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What an amazing vote. The people of the United Kingdom defied the supposed experts, rejected a fear-based campaign by advocates of the status quo, and declared their independence from the European Union.

Here are some takeaway thoughts on this startling development.

1. The UK has voted to leave a sinking ship. Because of unfavorable demographics and a dirigiste economic model, the European Union has a very grim future.

2. Brexit is a vote against centralization, bureaucratization, and harmonization. It also is a victory for more growth, though the amount of additional long-run growth will depend on whether the UK government seizes the opportunity for lower taxes, less red tape, and a smaller burden of government.

3. President Obama once again fired blanks. Whether it was his failed attempt early in his presidency to get the Olympic Games in Chicago or his feckless attempt in his final year to get Britons to remain in the EU, Obama has a remarkably dismal track record. Maybe I can get him to endorse the Boston Red Sox, thus ensuring the Yankees make it to the World Series?

4. Speaking of feckless foreign leaders, but I can’t resist the temptation to point out that the Canadian Prime Minister’s reaction to Brexit wins a prize for vapidity. It would be amusing to see Trudeau somehow justify this absurd statement, though I suspect he’ll be too busy expanding government and squandering twenty-five years of bipartisan progress in Canada. Potential mea culpa…I can’t find proof that Trudeau actually made this statement. Even with the excuse that I wrote this column at 3:00 AM, I should have known better than to believe something I saw on Twitter (though I still think he’s vapid).

5. Nigel Farage and UKIP have voted themselves out of a job. A common joke in Washington is that government bureaucracies never solve problems for which they were created because that would eliminate their excuse for existing. After all, what would “poverty pimps” do if there weren’t poor people trapped in government dependency? Well, Brexit almost surely means doom for Farage and UKIP, yet they put country above personal interest. Congratulations to them, though I’ll miss Farage’s acerbic speeches.

6. The IMF and OECD disgracefully took part in “Project Fear” by concocting hysterical predictions of economic damage if the U.K. decided to get off the sinking ship of the European Union. To the extent there is some short-term economic instability over the next few days or weeks, those reckless international bureaucracies deserve much of the blame.

7. As part of his failed effort to influence the referendum, President Obama rejected the notion of quickly inking a free-trade agreement with the UK. Now that Brexit has been approved, hopefully the President will have the maturity and judgement to change his mind. Not only should the UK be first in line, but this should be the opportunity to launch the Global Free Trade Association that my former Heritage Foundation colleagues promoted last decade. Unfettered trade among jurisdictions with relatively high levels of economic freedom, such as the US, UK, Australia, Switzerland, New Zealand, Chile, etc, would be a great way of quickly capturing some of the benefits made possible by Brexit.

8. David Cameron should copy California Governor Jerry Brown. Not for anything recent, but for what he did in 1978 when voters approved an anti-tax referendum known as Proposition 13. Brown naturally opposed the referendum, but he completely reversed himself after the referendum was approved. By embracing the initiative, even if only belatedly, he helped his state and himself. That would be the smart approach for Cameron, though there’s a distinct danger that he could do great harm to himself, his party, and his country by trying to negotiate a deal to somehow keep the UK in the EU.

9. Last but not least, I’m very happy to be wrong about the outcome. I originally expected that “Project Fear” would be successful and that Britons would choose the devil they know over the one they don’t know. Well, I’m delighted that Elizabeth Hurley and I helped convince Britons to vote the right way. We obviously make a good team.

Joking aside, the real credit belongs to all UK freedom fighters, even the disaffected Labour Party voters who voted the right way for wrong reasons.

I’m particularly proud of the good work of my friends Allister Heath of the Telegraph, Eamonn Butler of the Adam Smith Institute, Dan Hannan of the European Parliament, and Matthew Elliott of Vote Leave. I imagine Margaret Thatcher is smiling down on them today.

Now it’s on to the second stage of this campaign and convincing California to declare independence from the United States!

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On June 23, the people of the United Kingdom will have the opportunity to restore sovereignty and protect democracy by voting in a national referendum to leave the European Union.

They should choose “leave” over “remain.”

The European Union’s governmental manifestations (most notably, an über-powerful bureaucracy called the European Commission, a largely powerless but nonetheless expensive European Parliament, and a sovereignty-eroding European Court of Justice) are – on net – a force for statism rather than liberalization.

Combined with Europe’s grim demographic outlook, a decision to remain would guarantee a slow, gradual decline.

A vote to leave, by contrast, would create uncertainty and anxiety in some quarters, but the United Kingdom would then have the ability to make decisions that will produce a more prosperous future.

Leaving the EU would be like refinancing a mortgage when interest rates decline. In the first year or two, it might be more expensive because of one-time expenses. In the long run, though, it’s a wise decision.

From an American perspective, George Will has been especially insightful and eloquent. Here are some excerpts from a recent column in the Washington Post.

Lord Nigel Lawson… is impatient with the proposition that it is progress to transfer to supra-national institutions decisionmaking that belongs in Britain’s Parliament. …The Remain camp correctly says that Britain is richer and more rationally governed than when European unification began. The Leave camp, however, correctly responds that this is largely in spite of the E.U. — it is because of decisions made by British governments, particularly Margaret Thatcher’s, in what is becoming a shrinking sphere of national autonomy. In 1988, Thatcher said: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European super-state exercising a new dominance from Brussels.”

Here’s a good visual of what’s happening. What began as a good idea (free trade) has become a bad idea (economic union) and may become an even worse idea (common government).

Here’s what Dan Hannan, a British Member of the European Parliament, wrote on the issue. He’s very pro-Europe, but understands that does not mean European-wide governance is a good idea.

I’m emotionally drawn to Europe. I speak French and Spanish and have lived and worked all over the Continent. I’ve made many friends among…committed Euro-federalists. …they are also decent neighbours, loyal companions and generous hosts. I feel twinges of unease about disappointing them, especially the anglophiles. But, in the end, the head must rule the heart.

Dan identifies six reasons why it is sensible to leave.

Here are relevant portions of his arguments, starting with the fact that the EU is becoming a super-state..

The EU has acquired, one by one, the attributes and trappings of nationhood: a president and a foreign minister, citizenship and a passport, treaty-making powers, a criminal justice system, a written constitution, a flag and a national anthem. It is these things that Leavers object to, not the commerce and co-operation that we would continue to enjoy, as every neighbouring country does.

Second, it is only pro-trade for members, not the wider world.

The EU is not a free-trade area; it is a customs union. The difference may seem technical, but it goes to the heart of the decision we face. Free-trade areas remove barriers between members and, economists agree, tend to make participants wealthier. Customs unions, by contrast, erect a common tariff wall around their members, who surrender the right to strike individual trade deals. …Britain is one of only two of 28 member states that sell more to the rest of the world than to the EU. We have always been especially badly penalised by the EU’s Common External Tariff. Unlike Switzerland, which enjoys free trade with the EU at the same time as striking agreements with China and other growing economies… It’s a costly failure. In 2006, the EU was taking 55 per cent of our exports; last year, it was down to 45 per cent. What will it be in 2030 — or 2050?

Third, the advocates of common government are candid about their ultimate goals.

The Five Presidents’ Report sets out a plan for the amalgamation of fiscal and economic policies… The Belgian commissioner Marianne Thyssen has a plan for what she calls ‘social union’ — i.e. harmonisation of welfare systems. …These are not the musings of outlandish federalist think tanks: they are formal policy statements by the people who run Brussels.

Fourth, Europe is stagnant.

…in 1973, the states that now make up the EU accounted for 36 per cent of the world economy. Last year, it was 17 per cent. Obviously, developing economies grow faster than advanced ones, but the EU has also been comprehensively outperformed by the United States, Canada, Australia and New Zealand. …Why tie ourselves to the world’s slowest-growing continent?

Fifth, there are examples of very successful non-EU nations in Europe.

…we can get a better deal than…Switzerland…and Norway…; on the day we left, we’d become the EU’s single biggest export market. …They trade freely with the EU…they are self-governing democracies.

And last but not least, a decision to remain will be interpreted as a green light for more centralization, bureaucratization, and harmonization.

A Remain vote will be…capitulation. Look at it from the point of view of a Euro-federalist. Britain would have demanded trivial reforms, failed to secure even those, and then voted to stay in on unchanged terms. After decades of growling and snarling, the bulldog would have rolled over and whimpered. …With the possibility of Brexit off the table, there will be a renewed push to integration, on everything from migrant quotas to a higher EU budget.

Dan’s bottom line is very simple.

We have created more jobs in the past five years than the other 27 states put together. How much bigger do we have to be, for heaven’s sake, before we can prosper under our own laws?

Roland Smith, writing for the U.K.’s Adam Smith Institute, produced The Liberal Case for Leave. Needless to say, he’s looking at the issue from the classical liberal perspective, not the statist American version.

Anyhow, here’s some of what he wrote.

…the 1970s turned out to be an odd period where many things that seemed like good ideas at the time turned out not to be. …While there may have been an element of truth about EEC membership in the 1970s that seduced many subsequent sceptics…our timing for joining “the club” could not have been worse. …globalisation was beginning to eat into the logic of a political European Union at the very point it was striding towards statehood with a single euro currency. …the European single market is being rapidly eclipsed. …The EU is therefore increasingly becoming a pointless middleman as a vast new global single market takes over.

Here’s a chart from the article showing the European Union’s rapidly falling share of global economic output.

Mr. Smith does not think it’s smart to link his country’s future to a declining bloc of nations.

We are now less dependent than ever on our closest trading partners in Europe and this trend is marching relentlessly onward. For the first 40 years of our membership, the majority — over 60% — of UK exports went to the EU. But in 2012, for the first time, that figure dropped below 50%. It is now at 45% and continues to sink. …The demographics of the European continent, alongside the dysfunctional euro and its insidious effects across Europe have also played a large part in this change… This situation and these trends are not going to change.

Here’s his conclusion.

This Brexit vision is therefore a global, outward-looking and ambitiously positive one. It eschews the inward-looking outlook of…the Remain lobby… So a parochial inward-looking “little Europe” and a demographically declining one, ranged against an expansive, liberal and global outlook. …The crux of the matter is that we in Britain want trade and cooperation; our EU partners want merger and a leashed hinterland.

These are strong arguments, so why does Prime Minister David Cameron want to remain?

And why is he joined by the hard-left leader of the Labour Party (actually, that’s easy to answer given the shared leftist orientation of both Jeremy Corbyn and EU officials), along with most big companies and major unions?

Most of them, if asked, will argue that a vote to leave the EU will undermine the economy. They’ll cite estimates of lower economic output from the International Monetary Fund, the Organization for Economic Cooperation and Development, the British Treasury, and other sources.

To be blunt, these numbers lack credibility. A pro-centralization, pro-EU Prime Minister asked for numbers from a bureaucracy he controls. As critics have pointed out, the goal was to produce scary numbers rather than to produce real analysis.

And the numbers from the international bureaucracies are even more laughable. The IMF is a left-wing organization with a dismal track record of sloppy and disingenuous output. And the OECD also is infamous for a statist perspective and dishonest data manipulation.

Indeed, the palpable mendacity of these numbers has probably boomeranged on supporters of the EU. Polls show that voters don’t believe these hysterical and overwrought numbers.

Instead, they laugh about “Project Fear.”

Yet, as reported by John Fund of National Review, the EU crowd is doubling down in their panic to frighten people.

…the organizers of Project Fear have gone into overdrive. European Council President Donald Tusk said in an interview with the German newspaper Bild that radical anti-European forces will be “drinking champagne” if Brexit passes.  …Tusk said. “As a historian I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.”

End of western civilization? Seriously?

Gee, why not also predict a zombie apocalypse?

These chicken little predictions are hard to take seriously when Britons can look at other nations in Europe that are prospering outside the European Union.

Consider Norway. Advocates of the EU claimed horrible results if the country didn’t join. Needless to say, those horrible results never materialized.

This doesn’t mean there aren’t honest people who sincerely think it would be a mistake to leave the European Union.

Indeed, a survey by the Centre for Macroeconomics found very negative views.

Almost all panel members thought that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, which would put the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agree that there would be substantial negative long-term consequences.

Other economists seem to agree.

Four of them produced an article for VoxEU, and here’s some of what they wrote.

The possibility of the UK leaving the EU has generated an unusual degree of consensus among economists. …analysis from the Bank of England, to the OECD, to academia has all shown that Brexit would make us economically worse off. The disagreement is mainly over the degree of impoverishment… The one exception is…Professor Patrick Minford of Cardiff University, who argues that Brexit will raise the UK’s welfare by 4% as a result of increased trade… Minford’s policy recommendation is that following a vote for Brexit, the UK should not bother striking new trade deals but instead unilaterally abolish all its import tariffs… we know of no cases where an industrialised country has ever implemented full unilateral liberalisation – and for good reason. Persuading other countries to reduce their trade barriers is easier if you can also say you’re going to reduce your own as part of the deal. If we’re committed to going naked into the world economy, other countries are unlikely to follow suit voluntarily. …In reality, the UK will still continue to trade extensively with our closest geographical neighbours, it’s just that the higher trade barriers mean that we will do less of it.

Other establishment voices are convinced that the United Kingdom would be crazy to leave the EU.

Robert Samuelson, in his Washington Post column, views it as a form of national suicide because of existing economic ties to continental Europe.

Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. …Leaving the E.U. would be an act of national insanity. It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U. members, would probably rise. Meanwhile, Britain would become less attractive as a production platform for the rest of Europe, so that new foreign direct investment in the U.K. — now $1.5 trillion — would fall. Also threatened would be London’s status as Europe’s major financial center, home (for example) to 78 percent of E.U. foreign exchange trading. With the U.K. out of the E.U., some banking activities might move to Frankfurt or other cities. …Brexit is an absurdity. But it is a potentially destructive absurdity. It creates more uncertainty in a world awash in uncertainty.

Allister Heath of the Daily Telegraph disagrees with these proponents of the status quo.

David Cameron and George Osborne have been claiming, over and again, that those of us who support Brexit have lost the economic argument. …utter nonsense. …The free-market, cosmopolitan, pro-globalisation economic case for leaving is stronger than ever… The hysterical studies claiming that Brexit would ruin us are grotesque caricatures, attempts at portraying a post-Brexit Britain as a nation that suddenly decided to turn its back on free trade and foreigners. …a Brexit would almost certainly mean the UK remaining in the European Economic Area (EEA), like Norway: we would be liberated from much political interference, be allowed to forge our own free-trade deals while retaining the single market’s Four Freedoms. Europe’s shell-shocked corporate interests would demand economic and trade stability of its equally traumatised political classes, and they would get it. …with supply-side reforms at home, the UK would become more, rather than less, attractive to global capital. The Treasury, OECD and IMF’s concocted Armageddon scenarios wouldn’t materialise. Remain has only won the economic argument in the sense that most economists and the large institutions that employ them support their side.

And Allister points out that the supposed consensus view of economists has been wildly wrong in the past.

Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right. In 1999, The Economist wrote to the UK’s leading academic practitioners of the dismal science to find out whether it would be in our national economic interest to join the euro by 2004. Of the 165 who replied, 65 per cent said that it would. Even more depressingly, 73 per cent of those who actually specialised in the economics of the EU and of monetary union thought we should join – the experts among the experts were the most wrong. Britain would have gone bust had we listened… The vast majority of economists did not foresee or predict the financial crisis or the Great Recession or the eurozone crisis. Yet they now have the chutzpah to behave as if they should be treated like philosopher kings… Remember the Twenties? The economics profession overwhelmingly failed to see the great bubble and subsequent crash and depression. The Thirties? It messed up on just about everything. …In the Sixties and subsequently, Paul Samuelson’s best-selling, dominant economics textbook was predicting that the Soviet Union’s GDP per capita would soon catch up with America’s. The Seventies? Most economists didn’t know how stagflation could even be possible. The Eighties? The profession opposed Thatcherism and the policies that saved the UK; infamously, 364 economists attacked Thatcher’s macroeconomic policies in the 1981 Budget and then kept getting it wrong. …The problem this time around is that Remain economists assume that leaving the EU would mean reducing globalisation and halting most immigration. They assume that there are only costs and no benefits from leaving the EU…the EU’s anti-democratic institutions are unsustainable and thus pose a great threat to the liberal international economic order its UK supporters claim to be defending.

The debate among economists is mostly focused on trade.

With that in mind, this television exchange is very enlightening.

In other words, nations all over the world trade very successfully without being in the European Union, so this view that somehow the United Kingdom can’t do likewise is a triumph of theory over reality.

It’s way past time to wrap this up, but there are a few additional items I can’t resist sharing.

A British parliamentarian (akin to a member of Congress in the U.S.) is understandably unhappy that some Americans, most notably President Obama, are interfering in the Brexit election.

Here are parts of Chris Grayling’s column in the Washington Post.

Imagine if you were told that the United States should join an American Union bringing together all the nations of North and South America. It would have its own parliament — maybe in Panama City, a place on the cusp of the two halves of the Americas. That American Parliament would have the power to make the majority of your laws. A Supreme Court of the Americas in Panama would outrank the U.S. Supreme Court and take decisions that would be mandatory in the United States. …That is, more or less, where Britain finds itself today.

Sensible Americans obviously wouldn’t like that state of affairs.

And we would be even more unhappy if that Superstate of the Americas kept grabbing more power, which is exactly what’s happening across the Atlantic.

It decrees that any citizen of any European country can come and live and work in Britain — and that if they do, we must give them free health care and welfare support if they need it. Millions have done so. …it is moving closer and closer to becoming a single government for Europe, and indeed many of its key players — leaders such as Germany’s Angela Merkel and France’s François Hollande — have that as a clear goal. Britain has a small minority of the voting rights, and loses out almost every time.

Allister Heath adds more wisdom to the discussion.

He’s especially mystified by those who think the EU is a force for liberalization.

Bizarrely, given the EU’s appalling record, these folk see Brussels as the last guardian of enlightenment values; the only way to save the project, they believe, is rule by a transnational nomenklatura. …Remainians are petrified that the British public would…vote the wrong way: for protectionism, nationalisation, xenophobia and stupidity. We would…support idiotic, growth-destroying and socially unacceptable policies. Astonishingly, given the Continent’s collectivist history, such folk equate membership of the EU with free trade and Britain’s Leave camp with protectionism. It’s a breathtaking error of judgement… They cannot grasp that there are other, better ways of opening markets than from within the EU, and that in any case it is just about as far from a libertarian project as it is possible to imagine. …pro-EU Left and Right agree that the people are dangerous, that they must be contained and that, slowly but surely, entire areas of public policy should be hived off beyond the reach of the British electorate. The strategy is to impose top-down restraints and to subcontract decision-making to external bodies… European institutions are actually the antithesis of true liberalism.

Let’s end with some passages from another George Will column.

Michael Gove, secretary of justice and leader of the campaign for Brexit — Britain’s withdrawal from the E.U. — anticipates a “galvanizing, liberating, empowering moment of patriotic renewal.” …American conservatives would regard Britain’s withdrawal from the E.U. as the healthy rejection of political grandiosity. …If Britons vote to remain in the E.U., this might be the last important decision made at British ballot boxes because important decisions will increasingly be made in Brussels. The E.U.’s “democracy deficit” is…the point of such a state. …Under Europe’s administrative state, Gove says “interest groups are stronger than ever” and they prefer social stasis to the uncertainties of societies that welcome the creative destruction of those interests that thrive by rent-seeking. …most of binding law in Britain — estimates vary from 55 percent to 65 percent — arises not from the Parliament in Westminster but from the European Commission in Brussels. The E.U. has a flag no one salutes, an anthem no one sings, a president no one can name, a parliament that no one other than its members wants to have more power (which must be subtracted from national legislatures), a capital of coagulated bureaucracies that no one admires or controls, a currency that presupposes what neither does nor should exist (a European central government administering fiscal policy), and rules of fiscal behavior (limits on debt-to-gross domestic product ratios) that few if any members obey and none have been penalized for ignoring. …the 23rd of June can become Britain’s Fourth of July — a Declaration of Independence. If Britain rejects continuing complicity in the E.U. project — constructing a bland leviathan from surrendered national sovereignties — it will have…taken an off-ramp from the road to serfdom.

Well said.

If I lived in the United Kingdom, I would vote to leave the European Union.

Simply stated, the European project is controlled by statists and the one good thing it provides (free trade between members) is easily overwhelmed by the negative things it imposes (protectionism against outsiders, tax harmonization, horrible agriculture subsidies, bad fisheries policy, etc).

Moreover, the continent is demographically dying.

The bottom line is that the European Union is a sinking ship. This cartoon is a bit flamboyant, but it captures my overall sentiments.

If I had lots of money and was confident of the outcome, I would learn the words to this song and fly to London so I could sing in celebration on June 23rd.

Alas, just as I predicted the Scots wouldn’t vote for independence, I fear the scare campaign ultimately will succeed and Britons will vote to remain on the sinking ship of the European Union.

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Changing demographics is one of the most powerful arguments for genuine entitlement reform.

When programs such as Social Security and Medicare (and equivalent systems in other nations) were first created, there were lots of young people and comparatively few old people.

And so long as a “population pyramid” was the norm, reasonably sized welfare states were sustainable (though still not desirable because of the impact on labor supply, savings rates, tax policy, etc).

In most parts of the world, however, demographic profiles have changed. Because of longer life expectancy and falling birth rates, population pyramids are turning into population cylinders.

This is one of the reasons why there is a fiscal crisis in Southern European nations such as Greece. And there’s little reason for optimism since the budgetary outlook will get worse in those countries as their versions of baby-boom generations move into full retirement.

But while Southern Europe already has been hit, and while the long-run challenge in Northern European nations such as France has received a lot of attention, there’s been inadequate focus on the problem in Eastern Europe.

The fact that there’s a major problem surprises some people. After all, isn’t the welfare state smaller in these countries? Haven’t many of them adopted pro-growth reforms such as the flat tax? Isn’t Eastern Europe a success story considering that the region was enslaved by communism for many decades?

To some degree, the answer to those questions is yes. But there are two big challenges for the region.

First, while the fiscal burden of government may not be as high in some Eastern European countries as it is elsewhere on the continent (damning with faint praise), those nations tend to rank lower for other factors that determine overall economic freedom, such as regulation and the rule of law.

Looking at the most-recent edition of Economic Freedom of the World, there are nine Western European nations among the top 30 countries: Switzerland (#4), Ireland (#8), United Kingdom (#10), Finland (#19), Denmark (#22), Luxembourg (#27), Norway (#27), Germany (#29), and the Netherlands (#30).

For Eastern Europe, by contrast, the only representatives are Romania (#17), Lithuania (#19), and Estonia (#22).

Second, Eastern Europe has a giant demographic challenge.

Here’s what was recently reported by the Financial Times.

Eastern Europe’s population is shrinking like no other regional population in modern history. …a population drop throughout a whole region and over decades has never been observed in the world since the 1950s with the exception of…Eastern Europe over the last 25 consecutive years.

Here’s the chart that accompanied the article. It shows the population change over five-year periods, starting in 1955. Eastern Europe (circled in the lower right) is suffering a population hemorrhage.

By the way, it’s not like the trend is about to change.

If you look at global fertility data, these nations all rank near the bottom. And they also suffer from brain drain since a very smart person, even from fast-growing, low-tax Estonia, generally can enjoy more after-tax income by moving to an already-rich nation such as Switzerland or the United Kingdom.

So what’s the moral of the story? What lessons can be learned?

There are actually three answers, only two of which are practical.

  • First, Eastern European nations can somehow boost birthrates. But nobody knows how to coerce or bribe people to have more children.
  • Second, Eastern European nations can engage in more reform to improve overall economic liberty and thus boost growth rates.
  • Third, Eastern European nations can copy Hong Kong and Singapore (both very near the bottom for fertility) by setting up private retirement systems.

The second option obviously is good, and presumably would reduce – and perhaps ultimately reverse – the brain drain.

But the third option is the one that’s absolutely required.

The good news is that there’s been some movement in that direction. But the bad news is that reform has taken place only in some nations, and usually only partial privatization, and in some cases (like Poland and Hungary) the reforms have been reversed.

And even if full pension reform is adopted, there’s still the harder-to-solve issue of government-run healthcare.

Eastern Europe has a very grim future.

P.S. I’m a great fan of the reforms that have been adopted in some of the nations in Eastern Europe, but none of them are small-government jurisdictions. Yes, the welfare state in Eastern European countries is generally smaller than in Western European nations, but it’s worth noting that every Eastern European nation in the OECD (Czech Republic, Estonia, Hungary, Poland, Slovakia, and Slovenia) has a larger burden of government spending than the United States.

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I’m in Marrakech where I just spoke about the importance of economic freedom and entrepreneurship.

To close out my presentation, I zipped through several slides showing how nations with pro-market policies enjoy faster long-run growth than countries burdened by statism. The obvious conclusion is that even modest improvements in economic growth, if sustained for a long period, can make a tremendous difference in living standards.

In future talks, I may start to include this fascinating map, produced by Jakub Marian, which provides an apples-to-apples comparison of local purchasing power in Europe based on the cost of living and the average level of income.

Green nations therefore have the highest living standards, followed by blue nations, all the way to the red countries, which are the poorest.

This is a very interesting data, in part because it certainly seemed at first glance to show that there is a relationship between rich nations and economic freedom.

So I went to Economic Freedom of the World (EFW) and looked at the scores for the richest 10 nations on the map (actually, richest 11 since Austria and the U.K. are tied at 149).

Of those countries, all but one of them are considered economically free and are in the top 31 out of 157 nations in the ranking.

Only Sweden isn’t in this top category, and even that nation is ranked 42 and is mostly free.

There are three takeaways from these numbers.

First, it’s worth noting that the top two nations, Switzerland and Luxembourg, are tax havens. So maybe other nations should emulate such policies. And I’m guessing Liechtenstein and Monaco would be at the very top if they were part of either the map or the EFW rankings.

Second, libertarian perfection would be nice, but the free market is capable of generating good results even if policy is merely decent. Almost all European nations have excessive taxes and spending, for instance, but they compensate with very pro-market policies in other areas.

Third, there are several European nations from the former Soviet Empire that have earned good EFW scores. If their reasonably good policies are maintained for several decades, they will catch up to – and in many cases exceed – the living standards in Western Europe.

Last but not least, here’s a map of Europe based on the Heritage Foundation’s Index of Economic Freedom, which is quite similar to EFW.

Notice that the green nations on this map largely match the green and blue nations in the Jakub Marian map. The Baltic nations are the most notable exceptions, and I’ve already predicted they will catch up to Western Europe if their pro-liberty policies are sustained.

Of course, the real role models should be Hong Kong and Singapore since those jurisdictions have more economic liberty than even Switzerland.

Actually, I’m even willing to say that France is an ideal role model. But only if nations emulate the France of 1870 rather than the France of 2016.

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I wrote yesterday about the Obama Administration’s head-in-the-sand approach regarding the anti-competitive nature of America’s corporate tax system (though maybe fiddling while Rome burns is a better metaphor).

Fortunately, some nations have more sensible policy makers. Even in Europe, which might come as a surprise to the pair of class warriors battling for the Democratic nomination.

Consider, for instance, what’s happening in Norway.

Norway will cut the corporate income tax rate to 23 percent from the current 27 percent by 2018…the country’s political parties announced on Wednesday. The basic personal tax rate will also be cut to 23 percent from 27 percent. …As part of the deal, further reductions in the company tax rate will be considered in the future. The compromise included…a small cut in Norway’s wealth tax.

What’s most remarkable about this story from Scandinavia is not that there’s a tax cut, though that surely would be a shock to Bernie Sanders’s mythological view of the Nordic nations.

I think it’s even more noteworthy that Norway already has a far lower corporate tax rate than the United States, yet the government is implementing a further reduction.

And Croatia also is poised to move policy in the right direction.

The reports from government circles that, as part of the tax reform, it could abolish the highest income tax rate of 40 percent have been welcomed by many observers. …“We support such a move. Croatia has a huge ‘brain drain’ of highly educated people, and they fall into the category of those whose salaries are covered by the 40 percent tax rate. Therefore, this decision would contribute to such people remaining in Croatia”, said Bernard Jakelić, the deputy director of the Croatian Employers’ Association. …Former Finance Minister Boris Lalovac (SDP) agreed that the abolition of the tax bracket would be a step in the right direction. …“Croatia is the only country in the region which has such a high rate of income tax. None of the countries in the region have income tax rates higher than 25 percent, and many countries have a flat tax. Its abolition would simplify the tax system and contribute to the reduction of the shadow economy. After all, the taxation of income at a rate of 25 percent is enough”, said Lalovac.

I especially like that the former finance minister makes both an argument based on tax competition and an argument based on the moral principle that there should be a limit on how much government should tax.

Maybe GOPer some day will be smart enough to include a moral component when seeking better tax policy. Especially if they learn that it’s politically persuasive.

So where can voters find a candidate who might implement such reforms in the United State?

Catherine Rampell of the Washington Post suggests that there is a “fiscally conservative” option already available.

Suppose you’re a hardcore fiscal conservative. …All you care about is getting the nation’s fiscal house in order. …the candidate you should vote for might surprise you. …the most fiscally conservative presidential contender left standing is…

Drum roll, please.

…Hillary Clinton.

No, it isn’t April Fool’s Day.

Ms. Rampell wants us to believe that Hillary Clinton is fiscally conservative because her agenda of much bigger government is matched by proposals for much higher taxes.

I’m not joking. Here’s what Rampell wrote.

Here’s the bottom line for the nation’s bottom line: Clinton’s spending increases and other proposals that cost money have a total price tag of about $1.8 trillion over the next decade. But her offsets, which come mostly from tax hikes, would save an estimated $1.9 trillion over that same period… Maybe when (if) voters start to notice this, Clinton will finally receive the praise she’s been due, from arithmetic fans and fiscal conservatives alike.

I suppose this is the point where I should explain that good fiscal policy is defined by a modest-sized government and a tax code that is designed to raise revenue in a relatively non-destructive fashion, not by whether lots of wasteful spending is okay if accompanied by lots of destructive tax hikes (i.e., a fixation on fiscal balance).

But I’ve made that point many times before, so instead I’ll merely observe that Ms. Rampell is either shockingly uninformed or (more likely) she thinks that she has some really stupid right-leaning readers who can be easily tricked into voting for Clinton.

And since we’re focusing on Mrs. Clinton’s ideological bona fides, ask yourself whether Ira Stoll of the New York Sun was describing a “fiscally conservative” candidate last December.

Call it Hillary’s Reichsfluchtsteuer. The former secretary of state and senator from New York, Hillary Clinton, reportedly will announce on Wednesday plans to impose an “exit tax” on companies that move their headquarters out of America or merge with foreign firms to escape America’s unreasonably high corporate taxes. …the Reichsfluchtsteuer, or Reich flight tax, was a 25% levy imposed originally…by the pre-Hitler, centrist government of Heinrich Brüning… Not exactly something to try to emulate. …As I pointed out back in 2012, the Universal Declaration of Human Rights, a product of the United Nations, says, “Everyone has the right to leave any country, including his own” and “No one shall be arbitrarily deprived of his property.” …it is unjust to force people or companies to stay where they do not want to be. …In 1963, at the Berlin Wall, President Kennedy said,Freedom has many difficulties and democracy is not perfect, but we have never had to put a wall up to keep our people in, to prevent them from leaving us.” Hillary Clinton’s exit tax would do exactly what Kennedy said we’ve never had to do: set up a virtual wall, in the form of a tax, to prevent companies from leaving America.

There’s something rather odious about a politician who wants to extort money from taxpayers as a price for re-domiciling. As a general rule, only very evil regimes levy such taxes.

Speaking of unsavory regimes, let’s play a fill-in-the-blank game. Here’s the first sentence from a recent Associated Press story.

___________ is looking to increase revenue from taxation.

Is the answer Hillary Clinton? That’s a good answer, but not correct in this case. What about Bernie Sanders of Barack Obama? Once again, smart guesses but not accurate for this story.

Give up? Well, here’s your answer.

The Islamic State extremist group is looking to increase revenue from taxation.

I share this item because this it reminded me of the time I gave a speech about reforming the welfare state and a leftist in the audience basically accused me of being a racist because the KKK also didn’t like the welfare state. The fact that I urged reform in part because poor people are hurt by such programs apparently didn’t matter to my accuser.

That being said, if we accept his logic, I guess this means we can accuse Hillary Clinton, Bernie Sanders, and Barack Obama of being in favor of Islamic terrorism because they share a goal with the Islamic State crazies.

Sigh. Needless to say, Hillary isn’t a radical Islamist. Just like Obama isn’t a communist simply because he was endorsed last election by the former head of the U.S. Communist Party.

I just wish folks on the left were equally prudent about avoiding absurd guilt-by-association charges.

P.S. Bruce Bartlett also claimed (presumably for the same disingenuous reason) that Obama is a conservative because of his proposed tax hikes, so Ms. Rampell is not alone.

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We can learn a lot of economic lessons from Europe.

Today, we’re going to focus on another lesson, which is that higher taxes lead to more red ink. And let’s hope Hillary Clinton is paying attention.

I’ve already made the argument, using European fiscal data to show that big increases in the tax burden over the past several decades have resulted in much higher levels of government debt.

But let’s now augment that argument by considering what’s happened in recent years.

There’s been a big fiscal crisis in Europe, which has forced governments to engage in austerity.

But the type of austerity matters. A lot.

Here’s some of what I wrote back in 2014.

…austerity is a catch-all phrase that includes bad policy (higher taxes) and good policy (spending restraint). But with a few notable exceptions, European nations have been choosing the wrong kind of austerity (even though Paul Krugman doesn’t seem to know the difference).

And when I claim politicians in Europe have chosen the wrong kind of austerity, that’s not hyperbole.

As of 2012, there were €9 of tax hikes for every €1 of supposed spending cuts according to one estimate. That’s even worse than some of the terrible budget deals we’ve seen in Washington.

At this point, a clever statist will accuse me of sour grapes and state that I’m simply unhappy that politicians opted for policies I don’t like.

I’ll admit to being unhappy, but my real complaint is that higher tax burdens don’t work.

And you don’t have to believe me. We have some new evidence from an international bureaucracy based in Europe.

In a working paper for the European Central Bank, Maria Grazia Attinasi and Luca Metelli crunch the numbers to determine if and when “austerity” works in Europe.

…many Euro area countries have adopted fiscal consolidation measures in an attempt to reduce fiscal imbalances…in most cases, fiscal consolidation did not result, at least in the short run, in a reduction in the debt-to-GDP ratio…calls for a more temperate approach to fiscal consolidation have increased on the ground that the drag of fiscal restraint on economic growth could lead to an increase rather than a decrease in the debt-to-GDP ratio, as such fiscal consolidation may turn out to be self-defeating. …The aim of this paper is to investigate the effects of fiscal consolidation on the general government debt-to-GDP ratio in order to assess whether and under which conditions self defeating effects are likely to materialise and whether they tend to be short-lived or more persistent over time.

Now let’s look at the results of their research.

It turns out that austerity does work, but only if it’s the right kind. The authors find that spending cuts are successful and higher tax burdens backfire.

The main finding of our analysis is that…In the case of revenue-based consolidations the increase in the debt-to-GDP ratio tends to be larger and to last longer than in the case of spending-based consolidations. The composition also matters for the long term effects of fiscal consolidations. Spending-based consolidations tend to generate a durable reduction of the debt-to-GDP ratio compared to the pre-shock level, whereas revenue-based consolidations do not produce any lasting improvement in the sustainability prospects as the debt-to-GDP ratio tends to revert to the pre-shock level. …strategy is more likely to succeed when the consolidation strategy relies on a durable reduction of spending, whereas revenue-based consolidations do not appear to bring about a durable improvement in debt sustainability.

Unfortunately, European politicians generally have chosen the wrong approach.

This is an important policy lesson also in view of the fact that revenue-based consolidations tend to be the preferred form of austerity, at least in the short run, given also the political costs that a durable reduction in government spending entail.

Here are a few important observations from the study’s conclusion.

…the findings of our analysis are in line with those of the literature on successful consolidation, namely that the composition of fiscal consolidation matters and that a durable reduction in the debt-to-GDP ratio is more likely to be achieved if consolidation is implemented on the expenditure side, rather than on the revenue side. In particular, when fiscal consolidation is implemented via an increase in taxation, the debt-to-GDP ratio reverts back to its pre-shock level only in the long run, thus failing to generate an improvement in the debt ratio, and producing what we call a self-defeating fiscal consolidation. …fiscally stressed countries benefit from an immediate reduction in the level of debt when reducing spending.

In other words, restraining the growth of spending is the best way to reduce red ink. Heck, it’s the only way.

When debating my leftists friends, I frequently share this table showing nations that have obtained very good results with multi-year periods of spending restraint.

My examples are from all over the world and cover all sorts of economic conditions. And the results repetitively show that when you deal with the underlying problem of too much government, you automatically improve the symptom of red ink.

I then ask my statist pals to show me a similar table of data for countries that have achieved good results with higher taxes.

I’m still waiting for an answer.

Which is why the only good austerity is spending restraint.

P.S. Paul Krugman is remarkably sloppy and inaccurate when writing about austerity. Check out his errors when commenting on the United Kingdom, Germany, and Estonia.

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The most depressing data about America’s economy is not the top tax rate, the regulatory burden, or the level of wasteful of government spending.

Those numbers certainly are grim, but I think they’re not nearly as depressing as America’s demographic outlook.

As you can see from this sobering image, America’s population pyramid is turning into a population cylinder.

There’s nothing a priori wrong with an aging population and a falling birthrate, of course, but those factors create a poisonous outlook when mixed with poorly designed entitlement programs.

The lesson is that a modest-sized welfare state is sustainable (even if not advisable) when a nation has a population pyramid. But even a small welfare state becomes a problem when a nation has a population cylinder. Simply stated, there aren’t enough people to pull the wagon and there are too many people riding in the wagon.

But if America’s numbers are depressing, the data from Europe should lead to mass suicide.

The Wall Street Journal has a new story on the utterly dismal fiscal and demographic data from the other side of the Atlantic Ocean.

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared. …Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. …Though its situation is unusually dire, Greece isn’t the only European government being forced to acknowledge it has made pension promises it can ill afford. …Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69. …Only a few countries estimate the total debt burden of the pension promises they have made.

The various nations is Europe may not produce the data, but one of the few good aspects of international bureaucracies is that they generate such numbers.

I’ve previously shared projections from the IMF, BIS, and OECD, all of which show the vast majority of developed nations will face serious fiscal crises in the absence of reforms to restrain the burden of government spending.

New we can add some data from the European Commission, which has an Ageing Report that is filled with some horrifying demographic and fiscal information.

First, here are the numbers showing that most parts of the world (and especially Europe) will have many more old people but a lot fewer working-age people.

Looking specifically at the European Union, here’s what will happen to the population pyramid between 2013 and 2060. As you can see, the pyramid no longer exists today and will become an upside-down pyramid in the future.

Now let’s look at data on the ratio between old people and working-age people in various EU nations.

Dark blue shows the recent data, medium blue is the dependency ratio in 2030, and the light blue shows the dependency ration in 2060.

The bottom line is that it won’t be long before any two working-age people in the EU will be expected to support themselves plus one old person. That necessarily implies a very onerous tax burden.

But the numbers actually are even more depressing than what is shown in the above chart.

In the European Commission’s Ageing Report, there’s an estimate of the “economic dependency ratio,” which compares the number of workers with the number of people supported by those workers.

The total economic dependency ratio is a more comprehensive indicator, which is calculated as the ratio between the total inactive population and employment (either 20-64 or 20-74). It gives a measure of the average number of individuals that each employed “supports”.

And here are the jaw-dropping numbers.

These numbers are basically a death knell for an economy. The tax burden necessary for this kind of society would be ruinous to an  economy. A huge share of productive people in these nations would decide not to work or to migrate where they would have a chance to keep a decent share of their earnings.

So now you understand why I wrote a column identifying safe havens that might remain stable while other nations are suffering Greek-style fiscal collapse.

Having shared all this depressing data, allow me to close with some semi-optimistic data.

I recently wrote that Hong Kong’s demographic outlook is far worse than what you find in Europe, but I explained that this won’t cause a crisis because Hong Kong wisely has chosen not to adopt a welfare state. People basically save for their own retirement.

Well, a handful of European nations have taken some steps to restrain spending. Here’s a table from the EC report on countries which have rules designed to adjust outlays as the population gets older.

These reforms are better than nothing, but the far better approach is a shift to a system of private retirement savings.

As you can see from this chart, Denmark, Sweden, and the Netherlands already have a large degree of mandatory private retirement savings, and a handful of other countries have recently adopted private Social Security systems that will help the long-run outlook.

I’ve already written about the sensible “pre-funded” system in The Netherlands, and there are many other nations (ranging from Australia to Chile to the Faroe Islands) that have implemented this type of reform.

Given all the other types of government spending across the Atlantic, Social Security reform surely won’t be a sufficient condition to save Europe, but it surely is a necessary condition.

Here’s my video explaining why such reform is a good idea, both in America and every other place in the world.

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