Posts Tagged ‘Big Government’

Give Minnesota politicians credit for consistency. Their policies have Minnesota ranked #39 in both Economic Freedom of North America and Freedom in the 50 states.

Those are ratings for overall economic freedom.

When looking specifically at fiscal policy, the state is in even worse shape.

The Tax Foundation calculates that Minnesota is only #45 in the State Business Tax Climate Index.

And the state’s governor, Tim Walz, received a failing grade in the Fiscal Policy Report Card on America’s Governors.

All things considered, Minnesota is not in good shape. That being said, it’s always possible to go downhill.

That will probably happen because the left this year is using Minnesota as a laboratory for statist economic policies.

Here’s some right-of-center analysis from the editors of National Review.

Minnesota has long been liberal, but with a frequently divided government that kept its radicalism tethered. …2022 was hardly a sweeping mandate. …The state senate went from a 34–33 Republican majority to a 34–33 DFL majority. On that slim basis, the DFL set out to turn the state overnight into a frozen California. The legislature, with the eager connivance of Governor Tim Walz, voted routinely in partisan lockstep to enact a wish list of left-wing radicalism. …a massive budget spree, blowing in a single session Minnesota’s $17.5 billion surplus, most of it on spending and the rest on one-time “tax rebates” that will do nothing to improve the state’s tax climate going forward. The state’s $72 billion budget increases spending by 38 percent over 2022 levels, plus $2.6 billion in additional infrastructure spending that is heavily financed by debt. Pricey new programs were created, such as free public college (subject to a means test), universal free breakfasts and lunches for all students, up to twelve weeks of state-financed family and medical leave, expanded free-housing vouchers, and free menstrual products in schools. …Taxes on most Minnesotans will be going up to pay for all this. Gas taxes will be hiked by as much as five cents a gallon over the next four years. Sales taxes will increase by one percentage point. A payroll tax will be added to finance the family- and medical-leave program.

Not everyone is unhappy about these developments.

Here’s a left-of-center perspective from E.J.Dionne of the Washington Post. He cites many of the same policies, but he argues that the state is moving in the right direction.

The avalanche of progressive legislation that the state’s two-vote Democratic majority in the Minnesota House and one-vote advantage in the state Senate have enacted this year is a wonder to behold. …former president Barack Obama tweeted recently: “If you need a reminder that elections have consequences, check out what’s happening in Minnesota.” …while a two-year budget surplus of $17.5 billion set expectations “very high” for what could be done, $10 billion of it was “one-time money,” meaning that programs had to be funded and revenue raised for the long term. …What makes Minnesota’s experience this year unusual? State Democratic leaders said in interviews that as soon as they learned in November that they would have their first trifecta in a decade — meaning control of both chambers and the governorship — they decided they would not hold back to calculate the politics of every move.

So who is right, National Review of Mr. Dionne?

Regular readers won’t be surprised to learn that I agree that it is a mistake to turn Minnesota into a “frozen California.”

There are plenty of states with better tax policy, including neighbors with no income tax (South Dakota) or low-rate flat taxes (Iowa), so I expect we will see an increase in the rate of out-migration.

And if the productive people want warm weather as well, there are even more zero-tax options (Texas, Florida, etc) and flat-tax options (Arizona, North Carolina, etc).

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Looking just at fiscal policy, who is the worst president in American history?

Based on historical data from the Office of Management and Budget, I calculated a few years ago that Richard Nixon was the biggest spender, followed by Lydon Johnson.

But I was only looking at the growth of inflation-adjusted spending during the fiscal years when various presidents were in office.

What about long-run estimates of how various presidents have changed America’s (depressing) fiscal trajectory.

Glenn Kessler of the Washington Post did something like this, though he focused on red ink rather than the spending burden.

That being said, he found somewhat similar results. Only he reports that LBJ was the worst with Nixon being the second worst.

Policy choices made long ago are more responsible for the fiscal state of the nation. Assigning a particular president responsibility for a debt increase is rarely productive, because so much depends on factors beyond a president’s control — an economic crisis such as the Great Recession or the pandemic, for example. …Which president has contributed the most to the nation’s long-term fiscal imbalance? That would be Lyndon B. Johnson… Through an exhaustive study of Congressional Budget Office and Office of Management and Budget reports, …LBJ’s share of the fiscal imbalance is 29.7 percent. Close behind is Richard M. Nixon, with 29.2 percent. Johnson enacted Medicare and Medicaid in the mid-1960s, and then Nixon in the early 1970s expanded both programs and also enhanced Social Security so that benefits were indexed to inflation. …almost two-thirds of the nation’s long-term fiscal imbalance is a result of policy choices made more than 50 years ago.

I’m not surprised that Medicare and Medicaid get so much blame. They deserve it!

By the way, Kessler did not do his own calculations.

Instead, he relied on some research by Charles Blahous. Here’s the relevant table from that study, which was published in late 2021.

I’m not surprised that Reagan was the best president.

P.S. Biden was not included since he has just entered office when the research was conducted. If there is a similar study 10 years from now, I’m guessing he will be like Obama with bad but not horrible results. Yes, Biden has an awful fiscal agenda, but his failed stimulus and the watered-down (and absurdly misnamed) Inflation Reduction Act may wind up being the only significant damage he imposes.

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I explained during a recent speech in Poland that I get very upset when big companies support policies that disproportionately harm small businesses.

By the way, I have no objection to big companies simply because they are big. Or merely because they sometimes earn a lot of profit.

But, as captured by my Eleventh Theorem of Government, I don’t like big business when it gets in bed with big government.

That’s a recipe for all sorts of bad policies, and also a major source of political corruption.

For purposes of today’s column, though, let’s consider how it is a recipe for reducing competition.

We can now quantify the damage, thanks to some new research by Professor Shikhar Singla, published by Goethe University in Frankfurt.

…the total economy-wide cost of regulations since 1970 has increased by almost 1 trillion dollars, which is roughly 5% of US GDP in 2018. …there has been a massive increase in regulation since the late 1990s. …an average small firm faces an average of $9,093 per employee in our sample period compared to $5,246 for a large firm. …We find that a 100% increase in regulatory costs leads to a 1.2%, 1.4% and 1.9% increase in the number of establishments, employees and wages, respectively, for large firms, whereas it leads to 1.4%, 1.5% and 1.6% decrease in the number of establishments, employees and wages, respectively for small firms… Results on employees and wages provide evidence that an increase in regulatory costs creates a competitive advantage for large firms. Large firms get larger and small firms get smaller. …The smaller the firm, the more competitively disadvantaged it gets… Fixed costs create a competitive disadvantage for small firms. …We find that large firms oppose regulations in general. But, they push for regulations which have an adverse impact on small firms. Hence, they are willing to incur a cost that creates a competitive advantage for them.

How much of a competitive advantage?

It’s become very significant this century, as shown by Figure 10 from the study.

Policy obviously veered in the wrong direction at the end of the Clinton Administration and then (unsurprisingly) stayed bad during the Bush, Obama, and Trump years.

And policy is staying bad during the Biden years.

The Wall Street Journal editorialized on this topic in 2021. Here are some excerpts.

…what’s really going on: Old-fashioned self-interest. …Take Amazon CEO Jeff Bezos’s endorsement of a higher corporate tax rate. …Mr. Bezos knows a higher rate would hurt Amazon much less than it would other companies. …Mr. Bezos can buy some political goodwill by providing cover to Democrats on taxes, while his company will benefit on the tax subsidy side of the ledger. Big businesses also know they can afford the higher costs of new regulation that smaller competitors cannot. That helps explain Big Oil’s embrace of methane emission rules in the Obama years that hurt independent frackers, as well as putting a price on carbon now. …Or consider the rush by Big Finance to endorse environmental, social and governance investing, or ESG. …BlackRock CEO Larry Fink is an enthusiast, and guess who will benefit if Biden Administration regulators set new requirements for ESG disclosure or investing? ESG lets BlackRock charge higher investment fees than it can charge for index funds that buy the entire market. …corporations look out first and foremost for their own interests, and that often means collaborating with government for narrow purposes that aren’t always in the public interest.

This is disgusting. And it’s not the first time Bezos and Amazon have tried to hurt small businesses.

In my fantasy world, we would have separation of business and state.

In the real world, I’ll be happy if we can simply block the left’s ESG agenda so that big companies will be forced to earn money in the market rather than steal money via politics.

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What do Joe Biden and Donald Trump have in common?

Speaking earlier this year to the Mackinac Center in Michigan, I warned they both implicitly favor massive tax increases on ordinary households.

If you don’t want to spend two minutes watching the video, I explained that the burden of government spending is going to dramatically increase over the next several decades because of demographic change and poorly designed entitlement programs.

This means we will have to make a choice: Either reform entitlements or acquiesce to massive future tax increases.

And because Biden and Trump oppose entitlement reform, that means that they favor tax increases.

Moreover, since there are not nearly enough rich people to finance big government, this means Biden and Trump favor massive tax increases on lower-income and middle-class households.

To be fair, there are alternatives other than entitlement reform or big tax increases.

For instance, politicians could endlessly issue more debt. That might work, at least until the fiscal house of cards collapses.

Another possibility, at least with regards to Social Security, is to do nothing.

How is this an alternative? Well, David McIntosh, President of the Club for Growth, explained last month in the Wall Street Journal that the Biden-Trump position on Social Security could be a recipe for automatic benefit cuts.

Joe Biden and Donald Trump agree on one thing. “I guarantee you I will protect Social Security and Medicare without any change. Guaranteed,” Mr. Biden said in March. Mr. Trump has said: “I will do everything within my power not to touch Social Security, to leave it the way it is.” …The Biden-Trump position may sound like a pledge to protect Social Security, but it isn’t. …the Old Age and Survivors Insurance Trust Fund…will be able to issue payments to retirees only until 2034. …once the trust fund reserve is depleted, beneficiary payouts will be limited to whatever funds come in from Social Security payroll taxes. …Thus consequences of leaving Social Security “without any changes,” as promised by Biden-Trump, are dire. Ten years from now, benefit cuts of 23% will be triggered if there is no change to Social Security…the Biden-Trump strategy has been to play “beat the clock,” leaving their successors to deal with the crisis. Candidates with a record of entitlement reform like Messrs. Pence and DeSantis would do well to point out that doing nothing is the worst Social Security cut.

Technically, McIntosh is 100 percent correct. Under current law, there will be automatic benefit cuts once there no longer are any IOUs in the Social Security Trust Fund.

In reality, future politicians almost surely will change the law to continue full payments. Which is why I feel confident in stating that our real choice is between genuine entitlement reform and massive tax increases.

P.S. My collection of “honest leftists” includes many who openly admit that giant tax increases will be needed if there is no entitlement reform.

P.P.S. The agreement between Biden and Trump on entitlements should not be a surprise. They also agree on many other issues, such as nationalized infrastructure, industrial policy, government spending, and trade protectionism.

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I have been very pessimistic in recent years about the United Kingdom. Now, having just finished giving speeches in Bristol and London, I’m even more pessimistic.

The core problem is that the burden of government spending has expanded dramatically in recent years, in part because of the pandemic.

But there’s been no move to undo the damage. Instead, the (supposedly) conservative governments of Boris Johnson and Rishi Sunak have kept the spigots open.

So there’s a new spending baseline showing a permanent expansion in the fiscal burden.

And this does not even include all the additional spending that almost surely will get added because of demographic change.

Sadly, none of the experts I met with on my trip expressed much hope of reversing the nation’s fiscal decline.

Indeed, most of them have a a glum outlook. Including the ones I didn’t talk to. For instance, Fiona Bulmer authored some depressing analysis for CapX about the U.K.’s faux conservatives.

Now a Tory government boasts that it is spending “£407 billion on support for families, jobs and businesses”, borrowing is at its highest level since the war – and that’s only the start. …Ministers, commentators, the Bank of England…seem to believe that we have now finally created a climate in which the magic money tree can flourish. …spending discipline has been completely abandoned over the past year. …We used to believe that individuals and businesses would always be better at spending their own money than government, instead we must now celebrate that the Department of Transport is giving people £50 vouchers to get their bikes mended. The problem is that once public spending becomes celebrated as a virtue then the culture of cost constraint disappears and every part of government will adopt the Oliver Twist approach and constantly come back for more.

As you might expect, governments that spend too much also have bad tax systems.

That certainly is true in the United Kingdom. But, as reported by the Economist, the U.K. seemingly tries to make taxes as punitive as possible.

People in England, Wales and Northern Ireland pay a basic rate of income tax of 20% on annual earnings over £12,570 ($15,612)… Britons must also pay national-insurance contributions (NICs) of 12% of weekly earnings over £242… Recent university graduates with student debt must pay an additional 9% on anything they earn over £27,295. A 40% income-tax rate kicks in at slightly over £50,000, which is when parents also begin to be taxed on a welfare payment known as child benefit. The result can be a 60% marginal tax rate for those with two children and a 70% rate for those with three. For every £1 earned above £100,000, you lose 50p of the £12,570 tax-free allowance; the allowance falls to zero if your income is £125,140 or more. That means at least a 60% marginal tax rate for high-earning taxpayers—rising to over 100% for parents who start losing tax-free child-care benefits as well. …Value-added tax…is levied at a 20% rate on most final purchases by consumers. …Britain has some of the highest taxes on property of any country in the OECD.

Is there any hope of fixing this mess?

That is unlikely, given the profligacy of today’s Tory politicians.

But there is a solution if any of them eventually decide to be on the side of taxpayers. Writing for CapX, Gavin Rice opines that it is time to reform the welfare state and limit spending growth.

Despite Thatcher’s revolutionary attempt to shift responsibility back onto individuals and families, …the welfare state has grown and grown. Since 1948, welfare spending has risen from £11bn to well over £200bn, in today’s money – that’s 18 times more spent on social security than under Clement Attlee’s supposedly socialist Labour government. …spending…has also risen as a proportion of national income from around 4% in 1947 to over 10% by 2019, and is projected to rise to over 12% by 2065. …to sustain even pre-Covid spending habits over the medium term, the Office for Budget Responsibility has estimated that taxes would need to rise by one third in order to stabilise debt… Britain has an ‘inverse pyramid’ society with a minority of working adults sustaining a majority of economically inactive citizens. …when public spending requirements outstrip that growth, there’s a problem.

Since it reflects my Golden Rule, I particularly appreciate the last sentence in the above excerpt.

But I don’t appreciate how recent British Prime Ministers have violated that rule.

Makes me wonder whether Boris Johnson and Rishi Sunak are doing more damage to good fiscal policy in the U.K. than George Bush and Donald Trump did to good fiscal policy in the U.S.?

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I have repeatedly pointed out that opponents of entitlement reform support big tax increases. And, as I explain in this segment from a recent presentation, they specifically support tax increases on lower-income and middle-class households.

Why do I assert that they support higher taxes on ordinary people? For the simple reason that there are not enough rich people to finance big government.

So this means, inevitably, that they support higher taxes on the rest of us (they probably support lots of debt-financed spending and central bank-financed spending as well).

Depending on where and how I make this argument, some people accuse me of being anti-Trump. Or anti-Biden.

Actually, I’m pro-math.

And there are some folks on the left who also understand this reality.

I’ve disagreed with many of her columns in the Washington Post, but Catherine Rampell deserves credit for honesty because her most-recent piece tells the truth about who will pay higher taxes as the burden of government increases. Here are some excerpts.

Democrats…wish to expand the social safety net, however, which requires — you guessed it! — more tax revenue. Democrats…claim…that all those safety-net expansions can be paid for solely by soaking “the rich.” …Alas, there’s not remotely enough money on those would-be money trees to pay for all the things that Democrats want. Or even the things that past Congresses have already committed to: Recall that the United States already has large fiscal deficits in the years ahead, even without creating new programs. …By all means, raise taxes on the ultrawealthy. …But if we really want a more robust welfare state, or even to sustain the welfare state we’ve already promised, that probably requires higher taxes from most of the rest of us, too.

At this point, I normally would state that Ms. Rampell deserves membership in my club of honest liberals. But she already is a member, thanks to a column she wrote two years ago.

I’ll close with the should-be-obvious point that any tax increases would be a bad idea, whether imposed on upper-income households or anybody else.

Which is why sensible people should resuscitate support for genuine entitlement reform.

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The big fiscal fight in Washington is whether the United States should become a European-style welfare state.

In part, this is automatically happening because of demographic change and poorly designed entitlement programs. But there’s also a major effort by Joe Biden to accelerate America’s fiscal decline with massive expansions of redistribution and dependency programs.

There are two reasons why it would be a bad idea for the United States to become more like Europe.

  1. Since there are not nearly enough rich taxpayers to finance big government, it would mean massive tax increases on lower-income and middle-class households.
  2. It would sap economic vitality and depress growth, undermining the huge advantage Americans enjoy as measured by per-capita living standards.

Regarding the second point, here’s a chart that was part of a tweet from Stefan Schubert. It shows that the United States is widening it lead over the other nations of the G-7 (Canada, France, Germany, Italy, Japan, and the United Kingdom).

The above chart is from the Economist, and here are some excerpts from an accompanying article.

America remains the world’s richest, most productive and most innovative big economy. By an impressive number of measures, it is leaving its peers ever further in the dust. …America’s dominance of the rich world is startling. Today it accounts for 58% of the g7’s gdp, compared with 40% in 1990. Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person. Average incomes have grown much faster than in western Europe or Japan. Also adjusted for purchasing power, they exceed $50,000 in Mississippi, America’s poorest state—higher than in France. …Americans work more hours on average than Europeans and the Japanese. …they are significantly more productive than both. …Another lesson is the value of dynamism. Starting a business is easy in America, as is restructuring it through bankruptcy. The flexibility of the labour market helps employment adapt to shifting patterns of demand.

The most important sentence in that excerpt was the one about America’s poorest state (Mississippi) being richer than France.

That’s something to share the next time you’re talking with a leftist who thinks America should “catch up” with Europe.

P.S. I can’t resist sharing one more excerpt from the article. As you can see, the Economist does not approve of Biden-Trump protectionism.

…more likely their politicians are to mess up the next 30 years. Although America’s openness brought prosperity for its firms and its consumers, both Mr Trump and Mr Biden have turned to protectionism.

Excellent point. Hopefully the US eventually will have someone in the White House who understands that free trade makes the country more prosperous.

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I don’t like big-government Democrats, but I’m even more hostile to big-government Republicans.

That’s because the Democrats don’t lie to me. They openly advocate higher taxes and a bigger burden of government spending.

Many Republicans, by contrast, publicly proclaim their support for fiscal restraint, but they push for bigger government when they think voters are not paying attention.

And they do it for despicable reasons. They do what they know is bad solely to get campaign contributions.

Let’s look at a couple of examples of Republicans siding with big government.

Here are some excerpts from a column in Real Clear Policy by Professor Mario Loyola.

Why are anti-establishment Republicans embracing the special interest racket of Washington, D.C.? …in order for government to be able to redistribute wealth among various groups, it has become a free-for-all of rent-seeking special interests whose general preference is for government-created cartels designed to transfer wealth from unsuspecting working families to themselves. …Curiously, however, the very Republicans who tend to most bewail ‘the swamp’ are increasingly prone to embrace the policies that created it in the first place. …the spectacle of supposedly anti-swamp Republicans shilling for every special interest racket with lobbyists in Washington. …The sugar program’s throttling of production is…effective in transferring wealth from consumers to sugar producers… The ethanol program has led to an area the size of the state of Michigan being devoted to the production of corn ethanol instead of food, producing a fuel that is terrible for cars and for the environment and raises the cost of both food and gasoline.

Not all Republicans are in favor of these bad policies.

But sugar subsidies and the ethanol scam rank as some of the worst handouts in the entire budget.

So it’s disgusting when even one Republican sides with special interests over taxpayers and consumers.

The Export-Import Bank is another example of an indefensible handout.

For purposes of today’s column, the key takeaway is that I want Republicans to be small-government Reaganites, not establishment big spenders like Bush or populist big spenders like Trump.

P.S. A few years ago, Playboy put together an amusing comparison of Republicans, Democrats, and Libertarians.

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When I write about Sweden, it is usually to point out the nation’s schizophrenic approach to public policy – very bad on fiscal issues but very good in other areas like trade, regulation, and monetary policy.

Though there are even some good Swedish fiscal policies, such as personal retirement accounts and no death tax.

Heck, Sweden even became a poster child for my Golden Rule back in the 1990s.

Today, though, we’re going to focus on Sweden’s libertarian-ish approach to the coronavirus pandemic. And we’ll start with this chart showing that Sweden had fewer excess deaths than any other developed nation.

The chart comes from a story in the U.K.-based Spectator, authored by Michael Simmons. Here’s some of what he wrote.

Pandemics kill people in two ways, …directly and indirectly, via disruption. …The only real way of counting this would be to look at ‘excess deaths’, i.e. how many more people die every month (or year) compared to normal. That data is now coming through.  Using the most common methodology, Sweden is at the bottom – below Australia and New Zealand, which had plenty of lockdowns but very few Covid deaths. …Like other studies (including one commissioned by Swedish newspaper Svenska Dagbladet from a statistician at the country’s equivalent of the ONS) this puts Sweden at the bottom, with just 3.3 per cent more deaths than were expected. Another way of doing this is to express excess deaths not as a percentage of the previous baseline but as a share of population. So the below chart using OECD data show it per 100,000 population: Sweden is again at the bottom.

Here’s the chart mentioned in the final sentence. Once again, Sweden looks very good.

Brad Polumbo approves. Here are some excerpts from his column in the Washington Examiner.

…more data just vindicated the Scandinavian nation’s approach, which kept schools open and largely rejected government lockdowns of the economy. …Sweden comes out looking fantastic. …Sweden still took COVID-19 seriously and encouraged people to behave responsibly. Officials encouraged adults, and especially the elderly, to take the COVID-19 vaccine and saw very high rates of uptake, yet it did not push it on young children, except those with unique risk factors. The country did have some government interventions, such as travel restrictions, in place, but by and large, it took a much more restrained approach. And as a result, its citizens were left freer yet saw fewer deaths overall.

Interestingly, even the New York Times gave the Swedes some semi-favorable coverage.

Here are some excerpts from a column by David Wallace-Wells.

…the country followed a radical, contrarian public health path. Its hands-off approach to Covid-19 mitigation — no stay-at-home orders to begin with, and no mask mandates later on — was one that many on the pandemic left quickly derided as sadistic public policy…those who believe the pandemic response went overboard have been excitedly sharing charts purporting to show that Sweden “won” the pandemic — in theory, a vindication for public health libertarianism. …The Swedish national government leaned heavily into its quasi-libertarian messaging, emphasizing the individual responsibility of its citizens and avoiding national stay-at-home orders and most other forms of intrusive mandates. …But there wasn’t an absence of guidance, just an absence of mandates. …In the end, “what the ‘Swedish model’ really suggests is that pandemic mitigation measures can be effectively deployed in a respectful, largely noncoercive way,” Francois Balloux wrote recently.

By the way, the article suggests that Sweden’s excess mortality numbers are not as good as reported by the Spectator, so it certainly should not be interpreted as an endorsement.

But, at the very least, Sweden was better than most peer nations.

And Swedes also got good results in terms of education, at least based on some early research.

The most high-profile Swedish study examining pandemic learning loss suggests that students in the country did not suffer at all compared to their prepandemic counterparts — a striking finding, and one that does seem to set the country apart.

Now let’s look at some of Fraser Nelson’s column in the U.K.-based Telegraph.

Anders Tegnell, Sweden’s state epidemiologist,…didn’t claim to be right. It would take years, he’d argue, to see who had jumped the right way. His calculation was that, on a whole-society basis, the collateral damage of lockdowns would outweigh what good they do. …Sweden…emerged with one of Europe’s lower Covid death tolls: the rate is 1,614 per million people, just over half the amount of Britain (2,335). …unlike Brits, they had a government that trusted them. …the lack of rules allowed for people to use their judgement while minimising economic and social damage. Sweden’s GDP fell by 2.9 per cent in 2020, while Britain’s collapsed by 9.4 per cent. The cost of the various Covid measures is best summed up by the debt mountain: an extra £8,400 per head in Britain, and £3,000 in Sweden. …there is no talk in Sweden about educational devastation.

So what’s the bottom line?

The honest answer is that we don’t know the ideal pandemic policy. There will be studies 10 years from now and 20 years from now that will give us a better understanding of the costs and benefits of different approaches.

For now, though, there seems to be good data that Sweden did a very good job minimizing overall excess deaths and an okay job of limiting deaths from the virus.

And they did that while minimizing the costs to childhood learning and getting better-than-average economic and fiscal outcomes. And don’t forget that they also gave people the freedom to choose, which is appealing for libertarians who believe freedom is a good outcome.

P.S. There’s another lesson to be learned, though it’s not about Sweden. In the United States, we learned that the FDA and CDC were ineffective and incompetent. Internationally, we learned the same thing about the WHO.

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Why did many European nations, most notably Greece, suffer fiscal crises about a dozen years ago?

Because the burden of government spending, which already was excessive, increased even further.

And with taxes already very onerous in those countries, much of that new spending was financed with borrowing.

Investors then realized it was very risky to finance the various spending sprees. And when they stopped buying bonds from these governments (or started demanding higher interest rates to compensate for risk), that triggered the crises.

One would think that the nations most affected – Portugal, Italy, Greece, and Spain (the PIGS) – would have learned a lesson.


As you can see from this IMF data, those governments did not use the post-crisis recovery as an opportunity to get debt under control. Instead, every nation has more debt today than it did when the crisis occurred.

And why do these nations have higher debt levels?

For the simple (and predictable) reason that they have not reduced the burden of government spending.

Instead, as you can see from this next chart, governments are now consuming even greater shares of national economic output. Which means a greater chance of more crises.

To make a bad situation even worse, the European Central Bank cranked up the figurative printing press starting in 2020 by massively expanding its balance sheet.

Dumping all that money into the system quite predictably caused prices to soar. And now that the ECB is belatedly trying to undo its mistake.

That puts the PIGS under more pressure, as Desmond Lachman explained for National Review.

Christine Lagarde, the president of the European Central Bank (ECB)…has to raise interest rates at a time when governments in the euro zone’s economic periphery are more indebted today than they were at the time of the 2010 euro zone sovereign-debt crisis. This more hawkish interest-rate policy, coupled with a shift to quantitative tightening, now risks triggering another round of the euro zone debt crisis. …One of the ECB’s problems in having to raise interest rates aggressively to contain inflation is that such a course risks exacerbating the cracks that are now emerging in the European banking system. …if current trends continue, then another round of euro zone sovereign-debt crisis, where investors lose faith in the government’s ability to repay its debt, could be just around the corner. …This is especially true for Italy, where until recently the ECB had been buying Italian government bonds equivalent to that government’s net borrowing needs.

By the way, Lachman seems to think the Fed should allow continued inflation in order to help bail out Italy and the other PIGS.

That would be a big mistake. The long-run damage of that approach would be much greater than the long-run damage (actually, long-run benefits) of letting Italy and the others go bankrupt.

P.S. The problem in Europe is too much government spendingnot the euro currency.

P.P.S. Eurobonds will make things worse in the long run.

P.P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.

P.P.P.P.S. From the archives, here’s some comedy (and more comedy) about Europe’s fiscal mess.

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At the risk of oversimplifying, here’s the three-sentence trajectory of Chinese economic policy.

So what’s all that mean? Well, when you start with awful policy, then take a few steps in the right direction, only to then move back in the wrong direction, you probably won’t be an economic powerhouse.

And that’s exactly what we see in the data.

Here’s a chart showing that there is a huge gap between per-capita economic output in the United States and China. And that gap exists whether we rely on data from either the IMF, Maddison,* the UN, or World Bank.

That chart is the bad news (and it may be even worse than shown in the above data).

The good news is that China is no longer a miserably poor nation, like it was during the fully communist years under Mao.

But it also looks like China will never become a rich nation.

Especially when the government penalizes success. Which has very negative effects, as reported by the Economist.

Regulatory crackdowns have devastated once-thriving sectors like private education. Officials rage against “money worship”… China’s wealthy…have been looking to leave. …in 2022 some 10,800 high-net-worth individuals, who have an average wealth of $6m, left the country, with the flow accelerating at the end of the year as covid controls eased. …Even more are expected to leave in 2023… In recent years, Singapore has been favoured. The city-state is the top destination for Chinese billionaires considering emigration… According to data from Singapore’s central bank, …it is likely that as many as 750 Chinese family offices were registered in Singapore.

Needless to say, it’s not a good sign when the geese with the golden eggs are flying away.

That being said, the problems in China go well beyond class warfare.

The country has a major problem with cronyism (a.k.a., industrial policy).

But I’ve written many times about that issue, so let’s look at another example of China’s bad policy. Li Yuan has an article in The New York Times about wasteful spending and excessive debt in the nation’s cities.

As part of the ruling Communist Party’s all-in push for economic growth this year, local governments already in debt from borrowing to pay for massive infrastructure are taking on additional debt. They’re building more roads, railways and industrial parks even though the economic returns on that activity are increasingly meager. …China’s local governments..are in fiscal disarray. …According to official data, China’s 31 provincial governments owed around $5.1 trillion at the end of 2022, an increase of 66 percent from three years earlier. An International Monetary Fund report puts the number at $9.5 trillion, equivalent to half the country’s economy. …China is full of wasteful infrastructure that the government likes to brag about but that doesn’t serve the most urgent needs of the public. …The Chinese government likes to say the country has the longest and fastest high-speed railways in the world. But…most lines operate below capacity and at a great loss.

Sounds like Amtrak, but on steroids.

The bottom line is that China’s economy is both weak and fragile.

Which is unfortunate. A thriving China presumably is more likely to be a friendly China.

* The Maddison data is for 2018, and uses $2011 dollars rather than current dollars, which explains why it seems significantly different than the other sources.

P.S. Rather than invade Taiwan, China should copy its economic policies. Or copy the policies of other better-performing Asian Tigers. Heck, the recipe for prosperity is not complicated.

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The 2023 Social Security Trustees Report was released yesterday, and just like I did last year (and the year before, and the year before that, etc), let’s look at the fiscal status of the retirement program.

There is a lot of data in the Report. But the most important set of numbers can be found in Table VI.G9.

As you can see from this chart, these numbers show the amount of revenue coming into the program each year, adjusted for inflation, as well as the amount of yearly spending. Both are rising rapidly.

Since the orange line (spending) is climbing faster than the blue line (revenue), the obvious takeaway is that Social Security has a deficit.

But that would be an understatement.

As you can see from the second chart, the cumulative deficit over the next 77 years is more than $60 trillion.

You’ll notice, of course, that I added a bit of editorializing to both charts.

That’s because it is reprehensible that Joe Biden and Donald Trump are opposed to reforms that would modernize the program.

They won’t admit it, but their approach necessarily and unavoidably means huge tax increases on lower-income and middle-class households.

P.S. If you are not Biden or Trump and want to do what’s best for America, I suggest learning about reforms in Australia, Chile, SwitzerlandHong KongNetherlands, the Faroe IslandsDenmarkIsrael, and Sweden.

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In Part I or our series comparing red states and blue states, we found that the former enjoyed better overall economic performance.

In Part II, we discovered that red states did much better with regards to unemployment.

But the unemployment rate does not fully capture the strength of the labor market. It’s also important to look at how many people are actually working. Especially in the economy’s productive sector.

So, for Part III of our series, here’s a fascinating visual showing how quickly private sector employment rebounded after the pandemic.

It’s from John Phelan of Minnesota’s Center of the American Experiment, so he’s focusing on his state’s lagging performance, but if you look at the states with the best performance (fewest months before jobs recovered) and the states with the worst performance (states where private-sector jobs still haven’t recovered), red states are doing better.

It’s not a perfect relationship, of course, since some red-oriented, energy-producing red states are at, or near, the bottom. But those are exceptions to the general rule.

Vance Ginn and Erik Randolph discussed the gap between red states and blue states in a column last year for Real Clear Policy. Here are some of their findings.

Freer states that were more reluctant to shut down their economies due to COVID-19 are doing much better economically than states with severe shutdowns. Even a state like California is suffering — which was considered an American paradise for nearly a century, with its perfect weather and natural beauty. …Residents are fleeing California, New York, Illinois, and Pennsylvania for places like Georgia, Florida, Tennessee, and Texas. …the most important statistic is how Americans are voting with their feet. Forty-six million Americans changed zip codes in a 12-month period ending in February 2022. That’s the most moves since 2010. According to the U.S. Census Bureau, in 2021, California, New York, and Illinois had the highest domestic migration losses, and Florida, Texas, and Arizona gained the most.

The moral of the story is that people are “voting with their feet” against high taxes and excessive government.

And it’s not simply a matter of moving to places with better climate. If that was the case, California would be the nation’s top destination (and it was, prior to getting captured by the left).

P.S. Speaking of California, click here for my series comparing California and Texas. You can also click here for the comparisons between New York and Florida.

P.P.S. Sadly, some blue states want to accelerate the loss of jobs and investment.

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In Part I of this series, I documented the dramatic decline in living standards ever since socialists took power in Venezuela.

In Part II, I compared Venezuela’s decline to the other Latin American nations, particularly the success story of Chile.

Initially, I planned on this being a two-part series. After all, what else needs to be said when a nation does so poorly that even other socialists try (and fail) to disavow its policies.

But I decided to add Part III because of a remarkable report in the New York Times.

Authored by Isayen Herrera and , it actually acknowledges that socialism has created massive problems. Here are some excerpts.

…a socialist revolution once promised equality and an end to the bourgeoisie. Venezuela’s economy imploded nearly a decade ago, prompting a huge outflow of migrants in one of worst crises in modern Latin American history. …Conditions remain dire for a huge portion of the population…prices still triple annually, among the worst rates in the world. …Half of the nation lives in poverty…one in three children across Venezuela was suffering from malnutrition as of May 2022… Up to seven million Venezuelans have simply given up and abandoned their homeland since 2015… Last year’s inflation rate of 234 percent ranks Venezuela second in the world, behind Sudan.

What makes this story especially noteworthy is that the Times wrote another article about Venezuela’s dismal economy less than three years ago, yet that piece never once mentioned socialism.

So it’s a sign of progress that the paper now acknowledges that statist policies deserve the blame.

And I also think it’s remarkable that the article noted that socialism produces a grotesque version of inequality, with government insiders and other cronies getting rich while ordinary people suffer horrific deprivation..

Venezuela is increasingly a country of haves and have-nots, and one of the world’s most unequal societies… the wealthiest Venezuelans were 70 times richer than the poorest, putting the country on par with some countries in Africa that have the highest rates of inequality in the world.

The poster child for undeserved socialist wealth is Hugo Chavez’s daughter, who amassed more than $4 billion of ill-gotten gains.

P.S. In spite of the wretched state of the Venezuelan economy, some nutty leftists put together a “Happy Planet Index” that ranked Venezuela above the United States. I still haven’t figured out whether that was crazier than the Jeffrey Sachs’ index that put Cuba above America.

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Leftists should be nice to rich people people because those entrepreneurs, investors, and business owners are the ones financing the federal government.

However, there are too few rich people to finance a European-sized welfare state.

The above video is a segment from a recent presentation to the Money Show, in which I explained that lower-income and middle-class taxpayers are going to get hit by massive future tax increases.

There are two inescapable reasons for this conclusion.

First, entitlement spending is exploding and, second, there are not enough rich people to pick up the tab. As such, you can’t finance a large welfare state without pillaging ordinary people.

You can’t do it if your name is Joe Biden.

You can’t do it if your name is Donald Trump.

But not everyone believes me

And that’s why I shared the charts in the video. The numbers clearly show that taxes on the rich will not suffice.

  • There are not enough rich people to finance the current level of government spending.
  • There are not enough rich people to finance future levels of government spending.
  • There are not enough rich people to finance the new spending Biden is proposing.

Perhaps the strongest evidence is that even Bernie Sanders recognizes this reality. He favors every possible class-warfare tax increase, but it’s very revealing that he also proposed a massive 11.5 percent payroll tax on the wages of everyone to finance his plan for “free” government-run healthcare.

By the way, let me add one very important point that I didn’t make in the video. I’m sure folks on the left will go for class-warfare tax increases before going after the rest of us.

And if they succeed in enacting those tax increases, we can be very confident of terrible economic consequences. It will be the reverse of Reagan’s very successful approach, which actually led to dramatic increases in tax payments from upper-income taxpayers.

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Socialism is an immoral system that has a horrible track record of misery and failure.

One of the most tragic examples is Venezuela.

It used to be the richest nation in Latin America. But per-capita GDP has collapsed according to IMF data.

As you can see from the chart, there were a couple of decent periods, peaking in 2008 and again about five years later.

But those were driven by world oil prices. The overall trend during the Chavez-Maduro years has been negative.

Socialism has been such a disaster that the country is now largely incapable of benefiting when oil prices rise.

By the way, if you somehow think IMF data is suspect, you can also look at the UN’s Human Development Index. Over the past couple of decades, only Syria, Libya, and Yemen performed worse than Venezuela.

In his column for the Miami Herald, Andres Oppenheimer documents Venezuela’s descent into misery.

As Venezuelan dictator Nicolás Maduro celebrates his 10th year in office this week, a reality check shows that his presidency has been much more disastrous than people think. Maduro…has performed an economic miracle in reverse: He has turned what used to be one of Latin America’s richest countries into the poorest one, alongside Haiti. …Venezuela’s gross domestic product has plummeted from $350 billion in 2013 to $60 billion today… Venezuela’s poverty rate has soared from 40% of the population in 2013 to 94% today… Venezuela’s annual inflation rate has risen to nearly 350% this year from 56% in 2013… More than 7.2 million Venezuelans have fled the country during the past decade, according to United Nations estimates. That’s the biggest mass exodus in Latin America’s history.

That’s a depressing indictment.

But there’s more bad news to share. Here are some excerpts from an article by Dominic Wightman for the U.K.-based Critic.

Caracas has grown into one such city from hell. …there’s all-round cynicism, the pongs of death and dank deprivation ubiquitous. …The capital city is flatlining, the flatline only spiked by oases of ill-gotten gains underwritten by Russian gangsters, by wannabe Cuban puppet masters and the Chavistas themselves, whose grip on Venezuela has been transitorily perpetuated by narcodollars… No politics class or textbook can prepare a man for fifteen years viewing first-hand this latest chapter in the failure of socialist doctrine. The descent to hell in Venezuela has been swift and gruesome. …Too often in the West we have discussed Socialism as if it were a cheese on a cheeseboard, some kind of edible mushroom from which we might find nourishment, even as a side dish in a broader menu of political possibilities. The truth is that Socialism is poison, whichever way it is prepared or digested. It is appropriate — no, it is vital — to be so black and white about it.

Wightman’s analysis is particularly persuasive since he is married to a Venezuelan woman and has personally witnessed the nation’s decline over many years.

P.S. I’m still flabbergasted that the New York Times published a lengthy article on Venezuela’s economic misery and somehow never mentioned socialism.

P.P.S. Here’s my description of what it’s like to encounter victims of Venezuelan socialism.

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President Biden has released his 2024 budget, which mostly recycles the tax-and-spend proposals that he failed to achieve as part of his original “Build Back Better” plan.

It is not easy figuring out his worst policy.

I could probably write dozens of columns (as I did the past two years) about the many bad policies that Biden is pushing.

For today, though, let’s focus on the aggregate numbers.

We’ll start with the fact that Biden’s budget violates the Golden Rule of fiscal policy. He wants the burden of government spending over the next 10 years to increase at twice the rate of inflation (based on Table S-1 and S-9 of his budget)

If you want raw numbers, Biden wants the spending burden to rise from about $6.4 trillion this year to $10 trillion-plus in 2033.

On the revenue side, he wants the tax burden to jump from $4.8 trillion this year to nearly $8 trillion in 2033.

To be fair, spending and taxes automatically increase every year, thanks to inflation, demographic change, and previously enacted legislation.

You can see those “baseline” numbers in Table S-3 of Biden’s budget.

So if we want to see the net effect of what Biden is proposing, we should compared the “baseline” data to his budget numbers.

And when we do that, we find that he wants an additional $1.85 trillion of spending over the next 10 years. Even more shocking, he wants an additional $4.85 trillion of tax revenue.

I’ll close with a couple of observations.

First, Biden has a giant gimmick in his budget. If you look at the details for his proposed per-child handout (Table S-6 of his budget, bottom of page 142), you’ll notice that he’s only proposing the policy for one year.

Why? Because it is enormously expensive, with an annual cost of more than $250 billion.

Yet we know the White House and congressional Democrats want this policy to be permanent. So if we extended the cost of the per-child handout for the full 10 years, the amount of new spending in Biden’s budget would be much closer to the level of new taxes in his budget.

Second, Biden’s budget shows why supporters of good fiscal policy should not focus on deficits. A myopic fixation on red ink allows a big spender like Biden to claim the moral high ground because his proposed tax increase is even bigger than his proposed spending increase.

The variable that matters is the overall burden of government spending. And the goal should be reducing that burden, regardless of whether it is financed with taxes, borrowing, or printing money.

P.S. At the risk of stating the obvious, Biden’s tax-and-spend agenda would cause considerable economic damage.

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The combination of demographic change and poorly designed entitlement programs is producing an ever-increasing burden of federal spending.

In my Twelfth Theorem of Government, I pointed out that this inevitably will mean big tax increases on lower-income and middle-class households.

As stated in the Theorem, if there was a way of financing big government by only taxing the rich, other nations already would have made that choice.

Some of them have tried, but there simply are not enough rich people to finance large welfare states.

But I don’t want any tax increases. Class-warfare tax increases are a bad idea, and so are tax increases on regular people.

It would be much better for the country to reform entitlement programs.

But many politicians (both Democrats and Republicans) disagree.

However, that means they want big tax increases on lower-income and middle-class household.

To emphasize this point, I unveiled my Fifteenth Theorem of Government, which drives home the point that you can’t have big government without pillaging ordinary people.

I pontificated on this issue today in a MoneyShow presentation.

There were lots of charts to justify my two theorems, but these six points hopefully are a good summary of my argument.

For what it’s worth, the first five points are basic math.

Indeed, there are some honest folks on the left (including Paul Krugman) who have made similar observations.

My final point is where the honest leftists and I have a big disagreement. They think it would be a good thing to copy Europe. But I think that would be crazy since European living standards are much lower because of bloated welfare states.

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Which European nation has the costliest welfare state?

Greece would be a good guess, but it’s only in second place.

At the top of the list, according to OECD data, is France, where government spending consumes nearly 60 percent of the nation’s economic output.

These numbers are very depressing, but they are going to get worse over time.

Like most nations in Europe, France is dealing with demographic decline. People are living longer, and also having fewer children.

And that means fewer people pulling the wagon and more people riding in the wagon.

The net result is that the burden of government spending is going to climb by another 12 percentage points of GDP over the next four decades.

Looking at the two charts, it’s obvious that France has a massive fiscal problem.

If it stays on its current course, a Greek-style fiscal collapse is inevitable.

Which explains why President Macron has proposed to take a small step in the right direction by raising the retirement age from 62 to 64.

But even this modest reform is an outrage to some French leftists. In a column for the Washington Post, Rokhaya Diallo denounces the proposed change as an assault on “the French welfare model.”

Like tens of thousands of others, I was proud to be on the Place de la République recently to defend the legacy of the French welfare state. …Across the country, millions have gathered in periodic protests to defend one of the crown jewels of the French welfare model: the pension system. President Emmanuel Macron is determined to reform the pension system and to increase the retirement age from 62 to 64 (he first intended to push it to 65). …According to Macron, the calculus is simple: The French system cannot sustain itself financially, and because life expectancy is increasing, people have to work longer. …Big companies, however, have far more resources at their disposal than individual citizens, and raising corporate taxes would be a fairer way of increasing government revenue. …The fact that we live longer does not mean that we should spend our lives working for companies. Why should we subordinate our lives to the needs of capitalism?

At the risk of being snarky, Ms. Diallo is complaining about the reality of math rather than “the needs of capitalism.”

Though, by proposing higher taxes on French companies, she sort of acknowledges that the status quo is untenable.

So is Ms. Diallo’s proposed policy of higher taxes on workers, consumers, and shareholders a feasible solution to France’s ever-growing fiscal burden? Could all the built-in new spending (12 percentage points of GDP) be financed by a higher corporate tax rate?

No. Not even close. The French corporate tax rate currently is 25.8 percent and it collects about 2.3 percent of GDP according to OECD data.

Given her economic naivete, Ms. Diallo might support a very radical approach, such as doubling the corporate rate to more than 50 percent. And she might think that change would boost receipts from 2.3 percent of GDP to 4.6 percent of GDP.

But she would be wrong. Wildly wrong. As shown by this map from the Tax Foundation, France already has the fourth-highest corporate tax rate in Europe. Any increase (especially a big increase) will simply cause more business activity to leave France and go to nations with less-onerous tax policy.

In other words, a higher rate would not lead to a big increase in revenue. Indeed, it might do so much damage to the business climate that the government would collect less revenue.

And don’t forget that an additional 2.3 percent of GDP in revenue (assuming it magically materialized) is still far less than the built-in spending increase of 12 percent of GDP. So her math is wrong in two ways.

The bottom line is that France has two choices.

  1. Stick with the status quo and eventually suffer a horrific fiscal crisis.
  2. Enact reforms to prevent an ever-growing spending burden.

Macron’s reforms are grossly inadequate, but at least he wants to take a small step in the right direction. Ms. Diallo wants to put her head in the sand.

P.S. In her column, Ms Diallo notes that lower-income workers don’t live as long.

…mortality numbers vary among social classes. Nurses live seven years less than other women: 20 percent of them and 30 percent of nursing assistants retire with disabilities. Blue-collar workers live six years less than executives, so that one-quarter of the poorest men die by age 62, while 94 percent of the rich are still alive at 64. Only 40 percent of the poorest survive to 80, whereas 75 percent of the wealthiest do.

I want to congratulate her. She accidentally has provided a very good argument for why folks on the left should support personal retirement accounts.

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Back in 2019, I divided China’s recent economic history into three periods.

The net result of these three periods is that China did enjoy some growth thanks to partial liberalization. The good news is that the wrenching destitution and suffering of the Mao years is now just an unpleasant memory.

But the bad news is that China is still not a rich nation.

It lags far behind the United States, and I noted just a few months ago that Poland has been out-performing China in recent decades.

And there’s no reason to expect much future progress because of Xi’s misguided policies.

Writing for National Review, Veronique de Rugy noted that Chinese officials are sabotaging the nation with industrial policy – and she warns against similar mistakes in the United States.

…some of us were always skeptical of the notion that China would achieve great economic success after having reversed its move toward market liberalization in 2012 and returned to central planning for its industrial policy. …The idea that a country can become rich through central planning is a myth. …malinvestment, economic distortion, and politically driven policies replete with special-interest-driven handouts, all of which are characteristic features of central planning, eventually inflict a sizeable economic toll that’s impossible to hide. When this happens, the economy slows, companies collapse. …we have a deep historical record that shows repeatedly that state direction of economic activity impoverishes rather than enriches. Many people in America today — on the left and right — still have faith that central planning can work economic marvels, and that we should therefore emulate China’s policies. …Too many politicians, economists, and pundits are invested in the illusion that — equipped with models that can ostensibly predict the future — they can design clever plans to organize the economy.

It’s no surprise that bad policy has bad economic consequences. But it also appears that bad policy has adverse psychological effects as well.

Here are some excerpts from a Washington Post column by Nicholas Eberstadt of the American Enterprise Institute.

China is in the midst of a quiet but stunning nationwide collapse of birthrates. …China’s nosedive in childbearing is a silent alarm. It signals deep disaffection with the bleak future the regime is engineering for its subjects. In this land without democracy, the birth collapse can be read as a landslide vote of no confidence in President Xi Jinping’s rule. …Since 2013 — the year Xi completed his ascent to power — the rate of first marriages in China has fallen by well over half. Headlong flights from both childbearing and marriage are taking place in China today. …Birth shocks of this order almost never occur under stable modern governments during peacetime. …“the birth of a baby,” in the words of the government-run publication People’s Daily, remains “a state affair.” But now Beijing wants more babies from its subjects. A dictatorship may use bayonets to depress birthrates — but it is much trickier to deploy police state tactics to force birthrates up. …The dictatorship has brought this demographic defiance upon itself.

Unhappy and pessimistic people don’t have children.

And some of them also will vote with their feet, as reported by Jason DouglasKeith Zhai, and Stella Yifan Xie for the Wall Street Journal.

Well-heeled Chinese are leaving China for Singapore, attracted by the city-state’s low taxes and high-quality education, amid anxiety over China’s direction under leader Xi Jinping. …Around 10,800 wealthy Chinese left the country in 2022, according to estimates from New World Wealth, a research firmthat tracks the movements and spending habits of the world’s high-net-worth citizens. …Singapore…has particular attractions for Chinese citizens. It is relatively close to Hong Kong and the Chinese mainland, Mandarin is widely spoken alongside English, and the city boasts excellent schools and a financial sector heavily focused on wealth management. …permanent residency and a fast-track route to Singaporean citizenship are available for those willing to invest at least 2.5 million Singapore dollars ($1.9 million) in new or existing Singapore businesses. …another factor driving Chinese nationals to move abroad is unease over a darkening climate for accumulating wealth in China, as Mr. Xi talks up the need for greater redistribution in his drive for a more egalitarian society.

I’m not surprised that class warfare discourages entrepreneurs. That’s true everywhere in the world.

The exodus from China also was addressed by Li Yuan in an article for the New York Times.

They went to Singapore, Dubai, Malta, London, Tokyo and New York — anywhere but their home country of China, where they felt that their assets, and their personal safety, were increasingly at the mercy of the authoritarian government. …Many of them are still scarred by the last few years, during which China’s leadership went after the country’s biggest private enterprises, vilified its most celebrated entrepreneurs, decimated entire industries with arbitrary regulation… Singapore works because about three million of its citizens, or three-quarters, are ethnic Chinese, and many speak Mandarin. They also like that it is business-friendly and global-minded and, most of all, upholds the rule of law. …For decades, Hong Kong played the role of safe haven for mainland entrepreneurs because of its autonomy from China. That crumbled after Beijing introduced a national security law in the territory in 2020.

Given that is used to be a role model, the last two sentences about Hong Kong are rather depressing.

I’ll close by observing that China’s economic outlook may be even worse than we think because of dishonest data. And if China follows bad advice from the IMF and OECD, the outlook will become even gloomier.

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My Democratic friends correctly argue that Republicans have a corruption problem and my GOP friends correctly argue that Democrats have a corruption problem.

I wish both sides would recognize that the real problem is big government.

As I wrote last year, “unethical people are naturally drawn to politics and unethical interest groups naturally seek to obtain unearned wealth (a process known as “rent seeking“).”

And I shared lots of examples.

Today, let’s review some wise – and blunt – analysis from Steven Greenhut.

In an article for Reason, he connects the dots to show that the level of corruption is linked to the size and power of government.

Whenever some astounding corruption scandal explodes onto the front pages, the public is aghast and policymakers cobble together new reforms that promise to keep such outrages from occurring again. …Soon enough, however, we learn about new abuses—or some other scandal grabs the headlines. …corruption is inherent in a system where officials dole out public money and regulate almost everything we do. …The most corrupt nations are, of course, those where dictators, politburos, bureaucrats and security officials can do as they please—and where lowly citizens lack the right to free speech or due process. Our current government may be a far cry from the one the founders designed, but it attempts to limit government power, which is the main source of corruption. …corruption fundamentally is a problem of government power, as official actors use immense powers to help themselves and their allies. If we want less corruption, the solution is obvious: We need less government.

Amen. When government’s footprint is smaller, there’s less opportunity for graft.

The moral of the story is that Washington’s revolving door of legal corruption needs to be welded shut.

Thought that may be too much to hope for.

So maybe a more realistic goal is to simply not add more grease to the door so it spins even faster.

Perhaps we can learn from Estonia?

P.S. Today’s column focus on what small government is a good goal if we want less corruption, but don’t forget that there is also a very strong economic case for smaller government.

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What’s the main fiscal and/or economic problem in the European Union?

The easy and correct answer is that both are major problems.

But some people think the problem is that EU nations don’t tax and spend enough.

To make matters worse, this kind of thinking infects the bureaucrats at the European Commission, which has released a new report that reads like a Bernie Sanders campaign screed.

It starts by pretending that that Okun’s tradeoff doesn’t exist.

…taxation can contribute to both social justice and sustainable growth, as well as financing the benefits which underpin the social citizenship contract… Contrary to the rhetoric about the inevitability of a trade-off between social justice and economic growth and a fiscal crisis of the State, the problems of financing the welfare state are far from being inevitable. …everyone should be willing to pay their share of the costs involved, whether individuals or companies.

It then explicitly endorses “pay as you go” as a model for fiscal policy, even though that approach is utterly impractical for a region with aging populations and falling birthrates.

The first specific suggestion is that a PAYG approach is the best way to link the rights and duties of generations over time, in line with the social citizenship contract at the heart of the welfare state.

The report has 21 recommendations. Here are the ones that endorse and embrace new and expanded entitlements.

As you might expect, all that new spending is accompanied by a seemingly endless list of new and expanded taxes.

There are two main options for reforming the taxation of personal income. The first is to expand the tax base by limiting or reducing the many tax breaks that are currently present, from tax credits and tax allowances to tax exemptions and preferential treatment of different sources of income, such as income from capital… The second option for reform is to make the taxation of income more progressive. …Increasing corporate taxation. …As with preferential personal income tax regimes, the EU has an important role to play in levelling the playing field, so eliminating the negative externalities of tax competition and ending the ‘race to the bottom’, as well as making multinationals pay their fair share of tax. …there are a number of arguments for higher taxes on wealth. …Increasing taxes on wealth could help to achieve greater fairness, both in the tax system and in the distribution of resources… A tax on net wealth could complement taxes on income from capital… Indirect taxes…can make it easier to achieve social objectives, as in the case of ‘sin’ taxes… Measures such as the EU carbon tax border adjustment mechanism…can prevent unfair competition… Another option is to tax excess profits… A ‘web tax’ aimed at the excess profits of digital service companies, based on their turnover, could be a transitional step… A levy on financial transactions can also be justified, on grounds of fairness… A further option for Member States is to introduce a new tax, …a surcharge levied at source on all incomes… In summary, there are many options for achieving an adequate, fair, and sustainable means of financing of social protection at both EU and Member State levels.

That’s a frightening list.

And if it looks like it might get implemented, one can only imagine how productive people in Europe would start making plans to escape.

But the bureaucrats recommend Soviet-style exit taxes so they can continue grabbing more money.

Another option would be to tax expatriates for a given number of years after they leave the EU.

Let’s close by looking at one final excerpt.

Nations in the European Union supposedly are bound the “Maastricht Critieria” from something called the Stability and Growth Pact.

These fiscal rules focus on limiting deficits and debt and thus are not nearly as good as the spending cap in Switzerland’s “debt brake.”

But even these weak rules apparently are too stringent according to the report.

…there is widespread agreement on the value of social investment for sustaining the inclusive welfare state in the EU… But…the long-term benefits of social investment constantly come up against short-term pressure for fiscal consolidation. …A new system is needed for monitoring public finances in the EU that would allow policy-makers to identify productive social investment…a golden rule should be applied, allowing borrowing for social investment… A starting point should be to exempt social investment from the new Stability and Growth Pact rules.

The bottom line is that Europe already suffers from excessive fiscal burdens.

Yet the European Commission wants to drive even faster in the wrong direction.

I feel sorry for European taxpayers. Their tax dollars were used to prepare a report that outlines various ways of confiscating an even greater share of their money. That’s adding insult to injury.

P.S. The report discussed today is terrible, but probably not as bad as the European Commission’s lies about poverty or attempted brainwashing of children.

P.P.S. That being said, the EC will never be the worst international bureaucracy. The OECD and IMF compete for that honor.

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I don’t like Joe Biden’s economic policies, though that’s hardly a surprise since I haven’t liked the policies of any president this century (I’ve referred to Bush, Obama, and Trump as the “three stooges of big government“).

Other people have a more sympathetic perspective on the President’s performance.

David Leonhardt of the New York Times wrote an analysis of Joe Biden’s economic record and he lists two failures.

  1. Inflation
  2. Failure to get approval of the so-called Build Back Better plan

And he lists three supposed successes.

  1. Economic recovery
  2. Infrastructure and tech subsidies
  3. Green subsidies

I disagree with much of Leonhardt’s analysis. For instance, his section on inflation does not mention the Federal Reserve. That’s sort of like writing about World War II and not mentioning Germany (other journalists have made the same mistake).

Moreover, I also think the failure of Build Back Better was good for the nation. And also good for Biden’s political prospects since it is less likely the economy will be sluggish as we approach the 2024 election.

Switching to the so-called successes, I don’t think the passage of the boondoggle infrastructure bill will have a positive effect. The same is true for the handouts to the semiconductor industry or the green lobby.

But I want to focus mostly on what Leonhardt wrote about the economy.

His main contention is that Biden is a success because the unemployment rate is low. Yet that overlooks the fact that labor force participation is weak, so I don’t view that as a Biden “success” (and I have been raising this concern since way before Biden took office).

But a far bigger problem with Leonhardt’s analysis about the economy is that he wrote nothing about living standards. I don’t know if that was a deliberate omission, but almost everything his readers should have learned is captured by this chart from the Department of Labor.

In the interest of full disclosure, I highlighted the “0.0” line in orange because I wanted to emphasize that inflation-adjusted worker compensation has been negative for the entirety of the Biden presidency.

By the way, it would be perfectly reasonable for a Biden defender to point out that worker compensation was already dropping when he took office. And it also would be reasonable for a Biden defender (or even a Trump defender) to blame that drop on the pandemic.

A Biden defender also could claim that the trend in recent months has been positive and that we might actually see rising living standards in the future.

However, those caveats don’t change the fact the Leonhardt’s article fails to mention the economic data that arguably matters most to people. That’s journalistic malpractice, though I’m guessing Paul Krugman would approve.

P.S. Leonhardt’s failure to mention living standards is not the worst example of journalistic malpractice at the New York Times. That award goes to the three reporters who wrote a big story about Venezuela’s economic failure and never once mentioned socialism.

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Yesterday’s column reviewed a new report from the International Monetary Fund and criticized that bureaucracy for celebrating how the world’s most-powerful governments are going to take more money from the private sector thanks to a corporate tax cartel.

But that’s not the worst part of the IMF document.

The report also asserts that low-income countries (LICs) can grow faster if they increase their fiscal burdens.

This is not April Fool’s Day. I’m not joking. The bureaucrats at the IMF apparently want readers to believe that higher taxes and more spending are a route to prosperity.

Let’s look at some excerpts from the report, which was authored by Ruud de Mooij, Alexander Klemm, and Christophe Waerzeggers.

Global revenue from the 2-pillar reform…might rise to around 0.4 percent of GDP in the longer term. If a proportional share of this revenue flows to LICs, this would provide a welcome contribution to their revenue objective. However, the impact is dwarfed by the…expenditure needs in LICs of nearly 16 percent of GDP (and a significant share of this will need to come from taxation)… Estimates…suggest a potential revenue increase in LICs of 8 percent of GDP. …compared with that in emerging market economies as an aspirational level…suggests a revenue potential of around 5 percent of GDP. …Several options present themselves to raise revenues in LICs, both in tax policy and revenue administration. …Some promising avenues in tax policy include: Value-Added Tax (VAT)…specific excises…on select products such as alcohol, tobacco, unhealthy foods, passenger vehicles, fuel, and carbon emissions. …Strengthening the progressive personal income tax… Making greater use of recurrent real property taxes.

Here’s a chart from the study which shows how much bigger the IMF thinks government should be in poor nations (the second column) compared to various potential sources of revenue (columns 1, 3, and 4).

For those not familiar with the jargon, “SDG” is the abbreviation for “sustainable development goals,” as defined by the United Nations.

And the UN now robotically asserts that more taxes are needed to government can boost growth with more spending (other international bureaucracies sing from the same songsheet).

I actually went to the United Nations a few years ago and explained why this “magic beans” theory of government-led economic development is wrong.

Simply stated, there are two parts of the world that have become rich and in both cases prosperity arose when government was far smaller than what the IMF and UN want us to believe is necessary.

I’ll close by challenging folks from the IMF or UN (as well as other people who agree with their agenda) to answer this very simple question.

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My Fourteenth Theorem of Government explains that when government intervenes for the ostensible purpose of providing help to poor people in the short run, it is all but inevitable that such policies will hurt poor people in the long run.

It is hardly a revelation that bigger government causes problems, but it is particularly discouraging when such policies victimize the least fortunate members of society.

I’m discussing this issue today because I recently discovered a 2018 article by Brian Balfour.

Published by the Foundation for Economic Education, the article lists seven ways that government traps people in poverty.

At the risk of over-simplifying, four of those policies directly hurt poor people.

  1. The “quicksand effect” of the welfare state, which discourages self-advancement.
  2. Minimum wage laws that remove the bottom rungs of the economic ladder.
  3. Green energy policies that make basic utilities needlessly expensive.
  4. Protectionist trade policies that increase the price of essential products.

And three of those policies indirectly hurt poor people.

  1. Punitive tax policies that discourage job creation and productivity advances.
  2. Regulatory policies that impose high costs and cause inefficiency.
  3. Inflationary monetary policies by central banks that cause higher prices.

There’s nothing in the article that’s wrong, but I’m going to conclude today’s column by pointing out a big sin of omission.

The author’s list should have included the government education monopoly. Especially since poor families tend to live in the areas with the worst-performing government schools.

Failing government schools have a very direct and very negative impact on the life prospects of low-income kids.

So I’ll end by noting that I’m very excited that school choice is beginning to sweep the nation.

P.S. There are many other government policies that have a disproportionately negative impact on poor people. Everything from Social Security to revenue policing, but don’t forget government lotteries, licensing laws, and nanny state protections (all of which may help to explain why poor people are skeptical about the supposed benefits of bigger government).

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The first four rounds of my New York vs. Florida contest (available here, here, here, and here) largely focused on Florida’s superior economic policies and superior economic results.

So you won’t be surprised to learn that Round #5 continues that tradition.

We’ll start today’s column with a remarkable comparison put together by the Wall Street Journal.

Notice that Florida now has more population (thanks in large part to interstate migration), yet New York’s budget is twice as big.

That means a much higher tax burden.

And New York’s onerous fiscal burden doubtlessly helps to explain why Florida has been growing so much faster, and also has a much lower unemployment rate.

The Wall Street Journal connected the dots as part of its editorial.

Comparative governance is a useful course of study, not least because bad governance is so costly to people and prosperity. We often write about the migration from the Northeast to Florida and other states, but sometimes the contrast is best illuminated with some data. …As recently as 2013 the two states had similar populations, but so many people have moved to the Sunshine State that it’s now roughly 2.6 million people larger. Yet, believe it or not, Florida’s state budget as measured in the latest proposals from the two governors, is only half the size of New York’s. This is in part a reflection of their tax burden, which in Florida is much smaller. …Florida has no state income tax, while New York’s top tax rate is 10.9%. In New York City, the top rate is 14.8%, while in Miami it’s zero. …Florida’s jobless rate was 2.5% in December, well below the January national 3.4% rate. New York’s rate was 4.3%, tied with Alaska and Michigan for fifth worst in the country… State GDP growth in Florida in 2012 dollars from 2016-2021 was more than double New York’s—17% to 8%. These comparative statistics…show that better governance yields better fiscal and economic results.


I’ve written that there’s a link between national policy and national prosperity.

The same is true for state policy and state prosperity.

P.S. A reader sent me a fill-in-the-blanks essay generator for leaving New York. It focuses on quality of life rather than public policy, but I nonetheless made some choices.

P.P.S. Another Florida advantage is a lower cost of living.

P.P.P.S. New York’s absurd Medicaid spending (presumably enabled by this type of scam) is yet another reason to reform that money-pit program.

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I wrote a two-part series (here and here) about Donald Trump supporting massive middle-class tax increases.

Trump does not admit that is his policy, of course, but that is an unavoidable outcome since he opposes entitlement reform.

In the interest of fairness and bipartisanship, I should explain that Joe Biden also favors huge tax increases on ordinary people.

Like Trump, he does not admit this is his agenda. But, once again, that will be the unavoidable result since he also is against entitlement reform.

But this does not mean Trump and Biden are exactly the same on fiscal policy (like they are on trade policy).

Biden has proposed two additional policies to expand the size and scope (and economic damage) of the federal government.

  1. Expanding entitlement programs, including per-child handouts.
  2. Class-warfare tax increases, targeting upper-income taxpayers.

Just in case someone thinks I am unfairly characterizing Biden’s policies, let’s look at some excerpts from a report by Jim Tankersley of the New York Times.

There were no economic pivots in President Biden’s first State of the Union address to a Republican House. He did not pare back his push to raise taxes on high earners or to spend big on new government programs. …The president renewed his calls for trillions of dollars of new federal programs, including for child care and community college… He did not name a single federal spending program he was willing to cut. …It was a no-quarter recommitment to a campaign theme…centered on expanding government…he called for raising taxes on corporations and the wealthy… His proposals included an expanded tax on stock buybacks and what would effectively be a sort of wealth tax on billionaires.

Let’s conclude by considering whether it is possible for Biden to impose sufficiently large taxes on rich people so that there would be no need for big middle-class tax increases.

For that to be the case, Biden’s class warfare tax increases would have to raise enough money to achieve two objectives.

  • Collect enough money to finance the built-in expansions of current entitlement programs caused by demographic change.
  • Collect enough money to finance his proposals for trillions of dollars of spending on new entitlement programs.

The answer is no. Not even close.

Even if you took all of Biden’s taxes and then added some other class-warfare proposals, that would not be enough to finance built-in spending for the next 10 years.

And that means no revenue to finance Biden’s proposals for additional spending.

Not to mention the built-in spending caused by demographic changes over the next 30 years.

The bottom line is that there are not enough rich people to finance big government.

All of which brings me back to where I started, namely that there will be giant tax increases on lower-income and middle-class households if we don’t figure out a way to restrain and reform entitlements.

P.S. In addition to Trump and Biden, the so-called national conservatives also support huge tax increases on American workers.

P.P.S. Even if there were more rich people, higher class-warfare taxes to finance bigger government would be a big mistake, as acknowledged even by generally left-leaning international bureaucracies such as the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development, and the European Central Bank.

P.P.P.S. Biden and other folks on the left sometimes are very open about tax increases on ordinary people, though they have different terms for those tax hikes – such as carbon fees and import barriers.

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My biggest economic concern is that the United States, because of population aging and poorly designed entitlement programs, is slowly but surely going to become a European-style welfare state.

To help convince people that this is a bad outcome, I frequently share data showing how ordinary people in the United States have higher living standards than their European counterparts.

And I also like to share data showing that lower-income Americans often are better off than average-income Europeans.

Sounds convincing, right?

Well, I recently wound up in a discussion with a left-leaning fellow who claimed my data must be misleading because of the difference between “mean” and “median.”

For those not familiar with these terms, the “mean” is the overall average of a group and the “median” is the midpoint. Here are two examples that show the differences.

  • If you have five people making $80,000, $90,000, $100,000, $110,000, and $120,000, the “mean” income is $100,000 and the “median” income is also $100,00.
  • If you five people making $10,000, $20,000, $30,000, $40,000, and $300,000, the “mean” income is still $100,000 but the “median” income is only $30,000.

As you might suspect, folks on the left think the United States is like the second example – i.e., a very unequal society. They seem to think that America has high levels of “mean” income mostly because of a few really rich people.

So it was fortuitous that I saw a tweet this morning that addresses this issue. Here’s a look at “median” household income in OECD nations.

Lo and behold, the midpoint household in the United States is richer than almost every household in the western world.

Only the tiny tax haven of Luxembourg ranks higher than the United States. And oil-rich Norwegians are the only others who are close.

The bottom line is that Americans are richer than Europeans, no matter how the data is sliced. And the U.S. advantage almost surely is the result of having more economic freedom and smaller government.

But if we no longer have better policy in the United States, there’s no reason to think that Americans will continue to be more prosperous.

P.S. Based on data from some Nordic nations, I’m guessing Norwegian-Americans and Luxembourg-Americans are far richer than their cousins back in Europe.

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I wrote last week about the ever-expanding burden of government spending in California.

And that was after writing two columns last year (here and here) about the state’s economic decline.

But sometimes a specific story is more compelling than broad economic trends. So here’s a tweet that caught my eye. It tells us a lot about the nature of government contracting, inefficiency, and cost overruns.

But it also tells us a lot about California (sort of like this story from 2021).

By the way, I don’t know if the above numbers are correct. But even if they are only half right, they are a damning indictment of California budgeting.

As you might expect, bad budgeting and extravagant waste also mean high taxes.

And high taxes mean economic decline, and that’s the focus of today’s column.

In a recent column for the Washington Post, Henry Olsen offers a depressing assessment of the California’s future.

California’s…falling population coupled with its $22.5 billion budget deficit suggest it could experience a swift and wrenching decline. …California offers natural beauty…, but people decide how much they want to pay for these things just like other goods. The state’s…high taxes are a significant deterrent to living there, driving many people to flee. …That outward flow of people is turning into a flood. The state’s population dropped by more than 500,000 people between July 2020 and July 2022. Outmigration to other states fueled the decline: Almost 900,000 more people have moved to other states from California in the past three years than have moved in. …This exodus poses massive risks for the state’s finances because of its reliance on revenue from the rich. As of 2018, almost 35 percent of California’s personal income tax revenue came from the sliver of taxpayers earning $1 million or more. Nearly two-thirds come from those earning more than $200,000. That means a small change in these people’s residence can cost the state billions. …It could take a New York-style collapse to force significant change. Given the direction California is heading, that unhappy prospect is no longer unthinkable.

Writing for the City Journal, Steven Malanga has a similarly grim view.

California’s net domestic outmigration ranks highest among the states…In fact, the biggest leavers by far are lower- and middle-income people. And middle-class losses have grown in the last five years to about 200,000 adult residents. Meantime, some 300,000 adult Californians from lower-income categories have also left in that time… Taxes don’t exist in a vacuum; they are one component of a governing philosophy. High taxes represent an approach that favors bigger, more pervasive government, which takes many other forms besides taxes: a tendency to greater regulation and differing spending priorities than those of lower-taxed states, for example. …Fueled by its taxes on high earners and on businesses, California has an enormous budget. Its general fund alone tops $200 billion. You might expect, for that money, top-notch services from government, but the opposite is true. …Advocates for higher taxes often argue that progressive tax systems like California’s are fairer because wealthier residents pay at higher rates. …And yet high-taxing states like California, New York, and New Jersey also have among the highest rates of outmigration. These states are so “fair” that a significant number of their lower- and middle-income residents can’t wait to leave.

The most important insight of Malanga’s column is that California politicians say that they are trying to punish the rich, but lower-income and middle-class people are suffering a lot of collateral damage.

Which should come as no surprise.

P.S. If you want to enjoy some California-themed humor, click here and here.

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In mid-2021, I wrote about long-run policy lessons from the coronavirus pandemic.

That column focused on insights from my five-part series (see here, here, here, here, and here) about the failure of big government.

More specifically, the CDC and FDA did a terrible job domestically and the WHO did a terrible job internationally.

By contrast, millions of lives were saved by the private sector.

But we also learned fiscal policy lessons in addition to public health lessons.

The most depressing fiscal lesson is that politicians love having any excuse to spend more money.

Though that’s hardly a surprise.

Now that we are in early-2023, are there more lessons to be learned? The answer is yes.

A new study by Professors Alex Tabarrok and Robert Tucker Omberg, published by the Oxford Review of Economic Policy, finds no relationship between supposed pandemic preparedness and health outcomes.

How effective were investments in pandemic preparation? We use a comprehensive and detailed measure of pandemic preparedness, the Global Health Security (GHS) Index produced by the Johns Hopkins Center for Health Security (JHU), to measure which investments in pandemic preparedness reduced infections, deaths, excess deaths, or otherwise ameliorated or shortened the pandemic. We also look at whether values or attitudinal factors such as individualism, willingness to sacrifice, or trust in government—which might be considered a form of cultural pandemic preparedness—influenced the course of the pandemic. Our primary finding is that almost no form of pandemic preparedness helped to ameliorate or shorten the pandemic. Compared to other countries, the United States did not perform poorly because of cultural values such as individualism, collectivism, selfishness, or lack of trust. General state capacity, as opposed to specific pandemic investments, is one of the few factors which appears to improve pandemic performance.

The study is not free to access, but Professor Tabarrok cited it at Marginal Revolution and shared this chart comparing death rates in the (allegedly) best prepared nation and the least prepared nation.

The Omberg-Tabarrok study shows us that pre-pandemic government policies were ineffective.

What about government policies once the pandemic hit?

In a column for the Washington Times, Richard Rahn points out that heavy-handed government intervention also was ineffective.

Sweden had the lowest aggregate excess mortality percentages (2.79)… Sweden was unique in that it had the fewest “lockdown” requirements, while countries like the U.S., with substantial lockdowns, had much higher excess deaths. We also know that within the U.S., states with very onerous lockdown requirements, like New York, have total age-adjusted higher death rates than states like Florida with few lockdown requirements. The big mistake the CDC people (Dr. Anthony Fauci, Dr. Francis Collins, etc.) made was to single-mindedly focus on potential deaths directly from COVID-19 while largely ignoring the potential deaths indirectly induced by the lockdowns. …Other studies support the evidence of health harm to people who have not yet died but are likely to have their lives shortened by the indirect effects of the lockdowns. …If the above-described mistakes had not been made, it is no overstatement to say that hundreds of thousands of lives and trillions of dollars could have been saved.

The information about Sweden is worth noting.

But the biggest lesson from Richard’s column is that politicians and bureaucrats failed to consider direct and indirect effects (a problem that is sadly common with government), so their cost-benefit analysis (to the extent they did any) was very flawed.

And we also need to learn that it is depressingly easy for governments to curtail liberty.

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