in the U.S. Yet California roads and K-12 education rank near the bottom. …One in three American welfare recipients resides in California. Almost a quarter of the state population lives below or near the poverty line. …the state’s gas and electricity prices are among the nation’s highest. …Current state-funded pension programs are not sustainable. California depends on a tiny elite class for about half of its income tax revenue. Yet many of these wealthy taxpayers are fleeing the 40-million-person state, angry over paying 12 percent of their income for lousy public services. …Connecticut and Alabama combined in one state. A house in Menlo Park may sell for more than $1,000 a square foot. In Madera three hours away, the cost is about one-tenth of that. In response, state government practices escapism, haggling over transgendered restroom issues and the aquatic environment of a 3-inch baitfish rather than dealing with a sinking state.

The bottom line is that he fears the trend line for his state is moving in the wrong direction.

John Hood takes a look at why the Kansas tax cuts have resulted in budget turmoil, while tax cuts in has state of North Carolina haven’t caused much controversy.

How did Kansas and North Carolina end up in such different conditions? For one thing, while the two states both enacted major tax cuts, they weren’t structured the same way. Kansas punched a large hole in its income-tax base by excluding self-employment income. North Carolina briefly created a version of this exclusion in the immediate aftermath of the Great Recession, but then wisely eliminated it in favor of applying a low, uniform tax rate on a broad base of personal income. In Kansas, lawmakers also allowed themselves to be bamboozled by some out-of-state tax “experts” claiming that cutting income taxes would generate so much new investment, entrepreneurship, and population growth that the revenue loss to the state would be substantially offset. This can actually be true, of course — in the very long run, counted in decades. In the short run of state budgeting, however, policymakers are better off making far more conservative assumptions about revenue feedbacks. …Our state policymakers didn’t just reduce and reform taxes. They also controlled expenditures. Since the enactment of the 2013 tax changes, their authorized budgets have never pushed spending growth above the combined rates of inflation and population growth. Actual spending, in fact, has often come in below even these budgeted amounts.

John’s message is that pro-growth tax cuts don’t generate overnight miracles. Lawmakers have to be prudent when calculating Laffer Curve feedback. And they also should make sure there is concomitant restraint on the spending side of the budget.

The bottom line is that the Kansas tax cuts are good for the state’s economy, but they might not be sustainable unless politicians don’t quickly make reforms to cap spending.

P.S. Closing with some California-specific humor, this Chuck Asay cartoon speculates on how future archaeologists will view California. This Michael Ramirez cartoon looks at the impact of the state’s class-warfare tax policy. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

Read Full Post »

In 2014, I was outraged that more than 80 percent of senior bureaucrats at the Veterans Administration were awarded bonuses, even though this is the bloated bureaucracy that caused the death of many veterans by putting them on secret waiting lists. This, I argued, was a perfect example (in a bad way) of federal bureaucracy in action.

In 2015, I put together a version about bureaucracy in action at the local level, noting that the number of firefighters has climbed by 50 percent since 1980, even though the number of fires has declined by more than 50 percent during the same period.

This year, let’s look at the overseas edition of bureaucracy in action. Our story comes from Italy, where there’s been a government shutdown. Though only in the town of Boscotrecase. And not because of an Obamacare-style budget fight, but rather because a bunch of the local bureaucrats got arrested for routinely skipping work.

The mayor of a small town outside Naples had to shut down most municipal offices after police arrested 23 of his staff in the latest revelations of absenteeism in Italy’s public sector. Staff were filmed clocking in and then leaving to go about their personal business or using multiple swipe cards to register absent colleagues, police said, in scenes that have become familiar after numerous similar scandals. A police video showed one man trying to tamper with a security camera and then putting a cardboard box over his head to hide his identity before swiping two cards. Police arrested around half of all employees in the town hall offices of Boscotrecase following a weeks-long investigation that they said revealed 200 cases of absenteeism involving 30 people. …four major town hall departments had been closed on Tuesday due to a lack of staff. Those arrested, accused of fraud against the state, included the head of the local traffic police and the head of the town’s accounting department. The workers, whose arrest comes amid a government crackdown against absenteeism, have been suspended from work for between six and 12 months and risk eventual dismissal.

What I want to know, of course, is whether the bureaucrats were suspended with pay or without pay.

If it’s the former (which would be my guess), how will their lives be any different? They’ll be goofing off at home while getting overpaid!

No wonder Italy is in a death spiral.

P.S. The Bureaucrat Hall of Fame is comprised of specific government employees who have perfected the art of slacking (such as the Italian doctor who legally worked only 15 days in a nine-year period). That being said, I’m tempted to give adjunct membership to the entire local government of Boscotrecase.

P.P.S. Switching topics, the unpalatable choice between Donald Trump and Hillary Clinton does have a silver lining. It’s generated this clever make-believe announcement from the British Monarch.

To the citizens of the United States of America from Her Sovereign Majesty Queen Elizabeth II:

In light of your failure to nominate competent candidates for President of the USA and thus to govern yourselves, we hereby give notice of the revocation of your independence, effective immediately.

Her Sovereign Majesty Queen Elizabeth II will resume monarchical duties over all states, commonwealths, and territories (except North Dakota, which she does not fancy). Your new Prime Minister, Theresa May, will appoint a Governor for America without the need for further elections. Congress and the Senate will be disbanded. A questionnaire may be circulated next year to determine whether any of you noticed.

To aid in the transition to a British Crown dependency, the following rules are introduced with immediate effect:

———————–
1. The letter ‘U’ will be reinstated in words such as ‘colour,’ ‘favour,’ ‘labour’ and ‘neighbour.’ Likewise, you will learn to spell ‘doughnut’ without skipping half the letters, and the suffix ‘-ize’ will be replaced by the suffix ‘-ise.’ Generally, you will be expected to raise your vocabulary to acceptable levels. (look up ‘vocabulary’).
————————
2. Using the same twenty-seven words interspersed with filler noises such as ”like’ and ‘you know’ is an unacceptable and inefficient form of communication. There is no such thing as U.S. English. We will let Microsoft know on your behalf. The Microsoft spell-checker will be adjusted to take into account the reinstated letter ‘u” and the elimination of ‘-ize.’
——————-
3. July 4th will no longer be celebrated as a holiday.
—————–
4. You will learn to resolve personal issues without using lawyers, psychics or therapists. The fact that you need so many lawyers and therapists shows that you’re not quite ready to be independent. If you can’t sort things out without suing someone or speaking to a therapist, then you’re not ready to be a sovereign nation.
———————-
5. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler. Although a permit will be required if you wish to carry a vegetable peeler in public.
———————-
6. All intersections will be replaced with roundabouts, and you will start driving on the left side with immediate effect. At the same time, you will go metric with immediate effect and without the benefit of conversion tables. Both roundabouts and metrication will help you understand the British sense of humour.
——————–
7. The former USA will adopt UK prices on petrol (which you have been calling gasoline) of roughly $10/US gallon. Get used to it.
————–
8. You will learn to make real chips. Those things you call French fries are not real chips, and those things you insist on calling potato chips are properly called crisps. Real chips are thick cut, fried in animal fat, and dressed not with catsup but with vinegar.
——————-
9. The cold, tasteless stuff you insist on calling beer is not actually beer at all. Henceforth, only proper British Bitter will be referred to as beer, and European brews of known and accepted provenance will be referred to as Lager. South African beer is also acceptable, as they are pound for pound the greatest sporting nation on earth and it can only be due to the beer. They are also part of the British Commonwealth – see what it did for them. American brands will be referred to as Near-Frozen Gnat’s Urine, so that all can be sold without risk of further confusion.
———————
10. Hollywood will be required occasionally to cast English actors as good guys. Hollywood will also be required to cast English actors to play English characters. Watching Andie MacDowell attempt English dialect in Four Weddings and a Funeral was an experience akin to having one’s ears removed with a cheese grater.
———————
11. You will cease playing American football. There is only one kind of proper football; you call it soccer.
Those of you brave enough will, in time, be allowed to play rugby (which has some similarities to American football, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body armour like a bunch of nancies).
———————
12. Further, you will stop playing baseball. It is not reasonable to host an event called the World Series for a game which is not played outside of America. Since only 2.1% of you are aware there is a world beyond your borders, your error is understandable. You will learn cricket, and we will let you face the South Africans first to take the sting out of their deliveries.
——————–
13. You must tell us who killed JFK. It’s been driving us mad.
—————–
14. An inland revenue agent (i.e. tax collector) from Her Majesty’s Government will be with you shortly to ensure the acquisition of all monies due (backdated to 1776).
—————
15. Daily Tea Time begins promptly at 4 p.m. with proper cups, with saucers, and never mugs, with high quality biscuits (cookies) and cakes; plus strawberries (with cream) when in season.

Reasonably clever. Reminds me of the somewhat un-PC humor a British friend sent me on how different countries respond to terrorism.

By the way, I’m not sure the part about needing a permit to carry a vegetable peeler is a joke. After all, we’re talking about the country where you need an ID to buy a teaspoon.

Read Full Post »

The Congressional Budget Office has just released the 2016 version of its Long-Term Budget Outlook.

It’s filled with all sorts of interesting data if you’re a budget wonk (and a bit of sloppy analysis if you’re an economist).

If you’re a normal person and don’t want to wade through 118 pages, you’ll be happy to know I’ve taken on that task.

And I’ve grabbed the six most important images from the report.

First, and most important, we have a very important admission from CBO that the long-run issue of ever-rising red ink is completely the result of spending growing too fast. I’ve helpfully underlined that portion of Figure 1-2.

And if you want to know the underlying details, here’s Figure 1-4 from the report.

Once again, since I’m a thoughtful person, I’ve highlighted the most important portions. On the left side of Figure 1-4, you’ll see that the health entitlements are the main problem, growing so fast that they outpace even the rapid growth of income taxation. And on the right side, you’ll see confirmation that our fiscal challenge is the growing burden of federal spending, exacerbated by a rising tax burden.

And if you want more detail on health spending, Figure 3-3 confirms what every sensible person suspected, which is that Obamacare did not flatten the cost curve of health spending.

Medicare, Medicaid, Obamacare, and other government health entitlements are projected to consume ever-larger chunks of economic output.

Now let’s turn to the revenue side of the budget.

Figure 5-1 is important because it shows that the tax burden will automatically climb, even without any of the class-warfare tax hikes advocated by Hillary Clinton.

And what this also means is that more than 100 percent of our long-run fiscal challenge is caused by excessive government spending (and the Obama White House also has confessed this is true).

Let’s close with two additional charts.

We’ll start with Figure 8-1, which shows that things are getting worse rather than better. This year’s forecast shows a big jump in long-run red ink.

There are several reasons for this deterioration, including sub-par economic performance, failure to comply with spending caps, and adoption of new fiscal burdens.

The bottom line is that we’re becoming more like Greece at a faster pace.

Last but not least, here’s a chart that underscores why our healthcare system is such a mess.

Figure 3-1 shows that consumers directly finance only 11 percent of their health care, which is rather compelling evidence that we have a massive government-created third-party payer problem in that sector of our economy.

Yes, this is primarily a healthcare issue, especially if you look at the economic consequences, but it’s also a fiscal issue since nearly half of all health spending is by the government.

P.S. If these charts aren’t sufficiently depressing, just imagine what they will look like in four years.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 3,222 other followers

%d bloggers like this: