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Posts Tagged ‘Big Government’

Earlier this year, I pointed out that President Biden should not be blamed for rising prices.

There has been inflation, of course, but the Federal Reserve deserves the blame. More specifically, America’s central bank responded to the coronavirus pandemic by dumping a lot of money into the economy beginning in early 2020.

Nearly a year before Biden took office.

The Federal Reserve is not the only central bank to make this mistake.

Here’s the balance sheet for the Eurosystem (the European Central Bank and the various national central banks that are in charge of the euro currency). As you can see, there’s also been a dramatic increase in liquidity on the other side of the Atlantic Ocean.

Why should American readers care about what’s happening with the euro?

In part, this is simply a lesson about the downsides of bad monetary policy. For years, I’ve been explaining that politicians like easy-money policies because they create “sugar highs” for an economy.

That’s the good news.

The bad news is that false booms almost always are followed by real busts.

But this is more than a lesson about monetary policy. What’s happened with the euro may have created the conditions for another European fiscal crisis (for background on Europe’s previous fiscal crisis, click here, here, and here).

In an article for Project Syndicate, Willem Buiter warns that the European Central Bank sacrificed sensible monetary policy by buying up the debt of profligate governments.

…major central banks have engaged in aggressive low-interest-rate and asset-purchase policies to support their governments’ expansionary fiscal policies, even though they knew such policies were likely to run counter to their price-stability mandates and were not necessary to preserve financial stability. The “fiscal capture” interpretation is particularly convincing for the ECB, which must deal with several sovereigns that are facing debt-sustainability issues. Greece, Italy, Portugal, and Spain are all fiscally fragile. And France, Belgium, and Cyprus could also face sovereign-funding problems when the next cyclical downturn hits.

Mr. Buiter shares some sobering data.

All told, the Eurosystem’s holdings of public-sector securities under the PEPP at the end of March 2022 amounted to more than €1.6 trillion ($1.7 trillion), or 13.4% of 2021 eurozone GDP, and cumulative net purchases of Greek sovereign debt under the PEPP were €38.5 billion (21.1% of Greece’s 2021 GDP). For Portugal, Italy, and Spain, the corresponding GDP shares of net PEPP purchases were 16.4%, 16%, and 15.7%, respectively. The Eurosystem’s Public Sector Purchase Program (PSPP) also made net purchases of investment-grade sovereign debt. From November 2019 until the end of March 2022, these totaled €503.6 billion, or 4.1% of eurozone GDP. In total, the Eurosystem bought more than 120% of net eurozone sovereign debt issuances in 2020 and 2021.

Other experts also fear Europe’s central bank has created more risk.

Two weeks ago, Desmond Lachman of the American Enterprise Institute expressed concern that Italy had become dependent on the ECB.

…the European Central Bank (ECB) is signaling that soon it will be turning off its monetary policy spigot to fight the inflation beast. Over the past two years, that spigot has flooded the European economy with around $4 trillion in liquidity through an unprecedented pace of government bond buying. The end to ECB money printing could come as a particular shock to the Italian economy, which has grown accustomed to having the ECB scoop up all of its government’s debt issuance as part of its Pandemic Emergency Purchase Program. …the country’s economy has stalled, its budget deficit has ballooned, and its public debt has skyrocketed to 150 percent of GDP. …Italy has had the dubious distinction of being a country whose per capita income has actually declined over the past 20 years. …All of this is of considerable importance to the world economic outlook. In 2010, the Greek sovereign debt crisis shook world financial markets. Now that the global economy is already slowing, the last thing that it needs is a sovereign debt crisis in Italy, a country whose economy is some 10 times the size of Greece’s.

Mr. Lachman also warned about this in April.

Over the past two years, the ECB’s bond-buying programs have kept countries in the eurozone’s periphery, including most notably Italy, afloat. In particular, under its €1.85 trillion ($2 trillion) pandemic emergency purchase program, the ECB has bought most of these countries’ government-debt issuance. That has saved them from having to face the test of the markets.

And he said the same thing in March.

The ECB engaged in a large-scale bond-buying program over the past two years…, as did the U.S. Federal Reserve. The size of the ECB’s balance sheet increased by a staggering four trillion euros (equivalent to $4.4 billion), including €1.85 trillion under its Pandemic Emergency Purchasing Program. …The ECB’s massive bond buying activity has been successful in keeping countries in the eurozone’s periphery afloat despite the marked deterioration in their public finances in the wake of the pandemic.

Let’s conclude with several observations.

So if politicians won’t adopt good policies and their bad policies won’t work, what’s going to happen?

At some point, national governments will probably default.

That’s an unpleasant outcome, but at least it will stop the bleeding.

Unlike bailouts and easy money, which exacerbate the underlying problems.

P.S. For what it is worth, I do not think a common currency is necessarily a bad idea. That being said, I wonder if the euro can survive Europe’s awful politicians.

P.P.S. While I think Mr. Buiter’s article in Project Syndicate was very reasonable, I’ve had good reason to criticize some of his past analysis.

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As part of my (reality-based) opposition to a value-added tax, I testified to the Ways & Means Committee back in 2011.

My primary argument against the VAT is that it would enable a bigger burden of government spending.

I frequently share this chart, for instance, that shows that the nations in Western Europe were quite similar to the United States back in the 1960s, with government budgets that consumed about 30 percent of economic output.

That was before they enacted VATs.

But once European politicians got that new source of revenue, the spending burden diverged, with the welfare state becoming a much larger burden in Western Europe than in the United States.

In other words, the VAT was a money machine for big government.

That argument is just as accurate today as it was back in 2011.

For today’s column, however, I want to focus on what I said in the last minute of my testimony (beginning about 4:00).

I pointed out that VAT supporters are wrong when they claim that adoption of this new tax would enable reductions in the income tax.

And if you peruse my written testimony, you’ll see that I included several charts showing how tax burdens changed between 1965 and 2008. In every case, I showed that European politicians actually increased the burden of income taxes after they enacted their VATs.

Is that still true?

Of course.

Here’s an updated version of the chart showing that the overall tax burden dramatically increased after VATs were imposed.

In the United States, by contrast, the overall tax burden only increased during this time period from 23.6 percent of GDP to 25 percent of GDP.

Still bad news, but nowhere near as bad as Western Europe, where the overall tax burden jumped by more than 13 percentage points.

Now let’s peruse the updated version of the chart showing what happened to taxes on income and profits.

As you can see, European governments definitely did not use VAT revenues to lower other taxes.

In the United States, by contrast, the tax burden on income and profits only increased during this time period from 11.3 percent of GDP to 11.6 percent of GDP.

Still bad news, but nowhere near as bad as Western Europe, where the tax burden on income and profits jumped by nearly 5 percentage points.

Now let’s peruse the updated version of the chart showing what happened to taxes on corporations (this chart is especially important because there are very naive people in the business community who think that they can avoid higher taxes on their companies if they surrender to a VAT).

As you can see, governments in Europe have been grabbing more money from corporations since VATs were imposed.

In the United States, by contrast, the tax burden on corporations actually decreased during this time period from 3.9 percent of GDP to 1.3 percent of GDP.

By every possible measure, the value-added tax is a big mistake (as even the IMF inadvertently shows).

Unless, of course, politicians first get rid of the income tax – including repealing the 16th Amendment and replacing it with an ironclad prohibition against any future income tax.

But that’s about as likely as me playing the outfield for the New York Yankees in this year’s World Series.

P.S. I mentioned at the very end of my testimony that we did not have clear evidence from other nations that subsequently adopted VATs. In the case of Japan, we now do have data showing how the VAT is financing bigger government.

P.P.S. Some VAT advocates actually claim the levy is good for growth. That’s a nonsensical claim. VATs drive a wedge between pre-tax income and post-tax consumption. What they really mean to say is that VATs don’t do as much damage, on a per-dollar-raised basis, as conventional income taxes (with punitive rates and double taxation).

P.P.P.S. You can enjoy some good anti-VAT cartoons herehere, and here.

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After almost 16 months in office, what is President Biden’s track record on fiscal policy?

The good news is that his big tax-and-spend plan to “build back better” has not been approved by Congress (and fingers crossed that it stays that way).

The bad news is that he has done other things, such as getting a fake stimulus though Congress, as well as a so-called infrastructure package.

The Committee for a Responsible Federal Budget put together an estimate of his major initiatives.

By the way, the CRFB folks fixate on how these initiative impact the deficit. What we really should be concerned about is how much money is being spent.

But let’s set that aside and focus instead on a jaw-dropping claim from the White House.

Even though all of his major initiatives have increased red ink, he is patting himself on the back for lower deficits.

For what it is worth, Biden’s claim is semi-accurate. It is true that budget deficits are temporarily falling.

But not because of him. Instead, red ink is falling because there was massive, one-time, multi-trillion dollar emergency spending for the COVID pandemic in 2020. That spending began to wind down in 2021 and it has mostly dissipated this year, so of course deficits have fallen.

For Biden to take credit for this drop would be akin to Truman taking credit for the big drop in red ink after World War II ended.

Eric Boehm of Reason wrote a column that debunks Biden’s ludicrous claim.

…this year’s budget deficit is forecasted to be the third or fourth-largest in American history—but President Joe Biden claims…his administration is overseeing a period of fiscal austerity. …Here are some words that actually tumbled out of the president’s mouth at a press conference… “We’re on track to cut the federal deficit by another $1.5 trillion by the end of this fiscal year. …on top of us having a $350 billion drop in the deficit last year, my first year as president,” Biden continued. …Those facts, however, exclude a few key details. …Biden took office the year after the budget deficit hit previously unimaginable highs due to a completely unprecedented spending binge triggered by a once-in-a-generation public health disaster. …if you look at the actual budgetary baselines published by the Congressional Budget Office—that is, the ongoing amount of annual federal spending absent any emergency stimulus bills like the ones passed on several occasions during the height of the pandemic—Biden has overseen a noticeable increase in the deficit above the pre-pandemic baseline. According to the Committee for a Responsible Federal Budget, a fiscal watchdog group that advocates for lower deficits, Biden’s policies have added about $2.5 trillion to the deficit over the next 10 years.

Brian Riedl is now with the Manhattan Institute, but we used to work together earlier this century at the Heritage Foundation. One of his admirable traits is that he hasn’t lost the ability to be outraged.

That comes through in his tweet about Biden’s supposed accomplishment.

By the way, I’m not making a partisan point. I have no doubt Trump would have done the same thing.

After all, politicians are probably the least ethical people in the nation. And Washington brings out the worst of the worst.

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Back in 2012, I endorsed a wretched socialist, Francois Hollande, to be president of France.

I knew he was terrible, but the supposedly right-wing incumbent, Nicolas Sarkozy, also was a proponent of dirigisme. As I wrote at the time, “it’s always better to let the left-wing party win when the supposedly right-wing party has a statist candidate.”

In France’s next election, in 2017, French voters faced a similarly dismal choice. Emmanuel Macron ran against Marine Le Pen and I urged voters to “pick the socialist over the socialist.”

Macron prevailed in that race and just won a rematch against Le Pen on Sunday.

I didn’t bother writing about the race ahead of time because it didn’t matter. Neither candidate promoted good ideas.

If you want to know France’s problems, the Fraser Institute’s Economic Freedom of the World is a good place to start.

According to the most recent edition, France ranks #53, which is a very poor grade for a developed nation.

The country’s biggest problem is fiscal policy. Out of 163 nations, it ranks #155 for “size of government.”

That’s even worse than Greece.

And if you look at the historical data from the Fraser Institute, you’ll see that France’s score actually has declined since Macron won in 2017.

Not by much, to be sure, but still a move in the wrong direction. Moreover, given France’s demographic outlook, things will get much worse in the not-too-distant future.

All the more reason why I’m not excited about Macron’s reelection victory.

But what do others say?

If you want a semi-optimistic perspective, the Wall Street Journal opined on the potential implications and seems to think Macron’s heart is in the right place.

The question is whether Mr. Macron will do more in the next five years to make France great again. …Mr. Macron defies traditional political divisions. In his first term he appointed center-right figures to key positions and made progress with tax and labor reform.  …Ms. Le Pen…ran to his left on economics, calling for a wealth tax on financial assets and trade protectionism. …While Mr. Macron showed free-market instincts in his first term, he has tacked to the left recently to shore up support from young and progressive voters. Far-left candidate Jean-Luc Mélenchon says he wants to be prime minister, and the coming National Assembly elections could be decisive in determining the direction of the country. Focusing on pro-growth reform—rather than climate obsessions or populist gestures like limiting executive pay—would help restore the economic vitality that Mr. Macron originally promised. It would also make it less likely for a radical like Ms. Le Pen or Mr. Mélenchon to take power in five years.

For a more negative perspective, here’s a CapX column from 2019, authored by Anne-Elisabeth Moutet.

…tax increases; a ballooning national debt and the highest government spending ratio to GDP in Europe… It’s become harder than ever to pinpoint a specific “Macron line”, but whatever it is, it isn’t a liberal one. …The president’s idea for modernising France’s industry is a mix of high-handed, interventionist industrial policy and a brushed-up reliance on top-down sectoral choices reminiscent of every single one of his predecessors, from de Gaulle onwards. …he announced €5bn investment into Le French Tech from well-coaxed institutional investors, with the aim of creating “25 French unicorns by 2025”. (The irony of having a government programme dedicated to create privately-held tech start-ups valued above $1bn seems to have escaped him). …The president’s policies oscillate according to polling and estimated image gains. As a result, the supposedly “courageous” reforms promised…are…watered down. …Macron believes sincerely in his top-down…plans.

For what it’s worth, I suspect Macron understands that his nation needs pro-market reform, but I also think he isn’t willing to take any risks to make it happen.

P.S. A few years ago, I shared a story that told you “everything you need to know about France.” Here are some excerpts from another story that captures the awful mindset holding back that country.

In less than three weeks, board game lovers in France bought all 10,000 copies of Kapital!, a new game about class struggle, injustice and French politics created by French sociologists. …One player will draw the good lot and fall among the rich; others will be the struggling poor and middle class. All players have to fight their way to the “tax haven” at the conclusion of the board. …The sociologists created the game to raise awareness about social injustice and the gap between the rich and poor. …The game was an instant success, selling out in less than three weeks.

This is almost as bad as the European Commission’s online game that was designed to brainwash children in favor of higher taxes.

P.P.S. Here’s a must-watch video explaining why America shouldn’t become another France.

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I’m in the United Kingdom for the Free Market Road Show and had planned on writing today about the awful economic policies of Boris Johnson, the supposedly Conservative Prime Minister.

Yes, he produced an acceptable Brexit, but otherwise has been a big spender. Sort of the a British version of Trump or Bush.

But I’m going to give Boris a (temporary) pass because I can’t help but vent my spleen about this sign I saw yesterday while touring the Imperial War Museum in London.

As you can imagine, I was irked by this bit of pro-socialist propaganda.

Since when does a government takeover of private industry lead to “a fairer, more caring society”?!?

Maybe that was the intention of the voters who elected Clement Attlee, the Labour Party who became Prime Minister after the 1945 election.

The real-world results, though, were disappointing. Indeed, the sign acknowledges that the post-war recovery was anemic.

But it then put the blame on conscription.

As a sensible Brit would say, this is utter bollocks.

Plenty of other nations drafted men into military service, yet they still managed to enjoy decent growth.

Why did those countries enjoy more prosperity? Because they didn’t copy Clement Attlee’s horrible mistake of nationalizing industry (genuine socialism, by the way).

Indeed, while the United Kingdom was becoming the “sick man of Europe,” West Germany boomed in large part because it went in the other direction, getting rid of dirigiste policies such as price controls.

There is a happy ending to this story.

Margaret Thatcher was elected in 1979 and privatized industries – in addition to other pro-growth reforms such as spending restraint and tax-rate reductions.

As a result, the United Kingdom in a very short period of time managed to overtake Germany in the Fraser Institute’s rankings for economic liberty.

I’ll close with a thoughtful and magnanimous offer.

I’ve corrected the mistaken wording on the sign at the Imperial War Museum. I hereby offer – free of charge – this new version.

P.S. It’s a long program, but I strongly encourage readers to watch Commanding Heights: The Battle of Ideas, which tells the economic history of the 20th century. You’ll learn how Thatcher saved the U.K. economy and how Reagan saved the U.S. economy.

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No sensible person wants to copy the big-spending policies of failed welfare states such as Greece.

Unfortunately, many politicians lack common sense (or, more accurately, they are motivated by short-run political ambition rather than what’s in the long-run best interest of their nations).

So if they decide that they politically benefit by spending lots of other people’s money, they have to figure out how to finance that spending.

One option is to use the central bank. In other words, finance big government with the figurative printing press.

This is what’s know as Modern Monetary Theory.

From a theoretical perspective, it’s crazy. And if Sri Lanka is any indication, it’s also crazy based on real-world evidence.

In an article for The Print, based in India, Mihir Sharma looks at that government’s foolish monetary policy.

Cranks are considered cranks for a reason. That is the lesson from Sri Lanka… How did this tiny Indian Ocean nation end up in such straits? …the Rajapaksas turned Sri Lanka’s policymaking over to cranks… The central bank governor at the time, Weligamage Don Lakshman, informed the public during the pandemic that nobody need worry about debt sustainability…since “domestic currency debt…in a country with sovereign powers of money printing, as the modern monetary theorists would argue, is not a huge problem.” Sri Lanka is the first country in the world to reference MMT officially as a justification for money printing. Lakshman began to run the printing presses day and night; his successor at the central bank, Ajith Nivard Cabraal, who also denied the link between printing money and inflation or currency depreciation, continued the policy. …Reality did not take long to set in. By the end of 2021, inflation hit record highs. And, naturally, the clever plan to “increase the proportion of domestic debt” turned out to be impossible… Proponents of MMT will likely say that this was not real MMT, or that Sri Lanka is not a sovereign country as long as it has any foreign debt, or something equally self-serving.

Professor Steve Hanke of Johns Hopkins University also discussed Sri Lanka’s crazy monetary policy in an article for National Review. And he also offered a way to reverse the MMT mistake.

This slow-motion train wreck first began in November 2019 when Gotabaya Rajapaksa won a decisive victory in the country’s presidential elections. …In total control, President Rajapaksa and his brother Mahinda, the prime minister, went on a spending spree that was financed in part by Sri Lanka’s central bank. The results have been economic devastation. The rupee has lost 44 percent of its value since President Rajapaksa took the reins, and inflation, according to my measure, is running at a stunning 74.5 percent per year. …What can be done to end Sri Lanka’s economic crisis? It should adopt a currency board, like the one it had from 1884 to 1950… Most important, the board could not loan money to the fiscal authorities, imposing a hard budget on Ceylon’s fiscal system. The net effect was economic stability — and while stability might not be everything, everything is nothing without stability.

For readers who are not familiar with currency boards, it basically means creating a hard link with another nation’s currency – presumably another nation with a decent history of monetary restraint.

It’s what Hong Kong has with the United States (even though U.S. monetary policy over time has been less than perfect).

A currency board is not quite the same as “dollarization,” which is actually adopting another nation’s currency, but it’s a way of making sure local politicians have one less way of ruining an economy.

Let’s conclude with a story from the U.K.-based Financial Times, written by Tommy Stubbington and Benjamin Parkin. They provide some grim details about Sri Lanka’s plight.

Sri Lanka owes $15bn in bonds, mostly dollar-denominated, of a total $45bn long-term debt, according to the World Bank. It needs to pay about $7bn this year in interest and debt repayments but its foreign reserves have dwindled to less than $3bn. …Sri Lanka has never defaulted and its successive governments have been known for a market-friendly approach. …Sri Lanka has previously entered 16 programmes with the IMF.

By the way, I can’t help but comment about a couple of points in the article.

The reporters claim that Sri Lanka has been “known for a market-friendly approach.”

To be blunt, this is nonsense. I’ve been dealing with international economic policy for decades and no supporter of free markets and limited government has ever claimed the country was anywhere close to being a role model for good policy.

And if you peruse the latest edition of Economic Freedom of the World, you’ll see that Sri Lanka has very low scores, far below Greece and only slightly ahead of Russia.

And you can click here to see that it has always received dismal scores.

But maybe it’s “market-friendly” by the standards of left-leaning journalists.

I also can’t resist noting that Sri Lanka has already received 16 bailouts from the International Monetary Fund, according to the article.

This is further evidence that it’s not a market-oriented nation.

And it’s also evidence that IMF intervention does not make things better. In many cases, it’s akin to sending an arsonist to put out a fire.

P.S. The Mihir Sharma article also discusses the Sri Lankan government’s crazy approach to agriculture.

Last April, the government followed through on a campaign promise to transition Sri Lanka to organic farming by banning the import and use of synthetic fertilizers. More than two-thirds of Sri Lanka’s people are directly or indirectly dependent on agriculture; economists and agronomists warned that a transition to organic farming on that scale would destroy productivity and cause incomes to crash. …Unsurprisingly, the cranks were wrong. The production of rice — the basic component of Sri Lankans’ diet — and of tea — the country’s main export — sank precipitously.

Needless to say, it’s not a good idea for politicians to deliberately hurt a nation’s agriculture sector.

Just like it’s not a good idea for politicians in places like the United States to deliberately subsidize the sector. The right approach is to be like New Zealand and have no policy.

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Keynesian economics is based on the misguided notion that consumption drives the economy.

In reality, high levels of consumption should be viewed an indicator of a strong economy.

The real drivers of economic strength are private investment and private production.

After all, we can’t consume unless we first produce.*

Not everyone agrees with these common-sense observations. The Biden Administration, for instance, claimed the economy would benefit if Congress approved a costly $1.9 trillion “stimulus” plan last year.

Yet we wound up with 4 million fewer jobs than the White House projected. We even wound up with fewer jobs than the Administration estimated if there was no so-called stimulus.

So what did we get for all that money?

Some say we got inflation. In a column for the Hill, Professor Carl Schramm from Syracuse is unimpressed by Biden’s plan. And he’s even less impressed by the left-leaning economists who claimed it is a good idea to increase the burden of government.

Nobel Laureate economist Joseph Stiglitz rounded up another 16 of the 36 living American Nobel Prize economists to declare, in an open letter, that…there was no threat of inflation. …The Nobelists’ letter showed that those signing had bought Team Biden’s novel argument that its enormous expansion of social welfare programs really was just a different form of infrastructure investment, just like roads and bridges. …The laureates seemed to have overlooked that previous COVID benefits had often exceeded what tens of millions of workers regularly earned and that recipients displaced by COVID were never required to look for other work. While the high priests of economic “science” were cheering on higher federal spending, larger deficits and increased taxes, employers were and are continuing to deal with inflation face-to-face. …The Nobelists assured that we would see a robust recovery because of President Biden’s “active government interventions.” Their presumed authority was used to give credence to the president’s continuously twisting storyline on inflation — that it was “transitory,” good for the economy, a “high-class problem,” Putin’s fault for invading Ukraine, and the greed of oil and food companies… Today’s fashionable goals seem to have displaced the no-nonsense pragmatism that has long characterized economics as a discipline. …Don’t expect a mea culpa from Stiglitz or his coauthors any time soon. …They can be wrong, really wrong, and never pay a price.

The New York Post editorialized about Biden’s economic missteps and reached similar conclusions.

President Joe Biden loves to blame our sky-high inflation on corporate greed and Vladimir Putin. But a new study from the San Francisco Fed shows it was Biden himself who put America on this grim trajectory. …other advanced economies…haven’t seen anything like the soaring prices now punishing workers across America. Which means that the spike is due to something US-specific, rather than global prevailing conditions. That policy, was, of course, Biden’s signature economic “achievement.” …The damage it did has been massive. …inflation…to 7%… Put in concrete terms, a recent Bloomberg calculation translates this to an added $433 per month in household expenses for 2022. And historic producer price inflation, a shocking 10%, guarantees even more pain ahead.

For what it’s worth, I don’t fully agree with Professor Schramm or the New York Post.

They are basically asserting that Biden’s wasteful spending is responsible for today’s grim inflation numbers.

I definitely don’t like Biden’s spending agenda, but I agree with Milton Friedman that it is more accurate to say that inflation is a monetary phenomenon.

In other words, the Federal Reserve deserves to be blamed.

The bottom line is that Keynesian monetary policy produces inflation and rising prices while Keynesian fiscal policy produces more wasteful spending and higher levels of debt.

I’ll close with a couple of caveats.

  • First, Friedman also points out that there’s “a long and variable lag” in monetary policy. So it is not easy to predict how quickly (or how severely) Keynesian monetary policy will produce rising prices.
  • Second, Keynesian deficit spending can lead to Keynesian monetary policy if a central bank feels pressure to help finance deficit spending by buying government bonds (think Argentina).

*Under specific circumstances, Keynesian policy can cause a short-term boost in consumption. For instance, a government can borrow lots of money from overseas lenders and use that money to finance more consumption of things made in places such as China. The net result of that policy, however, is that American indebtedness increases without any increase in national income.

P.S. You can read the letter from the pro-Keynesian economists by clicking here. And you can read a letter signed by sensible economists (including me) by clicking here.

P.P.S. Keynesianism is a myth with a history of failure in the real world.

It’s also worth pointing out that Keynesians have been consistently wrong with predicting economic damage during periods of spending restraint.

  • They were wrong about growth after World War II (and would have been wrong, if they were around at the time, about growth when Harding slashed spending in the early 1920s).
  • They were wrong about Thatcher in the 1980s.
  • They were wrong about Reagan in the 1980s.
  • They were wrong about Canada in the 1990s.
  • They were wrong after the sequester in 2013.
  • They were wrong about unemployment benefits in 2020.

Call me crazy, but I sense a pattern. Maybe, just maybe, Keynesian economics is wrong.

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I’m not a fan of the government-distorted health system in the United States.

Various laws and programs from Washington have created a massive problem with third-party payer, which makes America’s system very expensive and inefficient.

But it’s possible to have a system that is even worse. Americans can look across the ocean at the United Kingdom’s National Health Service.

Our British friends are burdened with something akin to “Medicare for All.”

But it’s even worse because doctors and nurses are directly employed by government, which means they have been turned into government bureaucrats.

And government bureaucrats generally don’t have a track record of good performance. That seems to apply to health bureaucrats, as captured by this Alys Denby column for CapX.

Numbers are no way to express a human tragedy, but those in the Ockenden Report into maternity services at Shrewsbury and Telford Hospital NHS Trust are nonetheless devastating. The inquiry examined 1,592 incidents since 2000. It found that poor care led to the deaths of 201 babies and nine mothers; 94 babies suffered avoidable brain damage; and one in four cases of stillbirth could have had a different outcome. That’s hundreds of lives lost, and hundreds of families suffering unimaginable pain, all on the watch of ‘Our NHS’. …the report is strewn with examples of individual cruelty and incompetence. Bereaved parents…were given excuses, false information and even blamed for their own child’s death. The Health Secretary has said that vital clinical information was written on post-it notes that were swept into the bin by cleaners. …The NHS has a culture of arrogance, sanctimony and impunity.

And here are some excerpts from a 2021 article in National Review by Cameron Hilditch.

The NHS has proven itself comprehensively and consistently incapable of dealing with a regular flu season, something that crops up at the same predictable time of year in every country north of the equator. It has long been obvious that Britain’s single-payer health-care system isn’t fit for purpose even in normal times, much less during a global pandemic. Yet the NHS’s failures are systematically ignored. …age-standardized survival rates in the U.K. for the most common kinds of cancer are well below those of other developed countries, which translates into thousands of needless deaths… The excess deaths that the U.K. is suffering…along with the crushing physical and mental burdens borne by British doctors and nurses ultimately redound to this long-term failure of British culture. By transforming a medical institution into a cultural institution for the sake of forging a new, progressive national identity, Britons have underwritten decades of deadly failure.

This is damning information.

To be sure, mistakes will happen in any type of health system. But when government runs the show, the odds of appropriate feedback are much lower.

If you don’t believe me, click here, here, here, here, here, here, here, here, here, here, here, here, here, here, hereand here.

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When debating big issues such as the size and scope of government, I like to think that facts matter. Maybe I’m being naive, but people should look at evidence before deciding whether to make government bigger or smaller.

And with Biden proposing a big expansion in the size of the welfare state, this is why I regularly compare the economic performance of the United States and various European nations.

After all, if we’re going to make America more like Europe, shouldn’t we try to understand what that might mean for the well being of the citizenry?

With this in mind, I want to share this tweet (based on this data) from Stefan Schubert at the London School of Economics.

The obvious takeaway is that the average person in the United States enjoys much higher living standards (more than 50 percent higher) than the average person in the European Union.

Even more astounding, the United States even has a big 20-percent advantage of the wealthy tax haven of Luxembourg.

By the way, the above data may understate the gap if you make apples-to-apples comparisons.

Nima Sanandaji compared the economic output of Scandinavians who emigrated to the United States with Scandinavians who stayed home.

He found even bigger gaps, one example of which is the data about Swedes in this chart.

Let’s look at one more bit of data.

Another way of illustrating the gap is see how European nations no longer are converging with the United States (and may actually be diverging).

The only good news for Europeans (if we’re grading on a curve) is that there’s been a decline in both the relative and absolute levels of economic freedom in the United States during the 21st century.

If that continues, the U.S. may “catch up” to Europe at some point in the future. Joe Biden certainly is working for that outcome.

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When the Center for Freedom and Prosperity released this video back in 2009, we wanted people to understand the link between big government and big corruption.

Simply stated, unethical people are naturally drawn to politics and unethical interest groups naturally seek to obtain unearned wealth (a process known as “rent seeking“).

The obvious takeaway is that making government bigger is going to mean that these unsavory groups will have even greater ability to engage in corruption.

None of this is a surprise to libertarian-oriented people. And it’s definitely not a surprise to the Washington insiders who benefit from this racket.

But it’s always a surprise when left-leaning journalistic outfits accidentally stumble on the truth. As evinced by excerpts from this story from Jonathan O’Connell and Anu Narayanswamy in the Washington Post.

President Biden’s domestic…drew unprecedented attention from Washington lobbyists and special interest groups last year. The lobbying industry had a record year in 2021, taking in $3.7 billion in revenue as companies, associations and other organizations pressed Congress and the Biden administration over trillions of dollars in new pandemic spending and rules… The jump in 2021, when lobbying spending was about 6 percent higher than 2020, came as the government’s pandemic interventions and record expenditure took center stage, including an additional $1.9 trillion in pandemic relief and a $1.2 trillion infrastructure package.

Needless to say, the explosion of lobbying is a predictable response to politicians having an additional $3 trillion-plus of other people’s money to distribute to their political supporters.

Not to mention the massive expansion of regulation and red tape, some general and some because of the pandemic.

What worries me is that this expansion will be permanent.

Thousands of companies and organizations appeared to hire lobbyists for the first time during the pandemic, as more than 3,700 companies and other groups that spent no money lobbying the government in 2019 paid lobbyists last year. ..,Among the new entrants are dozens of health-care, technology, tourism and recreation companies, including individual museums, theaters and entertainment firms. …Some of those groups may have hired lobbyists as a temporary measure initially but decided to increase their spending as the pandemic continued, said Dan Auble, an OpenSecrets senior researcher. …“I think it’s likely there are some people who came to Washington a couple of years ago and have stuck around, or industries that realized the benefits they could accrue by having an active presence in Washington.”

I’m somewhat nauseated by “the benefits they could accrue by having an active presence in Washington.”

That phrase is like thieves discussing the benefits they could accrue by having an active presence near ATMs.

But notice that I didn’t write that I was totally nauseated. That’s because lobbying is not inherently unethical. There are groups that feel compelled to hire lobbyists merely because they want to protect themselves from being hurt by high tax rates, pointless red tape, and misguided trade rules.

They simply want to be left alone.

Wouldn’t it be nice if we lived in a society where good people didn’t have to worry about predatory politicians (and a world where bad people didn’t have the ability to steal from others by using government?

P.S. Here’s a good video about how Washington gets fat and happy from corruption. And here’s an amusing video about “Kronies.”

P.P.S. I’ve been accused of corruption and I wasn’t upset. That’s because I realize I’m different than most everyone else in Washington.

P.P.P.S. One of the messages in the above video is that you can’t control corruption merely by passing more laws dealing with issues such as campaign finance.

P.P.P.P.S. At the risk of stating the obvious, corruption in Washington is a bipartisan problem.

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Our series on the failure of Bidenomics has touched on four topics.

For our fifth edition, let’s turn our attention to the president’s misguided fiscal policy.

This means analyzing three pieces of legislation.

First, his so-called stimulus was approved last year, adding $1.9 trillion to the nation’s fiscal burden. The president and his team claimed it would lead to four million additional jobs, but the net result was a drop in employment compared to the White House’s own projections.

Second, his costly infrastructure plan also was approved last year, though only a small fraction of new spending was actually for roads and bridges (and even that spending should be handled by state and local governments).

Third, his “Build Back Better” proposal dramatically would expand the burden of government spending – by $5 trillion over the next decade! Along with a plethora of economy-sapping tax increases.

Regarding the third item, the president so far has not been able to convince all Democratic senators to support the scheme. And with the Senate evenly split between the two parties, Biden needs all of their votes to get his plan approved.

With any luck, that will never happen.

So what is the plan wrong? Along with several hundred other economists, I signed on to this letter explaining why Biden’s massive expansion of the welfare state would be bad news for the country.

The most important part of the statement is that bigger government would “reduce the number of people working, badly misallocate capital, and hobble economic growth.”

Based on research from the Congressional Budget Office, the damage would be enormous, reducing worker compensation by $1.6 trillion over the next ten years.

What about the other issues mentioned in the statement, such as debt and inflation?

It’s not good that debt goes up, of course, but that’s a symptom of the bigger problem, which is government consuming a greater share of the nation’s output.

Also, at the risk of being annoyingly pedantic, I don’t actually think Biden’s budget would increase inflation. That only happens if the Federal Reserve adopts bad monetary policy.

That being said, central banks are more likely to adopt bad monetary policy when politicians are following bad fiscal policy. So the core assertion is correct.

P.S. I don’t know whether to characterize this as absurd, pathetic, addled, or dishonest, but Joe Biden actually claimed his budget plan has zero cost.

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Yesterday’s column explained that Biden’s proposals to expand the welfare state were bad news, in part because government subsidies often lead to inefficiency and higher prices.

That’s not a smart strategy when inflation already is at 40-year highs.

President Biden did address the topic of rising prices during his speech, but his approach was so incoherent that even Larry Summers (Treasury Secretary for Bill Clinton and head of the National Economic Council for Barack Obama) felt compelled to share some critical tweets.

This is remarkable. I’ve spent the past three decades fighting against some of Summers’ bad ideas on fiscal policy (he was a big supporter of the OECD’s anti-tax competition project, for instance).

But now we’re sort of on the same side (at least on a few issues) because Biden has embraced a reckless Bernie Sanders-type agenda of budget profligacy, class-warfare taxes, regulatory excess, and crass protectionism that is too extreme for sane people on the left.

Along with a head-in-the-sand view of monetary policy.

In a column for Canada’s Fraser Institute, Robert O’Quinn and I addressed Biden’s strange comments on inflation.

Here’s some of what we wrote on that topic.

After a disastrous first year pursuing an agenda that became increasingly unpopular, President Biden had an opportunity to reset his administration in a centrist direction as part of his first State of the Union Address. But he didn’t. On every domestic issue, he catered to the Democratic Party’s hardcore left-wing activists… Inflation, as Nobel laureate Milton Friedman observed, is always and everywhere a monetary phenomenon. …In his speech, Biden ignored the true cause of inflation. Instead, he offered a grab bag of statist ideas such as aggressive antitrust enforcement, price controls on prescription drugs, and tax credits for energy conservation and green energy—policies that, whatever their merits, have little or nothing to do with inflation.

Our basic message is that Biden ignored the real cause of inflation (bad monetary policy by the Federal Reserve) and instead came up with ideas (either bad or irrelevant) to addresses the symptom(s) of inflation.

We also noted that Biden’s nominees to the Federal Reserve are underwhelming.

Moreover, he has been pushing three controversial nominees to the Federal Reserve Board—Sarah Bloom Raskin, Lisa Cook and Philip Jefferson—who lack monetary expertise and are generally regarded as inflation doves. Raskin’s primary “qualification” is her support for using the Fed’s regulatory powers to divert credit away from oil and natural gas production. Cook and Jefferson have primarily written about poverty and race, which are outside of the Fed’s legislative mandate.

What we need is a president – like Ronald Reagan – who understands that the inflation genie needs to be put back in the bottle and thus pushes the Federal Reserve in the right direction.

Instead, we have a president who thinks it’s a place where left-leaning activists should get patronage appointments.

P.S. If you have the time and interest, here’s an 40-minute video explaining the Federal Reserve’s track record of bad monetary policy.

P.P.S. If you’re constrained for time, I recommend this five-minute video on alternatives to the Federal Reserve and this six-minute video on how people can protect themselves from bad monetary policy.

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More than 11 years ago, the Center for Freedom and Prosperity released this video about the OECD, a Paris-based bureaucracy subsidized by American taxpayers.

As outlined in the video, there are many reasons to dislike the Organization for Economic Cooperation and Development.

As a fan of tax competition, I don’t like the OECD because the bureaucrats persecute jurisdictions with low tax burdens.

But the bureaucracy’s pro-tax harmonization campaign is a symptom of a broader problem, which is that the OECD relentlessly advocates for higher taxes.

Consider the recent publication entitled “Fighting Tax Crime – The Ten Global Principles.” As you can see, nine of those ten principles involve more power and authority for government.

Since I’m not an anarcho-capitalist, I realize some taxation is necessary (ideally only the amount needed to finance genuine public goods).

As such, I don’t necessarily condemn enforcement policies.

But I am irked by a big sin of omission. If the bureaucrats at the OECD should have added an 11th principle about modest tax rates.

Why?

Because the academic literature very clearly shows that low tax rates are correlated with better tax compliance.

And those low tax rates also are better for prosperity, which is something that should be of interest to a bureaucracy with the words “economic” and “development” as part of its name.

Heck, some OECD economists have written about these benefits of low tax rates.

But none of that now matters. The bureaucrats today are totally fixated on carrying water for the world’s uncompetitive, high-tax governments.

Which is why I’m a big fan of defunding the OECD.

P.S. I suppose we should be happy that the bureaucrats acknowledge that taxpayers should have rights.

P.P.S. In the interest of fairness, I’ll acknowledge that the OECD occasionally produces good work. I’ve even favorably cited research from the bureaucracy on issues such as government spending and expenditure limits.

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Is the United States becoming more libertarian? In terms of social tolerance, there are reasons for optimism.

  • The legal harassment of drug users is declining.
  • Legal harassment of gay people has virtually disappeared.

But when looking at economic issues, there are plenty of reasons to be pessimistic.

Since my work focuses on economic policy, I don’t think the country is becoming more libertarian. Instead, I would argue we’re becoming more like Europe.

That’s not the worst possible outcome. After all, European nations rank highly in the Human Freedom Index.

But not exactly progress. And definitely not the kind of society libertarians fantasize about.

That being said, Gerard Baker of the Wall Street Journal writes that America may be on the verge of a “libertarian moment.” He starts by presenting a grim hypothesis consistent with public-choice theory.

The rising fear among American conservatives since the early days of the Covid pandemic has been that the nation would emerge from the crisis significantly less free. …Once introduced, rules almost always get more expansive, seldom more limited. Taxes levied for a temporary exigency become perpetual obligations. Government agencies built to administer some specific function are absorbed into the permanent bureaucracy.When a crisis is over, authorities may relinquish some of the powers they assumed during the emergency, but you can be sure that the government’s writ will run permanently larger than before. Wars, depressions, public-health emergencies lead to bigger government, more rules, more-onerous regulations.

He then suggests there will be a backlash.

Indeed, he thinks it has already started.

But let’s indulge a radical thought for a moment. What if the opposite is true this time? What if the ratchet slips, and rising popular hostility to arbitrary, petty, overbearing and ineffective rules induces a popular backlash? Isn’t it possible that the inconsistency, arrogance and mendacity of the people attempting to order our lives will produce the opposite of their desired outcome? …We have seen it most powerfully at the political level in Virginia… Voters explicitly rejected the attempt to make their children wards of the state, and the new Republican governor, Glenn Youngkin, is in a classic struggle with overweening bureaucrats desperate to maintain their reign of pointless mask-mandate authority. In Florida, Gov. Ron DeSantis appears to be cruising to re-election on a record of actively resisting the authoritarian demands of experts, Democrats and the media. …Perhaps the biggest cause for optimism is that this time people don’t have much cause for faith in the omnipotence of the state. …Instead of Franklin D. Roosevelt, Harry S. Truman, Dwight D. Eisenhower and Douglas MacArthur, we have Joe Biden, Kamala Harris, Anthony Fauci and Rochelle Walensky. If people of this caliber had been in charge in 1942, we might all be speaking German.

I want to believe this political backlash is the start of a libertarian moment, but I’m skeptical.

It’s good that more Americans understand that Washington is filled with venal, corrupt, and incompetent people.

But is that going to lead to pro-liberty reforms?

A few states are doing good things, most notably tax reform and school choice.

But there’s no hope in the near future for good policy from Washington.

Indeed, we’re probably going to see more bad policy. As I wrote at the start of the year, Biden’s horrible “Build Back Better” plan for bigger government is one or two votes away from enactment.

To be sure, the risk of new fiscal burdens may decline if Republicans gain control of Congress in November. But even if one assumes that those Republicans want to do something good, there’s no way they’ll have enough votes to overcome a veto from Biden.

The bottom line is that there is no chance of good policy from Washington until after the 2024 election.

And if we wind up with a typical big-government Republican in the White House, the wait for good policy will be much longer.

P.S. We got lots of pro-liberty reforms in the 1990s with Bill Clinton in the White House and Republicans controlling Congress, so divided government can be a recipe for good results. That being said, I fear Biden is more like Obama, meaning the best we’ll be able to hope for is gridlock.

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Other than just-for-the-fun-of-it election predictions, I generally stick to economic analysis rather than politics.

But I acted as a pundit in this interview about Joe Biden’s waning popularity (in my defense, I also used the opportunity to slip is some criticism of his agenda).

My assertions about Biden pushing a hard-left agenda aren’t new.

I made the same point during the 2020 election campaign.

And I take second place to nobody in criticizing what he’s been doing ever since he got inaugurated.

Indeed, the only thing I’m uncertain about is whether I should be more upset about his class-warfare tax agenda or his proposals to expand the burden of government spending.

And, for what it’s worth, I don’t think my comments about Biden’s leftist ideology are controversial. Not even back in 2020.

For instance, here’s the headline from a Vox column that year by Matt Yglesias.

And here’s a headline from a column that same year by Michael Kazin in the New York Times.

Both of those columns said the same thing – namely, that Biden had embraced a leftist agenda (and both authors were very happy about that development).

I also would direct people to this 2019 Washington Post column by Lane Kenworthy, which observes (with approval) that Democrats have moved to the left.

If you want even more evidence, this analysis from 538 also makes the same point.

And a report from Pew notes that there’s a much bigger gap now between Republicans and Democrats – and it’s almost entirely because the median Democrat is now much farther to the left.

There’s one other point from my RT interview that’s worth highlighting.

I mentioned that we’ve had a strange realignment in the United States. Many rich people have moved to the left while lots of low-income people have moved to the right.

Is this because Democrats are pushing some policies that disproportionately help upper-income people, such as student loan bailouts and expanding the deduction for state and local taxes?

Maybe that’s part of the answer, but I mentioned in the discussion that social and cultural issues are probably the main reason.

In other words, wokeness may be the big dividing line nowadays in American politics – which is not exactly good news for libertarians who want the focus to be statism vs. liberty.

P.S. I also used the interview to explain that Reagan was special because he was able to enact big changes (notwithstanding America’s separation-of-powers system). But unlike other presidents who oversaw big changes (such as LBJ and FDR), Reagan actually pushed through reforms that were good for the nation.

P.P.S. I don’t like the idea of government-financed media, but my philosophical objections haven’t prevented me from appearing on PBS, BBC, and France 24, so I figured it was okay to also appear on Russia Today.

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The fight over President Biden’s budget, the so-called Build Back Better plan, has revolved around very important issues.

For today’s column, let’s zoom out and look at two charts that highlight the big issue that should be getting more attention.

First, here’s a comparison of projected inflation with baseline spending (the current spending outlook) and Biden’s budget – all based on economic and fiscal estimates from the Congressional Budget Office.

As you can see, spending was growing far too fast even without Biden’s budget. And if Biden’s budget is enacted, the spending burden will rise more than twice the rate of inflation.

Now let’s look at a chart that illustrates why Biden’s spending spree is just a small part of the problem.

To be sure, it’s not good that the President is exacerbating America’s fiscal problems, but you can see that he’s simply adding a few more straws to the camel’s back.

You’ll also notice that I included both the amount of spending that technically is in Biden’s budget plan (the orange part), as well as CBO’s estimate of the additional spending (the gray part) that will happen if the budget gimmicks are removed.

The bottom line is that America’s fiscal problem is too much government spending.

And that spending burden is getting worse over time because spending is growing faster than the private sector, violating the Golden Rule, which is bad news for jobs and growth.

Making the problem worse, as Biden proposes, will further hurt American prosperity.

P.S. Biden’s plan will increase the deficit, which also is not good, but keep in mind that tax-financed spending is no better than debt-financed spending. In either case, you wind up with the same bad result.

P.P.S. This column has two serious visuals to help understand Biden’s fiscal policy. If you prefer satire, here are two other images.

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Big government is not good news, assuming you value liberty and prosperity.

But at least it’s good for a few laughs, as we saw in January, twice in May, and July. So let’s squeeze in a few more examples before the year ends.

Our first item today is for people who like being misled.

On a related note, we have a way for pathologists to identify those people after they’re dead.

Now let’s shift from pathologists to historians.

Ah, yes, the slippery slope.

Our fourth item is a visual depiction of Mitchell’s Law.

Per tradition, I’ve saved the best for last.

It’s not just the lettering on the door, it’s also the door not going down to the floor and the upside-down “Watch your step” sign.

Yes, this is satire, but you’ll see it’s not that far from the truth if you peruse my “Great Moments” columns.

Remember, if government is the answer, you’ve asked a very strange question.

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If we want more prosperity, what’s the ideal size of government? Anarcho-capitalists would say it shouldn’t exist at all, while some hard-core leftists want something like North Korea, where the state is everything.

The rest of us want something between those extremes, but that still leaves plenty of room for disagreement.

I think limited government is the recipe for economic dynamism, which is why I’m a big fan of the  U.S. Constitution, which was designed to limit the powers of Washington.

Others believe that government should be bigger, in some cases much bigger, with international bureaucracies often advocating this view.

There are even some libertarians who believe that more government spending can lead to economic growth by boosting “state capacity.”

What is state capacity, in case you’re wondering? It’s the notion that the private economy is more likely to flourish if government is sufficiently large that it can competently fulfill certain functions.

Writing for Econlib, Professor Bryan Caplan explains one of the problems with the literature on state capacity.

In the last few years, social scientists have started heavily appealing to “state capacity” to explain the wealth of nations.  Why do some countries prosper?  Because they have great state capacity.  Why do others flounder?  Because they have crummy state capacity.  What do floundering countries need to do in order to prosper?  Build state capacity, naturally. …Weak and question-begging empirics aside, the whole literature is conceptually confused. …the coronavirus crisis plainly shows that Western democracies have overwhelming state capacity. …What’s going wrong?  Simple: Despite fantastic state capacity, the U.S. government has absurd state priorities!  Instead of squandering trillions on poorly-targeted relief, the U.S. government could have spent a few hundred billion on testing and vaccine research.  Better yet, it could have offered hundreds of billions in prizes for progress in these areas – prizes open to anyone on Earth to win. So why didn’t this happen?  Simple: Because the people in charge in virtually every country are irresponsible, disorganized, innumerate, impulsive, and emotional.

Professor Caplan points out that supporters of bigger government don’t have a coherent response to this problem.

I don’t think I’ve ever heard a fan of state capacity research acknowledge this obvious point, much less try to fairly adjudicate it. …I’m tempted to say that appeals to state capacity are tautological, but even the tautologies are half-baked.

If you want an example of how proponents go awry, check out a new study on this topic from Brink Lindsey of the Niskanen Center.

It certainly seems like he wants readers to blindly accept the notion that bigger government means competent government means more prosperity.

The concept of state capacity – “the ability of a state to collect taxes, enforce law and order, and provide public goods” – was developed by political scientists, economic historians, and development economists to illuminate the strong institutional contrast that parallels the economic contrast between rich and poor countries. Rich countries are all distinguished by having large, strong, and relatively capable states; poor countries, by contrast, are generally characterized by weak and frequently ineffective states.

This is a remarkable anti-empirical excerpt. Let’s look at two reason why Lindsey’s argument doesn’t hold water.

First and most important, it ignores the fact that today’s rich countries in the North American and Western Europe got rich – and achieved high levels of state capacity – when they had very small governments (and no redistribution programs) back in the 1800s and early 1900s.

This is a very inconvenient fact for who argue bigger government is needed to boost state capacity.

Second, it also ignores the fact that there are countries today with very high levels of state capacity and very modest-sized governments. Consider, for example, the “Asian Tigers” of Singapore, Hong Kong, and Taiwan. These jurisdictions rank very highly for public goods, yet the burden of government is very small by modern standards.

This is a very inconvenient fact for those who argue bigger government is needed to boost state capacity.

Here’s the bottom line: Does anyone actually believe more government spending will make Washington more competent and effective?

For instance, is there any reason to think Biden’s tax-and-spend policies will improve the federal government’s performance?

Or let’s shift to the developing world, places that don’t do a good job providing actual “public goods.”

These are place that would benefit from (properly defined) state capacity, but who thinks bigger government will lead to better government in Honduras? Or Pakistan? Or Malawi?

Simply stated, it is highly unlikely that bigger government leads to more competent government. Indeed, all the evidence points in the other direction (with the pandemic response being a painful example of how bloated governments do a bad job of responding to genuine problems).

Which is why I developed the Seventh Theorem of Government.

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Given my libertarian sensibilities, I would probably object to foreign aid programs even if they worked.

But I don’t have to deal with that potential quandary because we have ample evidence that you don’t get prosperity by giving money to politicians in poor countries.

Indeed, such policies arguably exacerbate poverty by enabling bad policies such as a bigger burden of government spending.

And when government gets bigger, that creates more opportunities for corruption (the same problem exists in developed nations).

Yet the crowd in Washington seem willfully blind to these problems.

For instance, in a column for today’s Washington Post, Treasury Secretary Janet Yellen and USAID Administrator Samantha Powers opine on the topic of global corruption and never even acknowledge that more government enables more corruption.

Around the world, in countries as varied as Russia, Venezuela and China, the wealthy and the well-connected launder their assets through complex networks of shell companies or transactions involving art, real estate and, occasionally, cryptocurrencies. …what links all corrupt acts is that they take resources from citizens, undermine public trust and — ultimately — threaten the progress of those who fight for democracy. …Autocrats use public wealth to maintain their grip on power, while in democracies, corruption rots free societies from within. …Moving forward, the U.S. government will require many U.S. and foreign companies to report their true owners to the Treasury and to update us when they change hands. We’re also working toward new reporting requirements for real estate transactions and will be enlisting other nations to address these issues. …the United States will deepen and expand support for those fighting kleptocrats and bad actors through a new anti-corruption response fund. …we’ve seen politicians win landslide victories by running on anti-corruption platforms. We want to support their reforms.

Rather than deal with the underlying problem of excessive government, Yellen and Powers focus on the symptom of politicians with stolen loot.

They specifically want readers to think politicians in the developing world won’t steal as much if there’s more red tape that makes it hard for them to invest their loot in the United States.

But since existing laws and regulations against money laundering have been an expensive failure, their proposals seem like a triumph of hope over experience.

If they really wanted to help poor people in the developing world, they would junk the current approach and instead use foreign aid as a reward for good policy (as measured by getting higher scores in the Economic Freedom of the World index).

But they are pursuing the opposite approach.

Mary Anastasia O’Grady of the Wall Street Journal is not impressed by how USAID has been leveraging foreign aid to promote bigger government.

Here are some excerpts from her column on how the bureaucracy is using its supposed anticorruption project as a tool to help the left take power in Guatemala.

Some Americans think of foreign aid as nothing more than money down the drain. If only. U.S. government spending in Latin America is being used by an activist bureaucracy to promote its leftist agenda. If it succeeds, U.S. taxpayers will end up subsidizing instability and economic misery. A U.S. Agency for International Development “anticorruption” forum last week is the latest example. Featured participants included former Guatemalan Attorney General Thelma Aldana and former Guatemalan prosecutor Juan Francisco Sandoval. Both are living in the U.S. and have warrants for their arrests for alleged corruption pending at home. …Rep. Norma Torres (D., Calif.), a champion of the Guatemalan left, was also a panelist at the USAID event, which brings us to the forum’s common denominator: a political agenda…to clear a path for Guatemala’s Jacobins. …Your tax dollars at work.

P.S. During the era of the “Washington Consensus,” there were people in the foreign aid establishment who understood that free markets and limited government were the only effective way of helping poor nations. Today, by contrast, international organizations openly push for bigger government.

This video show why groups such as the IMF and OECD are wildly wrong.

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I’m not a fan of Joe Biden’s economic policy, particularly his tax-and-spend agenda.

I also don’t approve when the Biden Administration uses phony numbers and phony arguments.

But what’s really baffling is the use of accurate numbers to make dumb arguments.

What do I mean by that? Well, here’s a tweet from the Democratic Congressional Campaign Committee celebrating a 2¢-per-gallon reduction in gas prices over a two-week period.

There’s only one problem with this tidbit of data.

If you look at what’s happened to gas prices during Biden’s time in office, the recent 2¢ reduction is swamped by $1 increase over the past year.

So how and why did the White House screw up?

Tim Carney of the Washington Examiner wrote about this strange episode.

The Democratic Congressional Campaign Committee has just produced and tweeted the worst chart of 2021. It is a line graph of gas prices with three data points covering a two-week time span. The absurd dishonesty comes when you look at the y-axis. Each horizontal line represents half of a cent. …Gas prices have nearly doubled over the past 18 months, and Biden’s allies are holding a parade for a less-than-1% drop over two weeks. Thanks, Joe Biden! …So, how did this horrible chart happen? It seems someone at the DCCC took seriously a joke made by liberal blogger Matt Yglesias. …Ron Klain, White House chief of staff (presumably not understanding the tweet was a joke), liked the tweet before the DCCC put it out sincerely.

This is the political equivalent of leading with your chin.

And it’s not the only example.

Here’s a retweet from the White House Chief of Staff, Ronald Klain, celebrating a very tiny improvement in the labor force participation rate.

In this case, there’s nothing disingenuous about the chart. We actually get to see several years of data.

But does this small uptick in the labor force participation rate actually mean that “America is back at work”?

Call me crazy, but it seems that the main takeaway from the chart is that the country is still way short of getting back to pre-pandemic levels of employment.

Which raises the obvious question of whether Biden’s redistribution agenda is making it easier for people to live off the government rather than be part of the workforce.

P.S. My criticisms of Biden are not driven by partisanship. I’m also not a fan when Republicans enact bad policy.

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Earlier this year, extrapolating from a study by the nonpartisan Congressional Budget Office, Robert O’Quinn (former Chief Economist at the Department of Labor) and I authored a study on the economic impact of Biden’s fiscal plan.

The results are not pretty.

Lost jobs, lost wages, lower living standards, and lost competitiveness.

But those estimates were based on the parameters of Biden’s economic plan in the summer.

His agenda has since been modified, which raises the question of how the current proposal would affect economic performance.

In a piece for Canada’s Fraser Institute (publishers of Economic Freedom of the World and Economic Freedom of North America), Robert and I updated our numbers and explained the implications of Biden’s tax-and-spend agenda.

According to independent experts at the Committee for a Responsible Federal Budget, the actual cost of the president’s policies is closer to $4.9 trillion. Some of this new spending will be financed with red ink, but President Biden also has embraced higher tax rates on work, saving, investment and entrepreneurship. Indeed, if his plan were enacted, the United States would have both the highest corporate tax rate and the highest capital gains tax rate in the developed world. …But how much would the economy be hurt? There are groups such as the Tax Foundation that do excellent work measuring the adverse effects of higher tax rates. But it’s also important to measure the harmful impact of a bigger welfare state. …Based on that CBO study, and using the CBO fiscal and economic baselines, we calculated the following unpalatable outcomes if Build Back Better bill (pushed by the president and Democrats in Congress) becomes law and growth is reduced by 2/10ths of 1 per cent per year.

And here are the results.

The good news is that the latest version of Biden’s plan doesn’t do quite as much damage as what was being discussed earlier this year.

The bad news is that our economy will be much weaker (and our results are in line with other estimates, including those done before the election and since the election).

Not that we should be surprised. If the United States becomes more like Europe, we’ll be more likely so suffer from European-style anemia.

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At the risk of understatement, I’m not a fan of the International Monetary Fund.

My main objection is that the bureaucracy’s various policies – especially bailoutsmake it easier for irresponsible politicians to expand the burden of government spending and increase deficits and debt.

Needless to say, that approach doesn’t work. The best evidence is that many governments wind up in a never-ending cycle of tax-spend-debt-crisis-bailout, followed by further rounds of tax-spend-debt-crisis-bailout.

Moreover, the net effect of these policies is to divert capital from the economy’s productive sector. So it’s the economic equivalent of a lose-lose policy.

When criticizing the IMF, I usually focus on how the bureaucrats relentlessly urge higher taxes. Indeed, I often complain about how the bailouts are provided only if countries agree to raise taxes (another lose-lose situation).

Today, though, I want to write about another bad IMF policy. Earlier this year, the bureaucrats (with support from the Biden Administration) allocated $650 billion of new Special Drawing Rights (SDRs) – sort of a version of IMF-created money.

You can learn about SDRs by clicking here and here, so I won’t bore people with a description of how they work.

For purposes of our discussion, what matters is that the IMF uses SDRs to enable more government spending.

And that’s not a recipe for prosperity, either for national economies or the global economy.

Earlier this year, Mary Anastasia O’Grady of the Wall Street Journal highlighted how SDRs are rewarding very dodgy governments in Latin America.

Nicaraguan dictator Daniel Ortega is jailing, killing and disappearing his political opponents. …At the International Monetary Fund, he’s a valued member. So too are the governments of socialist, deadbeat Argentina and of El Salvador, which every day slips further into arbitrary, authoritarian rule. These are some of the bad actors in the Western Hemisphere who received more “special drawing rights” from the IMF on Aug. 23 as part of a new $650 billion general allocation. …SDRs are created out of thin air but can be converted, on demand, into hard currency. …Treasury Secretary Janet Yellen, who led the charge for this new round of SDRs, claims the transaction is cost-free… In fact, the conversion of SDRs to dollars is a subsidized, perpetual loan. For poor countries the subsidy is above 90% of the loan value. …There was a time when large multilateral handouts were conditioned on attempts at good governance. Those days are gone.

In a column last month for the Wall Street Journal, D.J. Nordquist and Dan Katz also analyzed the impact of the IMF’s policy.

…the International Monetary Fund announced in August a new general allocation of special drawing rights equivalent to $650 billion. …All IMF members, even rogue nations, receive them, so Iran got some $5 billion and Belarus $1 billion. …The allocation added more than $17 billion to Russia’s record-high reserves…the IMF and other proponents justified the SDR allocation on grounds that its benefits outweighed the harms… But because of the IMF shareholding formula… Only 3% of the general allocation flowed to low-income countries. …the IMF publicly indicated it would collaborate with the World Bank and other international financial institutions to ensure that SDRs were put to productive uses… Unfortunately, the IMF appears to have fallen into a classic trap of international organizations: acting based on aspirations rather than binding agreements. …Public confidence in international financial institutions has been understandably shaken as a result of corruption investigations into the IMF’s emergency pandemic-relief loans, theft of World Bank assistance by elite government officials, and serious questions regarding inappropriate Chinese influence at the World Bank, the World Health Organization, and elsewhere.

I’ll close by noting that SDRs are a great deal for politicians and bureaucrats. They get more spending, all of which seems free. And since almost nobody understands how this racket works, there’s near-zero democratic accountability.

P.S. Shifting gears, here’s are some excerpts from an article on the IMF’s website. It has nothing to do with the SDR issue, but it is a window into the the IMF’s statist mindset. The bureaucracy is lauding an economist, Mariana Mazzucato, who argues for industrial policy.

Mazzucato has been stirring the pot in economics and public policy for nearly a decade. Her main message is that governments around the world need to seize their power to lead innovation for the betterment of humanity. …Government is for setting big goals, defining the missions necessary for achieving them, encouraging and investing in innovation, and governing the process so that the public benefits. …She made the case for rethinking the role of government in her 2013 book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths. …“State capacity has really been hollowed out because of the narrow way that we think about the state,” she says. …That’s particularly evident in the United Kingdom and the United States, where political leaders defunded public health and devalued government itself, eroding public trust and government’s capacity to respond to crises, she says. …Mazzucato urged “citizens’ dividends” and government equity stakes in businesses linked to government funding.

As illustrated by this video, letting politicians distort the economy is a recipe for stagnation and corruption.

P.P.S. There are many good economists who work at the IMF and they often produce high-quality research (see hereherehereherehereherehereherehere, and here). Sadly, their sensible analyses doesn’t seem to have any impact on the policy decisions of the organization’s top bureaucrats.

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A couple of years ago, to help build the case against socialism, I showed how West Germany enjoyed much faster growth and much more prosperity than East Germany.

The obvious lesson to be learned from this example of “anti-convergence” is that market-oriented economies out-perform state-controlled economies.

I want to revisit this topic because I recently dealt with someone who claimed that government spending via the Marshall Plan deserves the credit for West Germany’s post-war economic renaissance.

What does the evidence say? Was foreign aid from the United States after World War II a key driver (for Keynesian or socialist reasons) of the West German economy.

The answer is no.

Professor David Henderson explained the role of the Marshall Plan for Econlib.

After World War II the German economy lay in shambles. …less than ten years after the war people already were talking about the German economic miracle. What caused the so-called miracle? The two main factors were currency reform and the elimination of price controls, both of which happened over a period of weeks in 1948. A further factor was the reduction of marginal tax rates later in 1948 and in 1949. …Marshall Plan aid to West Germany was not that large. Cumulative aid from the Marshall Plan and other aid programs totaled only $2 billion through October 1954. Even in 1948 and 1949, when aid was at its peak, Marshall Plan aid was less than 5 percent of German national income. Other countries that received substantial Marshall Plan aid exhibited lower growth than Germany.

Moreover, the money that was dumped into Germany as part of the Marshall plan was offset by money that was taken out of the country.

…while West Germany was receiving aid, it was also making reparations and restitution payments well in excess of $1 billion. Finally, and most important, the Allies charged the Germans DM7.2 billion annually ($2.4 billion) for their costs of occupying Germany.

Inconvenient facts like this make the socialism or Keynesian argument very difficult to maintain.

In a 1990 study on whether there should be something similar to the Marshall Plan for Eastern Europe, Melanie Tammen summarized some of the research on how the original plan for Western Europe was a flop.

…those that received relatively large amounts of aid per capita, such as Greece and Austria, did not recover economically until U.S. assistance was winding down. Germany, France, and Italy, on the other hand, began their recovery before receiving Marshall Plan funds. As for Belgium, it embarked on a radical monetary reform program in October 1944, only one month after liberation. Belgium’s economic stabilization and recovery were well under way by 1946, fully two years before the arrival of U.S. aid. Great Britain, conversely, received more Marshall Plan aid than any other nation but had the lowest postwar economic growth rate of any European country. The critical problem facing Europe was…simply bad economic policy.

Kai Weiss of the Austrian Economic Center in Vienna also addressed this issue. Here’s some of what he wrote for the Foundation for Economic Education.

Common knowledge says that the United States’ Marshall Plan was responsible for the rapid economic growth, rebuilding the country by throwing a lot of money at it. But that’s a mistaken view. …why was there a “Wirtschaftswunder”? …two main reasons: a monetary reform and the freeing of the economy by abolishing price controls and cutting taxes. All of this was implemented thanks to one man: Ludwig Erhard. …What Erhard did was unthinkable in a hostile environment. The Allied forces, still heavily controlling Germany, left the Nazi price controls and rationing intact. But when Erhard became Secretary of the Economy in West Germany, he quickly ended all price controls and stopped rationing — to the dismay of the US advisors. …He, not a Keynesian Project like the Marshall Plan, enabled the miracle.

Speaking of Ludwig Erhard, here’s a video clip on what he did to trigger West Germany’s prosperity.

I have one minor disagreement with that video.

It states that Germany combined “free markets with a strong welfare state.”

That’s a very accurate description of, say, current policy in Denmark.

But total social welfare spending in Germany was less than 20 percent of GDP for the first few decades after World War II, considerably less than social welfare spending today in the United States.

At the risk of being pedantic, it would be more accurate to state that Germany combined free markets with a medium-sized welfare state.

Let’s close with one final bit of evidence.

Here’s a look at the most pro-market nations in the decades after the war. Germany (outlined in red) was never at the top of the list, but it was almost always in the top 10.

Was Germany a libertarian paradise?

Hardly.

But the main takeaway from today’s column is that it’s even more absurd to claim that Germany’s post-war growth was because of big government.

P.S. Regarding Eastern Europe, western nations ultimately decided to create a cronyist institution, the European Bank for Reconstruction and Development, in hopes of boosting post-Soviet economies. Needless to say, that was a mistake. Many nations have enjoyed good growth after escaping communist tyranny, but the cause was good policy rather than handouts.

P.P.S. The Erhard video is an excerpt from The Commanding Heights, a must-watch video that basically tells the economic history of the 20th century).

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First we got Biden’s $1.9 trillion so-called stimulus.

Then we got his $1 trillion-plus infrastructure boondoggle.

Now Congress may be on the verge of approving the President’s budget, which (if we use honest numbers) is a $5 trillion plan to expand the welfare state.

And…

So it’s hardly a surprise that recent changes will lead to a much-larger burden of government spending.

This is bad news for our economy, as measured by my recent study (with similar findings from a wide range of academics – as well as normally left-leaning bureaucracies such as the IMF, World Bank, and OECD).

For purposes of today’s column, let’s put America’s fiscal decline in global context.

Here are some excerpts from a very depressing article in the Economist, starting with some discussion of how Biden’s spending binge is similar to the mistakes made by other nations.

President Joe Biden is building on what started as emergency pandemic-related policy, expanding the child-tax credit, creating a universal federally funded child-care system, subsidising paid family leave and expanding Obamacare. America’s government spending remains somewhat below the developed-world average. But this change is not just a matter of catching up; the target is moving. Government spending as a share of gdp in the oecd as a whole has consistently inched higher in the six decades since the club was formed in 1961.

There’s then some discussion about how a few nations – most notably Sweden and New Zealand – enjoyed period of genuine spending restraint, but accompanied by depressing observations about how fiscal responsibility is very rare.

Examples of genuine state retrenchment in developed countries are few and far between. Sweden managed it in the 1980s. In the early 1990s Ruth Richardson, then New Zealand’s finance minister, cut the size of the state drastically. …State spending is now six percentage points lower as a share of gdp than it was in 1990. But this is a rare achievement, and perhaps one doomed to pass. …This is a sorry state of affairs if you believe that low taxes and small government are the right, and possibly the only, conditions for reliable, enduring economic growth. …an argument made by Friedrich Hayek, an Austrian philosopher, Milton Friedman, an American economist, and others in the mid-20th century.

There’s also some historical analysis showing how the burden of government used to be relatively minor.

From 1274 to 1691 the English government raised less than 2% of gdp in tax. …In the 1870s the governments of rich countries were spending about 10% of gdp. In 1920 it was nearer 20%. It has been growing ever since (see chart 2).

Here’s the aforementioned chart 2, and there are a lot of depressing numbers, though notice how Switzerland does better than other nations.

I’ve previously shared a version of this data, calling it the “world’s most depressing chart” – all of which was made possible by the imposition of income taxes.

But there is some good news. The ever-rising fiscal burden of government has been somewhat offset by reductions in other bad policies.

Governments have not grown more powerful by all measures. Bureaucrats no longer, as a rule, set wages or prices, nor impose strict currency controls, as many did in the 1960s or 1970s. In recent decades the public sector has raised hundreds of billions of dollars from privatisations of state assets such as mines and telecoms networks. If you find it faintly amusing to hear that, from 1948 to 1984, the British state ran its own chain of hotels, that is because the “neoliberal” outlook on the proper place of government has triumphed.

Last but not least, there’s some discussion of “public choice,” which explains why politicians and bureaucrats have incentives to expand the size and scope of government.

Governments and bureaucrats are at least partly self-interested: “public-choice theory” says that unrestrained bureaucracies will defend their turf and seek to expand it. …Politicians have their own incentives to expand the state. It is generally more rewarding for a politician to introduce a new programme than it is to close an old one down; costs are spread across all taxpayers while benefits tend to be concentrated, thus eliciting gratitude from interest groups

I’ll close by reiterating my warning that ever-rising spending burdens not only lead to less growth, but they also will lead to Greek-style fiscal crises.

Europe will get hit first, but it’s just a matter of time before the United States suffers a similar fate.

P.S. There is a simple solution to avoid such crises, and a specific policy to achieve that solution. But don’t hold your breath waiting for politicians to tie their own hands.

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I regularly cite data about Europe’s sub-par economic outcomes in hopes of driving home the point that the United States should not copy that continent’s approach of onerous fiscal burdens.

Which is now a very relevant topic with Biden pushing for a big expansion of the welfare state.

This is not a good idea. Americans are richer than their counterparts on the other side of the Atlantic. Even more remarkably, lower-income people in the United States often have living standards equal to – or even greater than – middle-income Europeans.

Another way of making this point is to compare economic outcomes in American states compared to European countries.

I first did that back in 2015, citing data to show that all be the very-richest European nations would be considered poor if they were part of the United States.

I want to augment that comparison today. I’m motivated by a National Review column by Charles Cooke. As a former European, he realizes it would be a mistake for the United States to copy European policies.

Schrager writes, “Americans can’t spend like they used to. Store shelves are emptying, and it can take months to find a car, refrigerator or sofa. If this continues, we may need to learn to do without — and, horrors, live more like the Europeans. That actually might not be a bad thing.” Counterpoint: Yes, it would. …having spent a great deal of time in both places, I can assure you that it is considerably easier to live in America than it is to live in Europe, and that one of the main reasons for that — beyond Americans’ being so stonkingly rich — is that Americans are far, far more demanding of their marketplaces. …We do not, under any circumstances, need to “learn to do without.”

I want to focus on the “stonkingly rich” part of the above excerpt.

Cooke links to a 2014 column in the Washington Post by Hunter Schwarz. Here are the key passages.

If Britain were to join the United States, it would be the second-poorest state, behind Alabama and ahead of Mississippi. The ranking, determined by Fraser Nelson, an editor of The Spectator magazine, was made by dividing the gross domestic product of each state by its population, and it  took into account purchasing power parity for cost of living. Several other European countries were also included… Norway was the top European country on the list, between Massachusetts and New Jersey.

Here’s the Nelson data, which shows that only oil-rich Norway and pro-market Switzerland look good.

Some readers may be questioning the use of numbers from 2014 and 2015.

That’s a reasonable suspicion since perhaps European countries have closed the gap over the past few years.

But that’s not the case. The United States has grown faster in recent years, so updated state/country numbers would make Europe look even worse.

P.S. A Swedish think tank, Timbro, produced similar calculations back in 2004.

Here are those comparisons, showing again that European countries would be viewed as poor if they were states.

P.P.S. After a period of “convergence” after World War II, European countries have actually been falling further behind the United States in recent decades. Needless to say, it’s not good to be part of the “anti-convergence club.”

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Biden’s budget plan is based on fraudulent numbers, but it is also based on the fraudulent idea that a big, European-style welfare state can be financed without fleecing lower-income and middle-class taxpayers.

I’ve repeatedly pointed out that this is not true, but it’s time to turn this fiscal fact into a Theorem of Government.

Some of my friends on the left don’t agree with the first sentence of this Theorem. In some cases, I think they sincerely believe that big government can be entirely financed by going after upper-income taxpayers.

This is why I added the second sentence. After all, surely some of Europe’s welfare states would have figured out how to shield poor and middle-class people from high tax burdens if that was possible.

Yet that’s not the case. As illustrated by this unfortunate Spaniard, ordinary people in Europe get fleeced by their governments.

The good news (sort of) is that there are some honest folks on the left who openly admit a big welfare state means big taxes on ordinary people.

I even include them on my page of “honest leftists.”

And now we have a new member of that club. Congressman Conor Lamb of Pennsylvania recently admitted that his party’s agenda will require taxes on those of us with modest incomes.

Here are some excerpts from a report by Emily Brooks.

Pennsylvania Rep. Conor Lamb acknowledged that enacting all of the Democrats’ sweeping policy visions would require Democrats to raise taxes on the middle class rather than relying on tax increases on the rich. “If we want to propose a lot of new spending and adventurous new government programs in our party, we have to have the confidence to ask … the middle class and people like that to contribute to it. And I think that’s … what we’re missing right now,” Lamb, a Democrat representing a swing district northwest of Pittsburgh, said last week. …”Some of the focus on the billionaires and the ultra-wealthy that people are putting in the news right now — it’s fine, it’s valid, it’s not enough to fund everything we want to do,” Lamb said.

Needless to say, I disagree with Cong. Lamb’s policy agenda. If we adopt European-style fiscal policy, it will mean anemic, European-style economic malaise.

And that will translate into lower living standards for the masses.

But at least he’s being honest about what he wants.

P.S. To elaborate, a small government can be financed by a few rich people. That’s basically the story of Hong Kong. A medium-sized government can be financed in large part by the rich. That’s sort of the story of the United States (though ordinary people pay of a lot of payroll taxes). But there’s no way to finance a Biden-style agenda without going after ordinary taxpayers.

P.P.S. Here are my other Theorems of Government.

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Back in 2017, I shared my Second Theorem of Government to warn why it is so important to resist new government giveaway programs.

And I used Obamacare as a costly example.

Simply stated, it’s much easier to block new handouts than it is to take away goodies once people have been conditioned to think they can and should rely on government.

In some sense, this is not just about economics. It’s also about preserving societal capital.

All of which helps to explain why it is so important to resist some of Biden’s proposed giveaways, such as parental leave and per-child handouts.

And if you want some extra evidence, look at places where people have become accustomed to living off others.

In her column for the Wall Street Journal, Mary Anastasia O’Grady writes about the basket case of Argentina.

Socialist ideologues know that the welfare state is addictive. New entitlements create dependencies that, once born, demand to be fed and to grow no matter the party in power. Argentina proves the rule. The Argentine electorate may be about to throw out the hard-left Peronists… The bad news is that even if peronismo loses its unchecked power in Argentina’s National Congress, it’s probably too late to avoid another fiscal and monetary crisis. …Both legislative chambers are likely to remain heavily populated by advocates of European socialism.

She shares some history about Argentina’s descent from prosperity to dependency, and points out how the entitlement mindset makes much-needed reforms very difficult.

Even when supposedly right-of-center governments win elections.

One hundred years ago Argentina was one of the world’s most prosperous nations. But as the roaring ’20s wound down, continental fascism gained cachet. …Gen. Juan Perón, who ruled from 1946 through 1955 and again briefly in 1973-74, was especially fond of Benito Mussolini’s Italy. …statism sticks once it’s in place. …fiscal profligacy endured and support for rigid labor laws remained intransigent. …even with Argentine inflation above 50%, widespread price controls and the economy sputtering for a decade, a viable alternative to populism hasn’t emerged.

For more information about the economic tragedy of Argentina, you can click here, here, and here.

To be frank, however, I’m not overly concerned about that country. Like Greece, I view it as a lost cause.

What worries me is that the United States may wind up on a slippery slope if more entitlements are added to our already-creaky and burdensome welfare state.

P.S. Argentina probably wouldn’t be such a basket case if the IMF didn’t provide endless bailouts.

P.P.S. It wasn’t too long ago that Biden seemed to understand the importance of societal capital.

 

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Thanks to socialism, Venezuela is a basket case.

This video from John Stossel asks if the United States can and should learn from this bad example.

The easy answer is yes. Indeed, you can click here and here to get 56 examples of why we should not copy Venezuela’s descent to statism.

The main thing to understand is that the world is an economic laboratory and the various countries are experiments showing what works and what doesn’t work.

Nations such as Venezuela clearly are wretched examples of what happens if there is a large amount of bad policy.

Other nations, by contrast, are examples of what happens if there’s a medium level of bad policy. Think Greece, Argentina, and Italy.

While countries such as the United States and Denmark show what happens if there is a (comparatively) modest amount of bad policy.

All this is depicted in the “socialism slide,” which I created back in 2019 to show how nations score in the Fraser Institute’s Economic Freedom of the World.

The good news is that the United States would have to fall a long way down the slide before approaching Venezuela-style economic despotism.

Even Biden’s plan would represent just a small step in that wrong direction.

P.S. I’m focused on the dangers of copying Venezuela’s bad economic policies, but I agree about the downsides of the other two policies – gun control and speech control – mentioned in the video.

P.P.S. I’ll never stop being amazed that the New York Times wrote about Venezuela’s economic crisis and never once mentioned socialism.

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During his 2012 reelection campaign, Barack Obama created a fictional character named Julia and showed how she could mooch off taxpayers from cradle to grave.

Given Biden’s reputation as a plagiarizer, I guess we shouldn’t be surprised that the White House has reincarnated Julia as part of a push to trap more people in government dependency.

Here is the story of Linda and Leo.

The shocking part of the story, right at the start, is that Linda actually has a job in the private sector.

But Linda soon figures out that she can use the coercive power of government to take money from her neighbors.

She starts with Biden’s per-child handout.

She then puts her son into government-subsidized child care (with no discussion, of course, of how third-party payer causes prices to skyrocket).

I can only imagine the nursery rhymes he’ll hear in that setting.

She then enrolls him in a “free” pre-K program, presumably unaware that such programs have no evidence of success (but at least Biden will be happy that this program creates more unionized teachers to fight against quality education).

Next, her son enters taxpayer-funded community college (another third-party payer problem).

After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal).

Last but not least, Linda gets to rely on taxpayers in her old age, thanks to other programs that are designed to produce additional overpaid government employees.

Let’s close this depressing celebration of dependency by shifting to humor.

Here’s a tweet about Biden’s people plagiarizing Obama’s people.

While I appreciate the satire, I’m quite worried about the long-run impact of Biden’s agenda (i.e., becoming Greece).

P.S. Regarding Obama’s Julia, here’s a great Michael Ramirez cartoon and here’s some clever Iowahawk satire.

P.P.S. And here’s my two-cartoon set on what happens as more and more people are lured into the wagon of government dependency.

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After the people of the United Kingdom voted to escape the European Union, I wondered whether the Conservative Party would “find a new Margaret Thatcher” to enact pro-market reforms and thus “take advantage of a golden opportunity” to “prosper in a post-Brexit world.”

The answer is no.

The current Prime Minister, Boris Johnson, deserves praise for turning the Brexit vote into Brexit reality, but his fiscal policy has been atrocious.

Not only is he failing to be another Margaret Thatcher, he’s a bigger spender than left-leaning Tory leaders such as David Cameron and Theresa May.

Let’s look at some British media coverage of how Boris Johnson and Rishi Sunak (the Chancellor of the Exchequer) have sided with government over taxpayers.

Allister Heath of the Telegraph has a brutal assessment of their profligacy.

Rishi Sunak’s message, repeated over and over again, as he unveiled a historic, epoch-defining rise in public spending financed by ruinous tax increases. It was a Labour Budget with a Tory twist and the kind of Spending Review that Gordon Brown would have relished… the cash was sprinkled in every possible direction. Sunak is Chancellor, but he was executing Boris Johnson’s cakeist vision: a meddling, hyperactive, managerialist, paternalistic and almost municipal state which refuses to accept any limits to its ambition or ability to spend. …The scale of the tax increases is staggering. …This will propel the tax burden from 33.5 per cent of GDP before the pandemic to 36.2 per cent by 2026-27, its highest since the early 1950s… The picture on spending is equally grim: we are on course for a new normal of around 41.6 per cent of GDP by 2026-27, the largest sustained share of GDP since the late 1970s. …The Budget and Spending Review are thus a huge victory for Left-wing ideas, even if the shift is being implemented by Right-wing Brexiteers who have forgotten that the economic case for Brexit wasn’t predicated on Britain becoming more like France or Spain. …Labour shouldn’t be feeling too despondent: the party may not be in office, but when it comes to the economy and public spending, they are very much in power.

Writing for CapX, James Heywood explains one of the adverse consequences of big-government Toryism.

Simply stated, the U.K. will go from bad to worse in the Tax Foundation’s International Tax Competitiveness Index.

…in the Cameron-Osborne era, the Conservatives focused on heavily on making Britain competitive and business-friendly, with significant cuts to the headline rate of corporation tax. …in his recent Tory conference speech, Boris Johnson trumpeted the virtues of an ‘open society and free market economy’, promising that his was a government committed to creating a ‘low tax economy’.  Unfortunately, when it comes to UK tax policy the direction of travel is concerningly divorced from the rhetoric. The latest iteration of the US-based Tax Foundation’s annual International Tax Competitiveness Index placed the UK 22nd out of 37 OECD countries when it comes to the overall performance of our tax system. …Nor does the UK’s current ranking factor in the Government’s plans for future tax rises. …the headline rate of corporation tax had fallen to 19% and was set to fall to 17% by 2020. That further fall had already been cancelled during Sajid Javid’s brief stint as Chancellor, in order to pay for additional NHS spending. At the last Budget, Rishi Sunak went much further, setting out plans to gradually raise the rate from 19% to 25% in April 2023. That is a huge tax measure by anyone’s standards… On top of that we have the recently announced Health and Social Care Levy… If we factor all these new measures into the Tax Foundation’s Competitiveness Index, the UK falls to a dismal 30th out of 37 countries.

For what it’s worth, the United Kingdom’s competitiveness decline will be very similar to the drop in America’s rankings if Biden’s fiscal plan is enacted.

In other words, there’s not much difference between the left-wing policy of Joe Biden and the (supposedly) right-wing policy of Britain’s Conservative Party.

No wonder a British cartoonist thought it was appropriate to show Rishi Sunak morphing into Gorden Brown, the high-tax, big-government Chancellor of the Exchequer under Tony Blair.

I’ll close with the observation that conservatives and libertarians in the United Kingdom need to create their own version of the no-tax-hike pledge.

That pledge, organized by Americans for Tax Reform, has helped protect many (but not all) Republicans from politically foolish tax hikes.

It is good politics to have a no-tax pledge, but I’m much more focused on the fact that opposing tax hikes is good policy.

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