Feeds:
Posts
Comments

Posts Tagged ‘Government Spending’

Back in March, I shared a remarkable study from the International Monetary Fund which explained that spending caps are the only truly effective way to achieve good fiscal policy.

And earlier this month, I discussed another good IMF study that showed how deficit and debt rules in Europe have been a failure.

In hopes of teaching American lawmakers about this international evidence, the Cato Institute put together a forum on Capitol Hill to highlight the specific reforms that have been successful.

I moderated the panel and began by pointing out that there are many examples of nations that have enjoyed good results thanks to multi-year periods of spending restraint.

I even pointed out that we actually had an unintentional – but very successful – spending freeze in Washington between 2009 and 2014.

But the problem, I suggested, is that it is very difficult to convince politicians to sustain good policy on a long-run basis. The gains of good policy (such as what was achieved in the 1990s) can quickly be erased by a spending binge (such as what happened during the Bush years).

Unless, of course, there’s some sort of constraint on the desire to spend money. And the panelists discussed the three most successful examples of reforms that constrain the growth of government.

We started with a presentation by Daniel Freihofer from the Swiss Embassy. He talked about Switzerland’s “Debt Brake,” which actually is a spending cap.

It’s remarkable how well Switzerland has performed while most other European nations have suffered downward spirals of more spending-more taxes-more debt. Here’s a chart I put together on what’s happened to spending in Switzerland ever since 85 percent of voters imposed the Debt Brake early last decade.

By the way, Herr Freihofer said during the Q&A session that support for the Debt Brake is now probably about 95 percent, so Swiss voters obviously understand that the policy has been very successful.

Our second speaker was Clement Leung, Hong Kong’s Commissioner to the United States. He talked about Article 107 and other rules from Hong Kong’s Basic Law (their constitution) that limit the temptation to over-tax and over-spend.

And if you want to see some of the positive results of these rules in Hong Kong, here’s some of what Commissioner Leung presented.

By the way, the burden of government spending in Hong Kong averages about 18 percent of economic output. That’s the most impressive result. And Commissioner Leung explained that there’s a commitment to keep the burden of spending below 20 percent of GDP.

The final panelist was Jonathan Williams from the American Legislative Exchange Council, and he talked about Colorado’s Taxpayer Bill of Rights, popularly known as TABOR.

Jonathan talked about how the pro-spending lobbies keep attacking TABOR, and he mentioned that they narrowly succeeded in getting a five-year suspension of the law back in 2005. But Colorado voters generally understand they have a good policy.

The most recent attempt to enable more spending came in the form of an increase in the state’s flat tax back in 2013 and voters rejected it by a stunning 66-34 margin (almost as impressive as the recent vote against tax hikes in Michigan) even though Jonathan said advocates outspent opponents by a 289-1 margin.

Here’s a slide from his presentation showing what happened during other attempts to enable more spending.

By the way, Jonathan also mentioned that Colorado’s voters are about to get a TABOR-mandated tax cut because taxes on marijuana are pushing revenues above the limit. Talk about a win-win situation!

To wrap up, one of the big lessons from all the presentations is that governments generally get in trouble because they can’t resist over-spending when the economy is doing well and generating lots of tax revenue.

I fully agree, and I’ve previously explained this is why Alberta got in fiscal trouble, and also why California suffers a boom-bust budgetary cycle.

The way you solve this problem is not with a balanced budget requirement (which often serves as the justification for tax hikes), but some sort of spending limitation rule.

Read Full Post »

When I first came to Washington back in the 1980s, there was near-universal support and enthusiasm for a balanced budget amendment among advocates of limited government.

The support is still there, I’m guessing, but the enthusiasm is not nearly as intense.

There are three reasons for this drop.

  1. Political reality – There is zero chance that a balanced budget amendment would get the necessary two-thirds vote in both the House and Senate. And if that happened, by some miracle, it’s highly unlikely that it would get the necessary support for ratification in three-fourths of state legislatures.
  2. Unfavorable evidence from the statesAccording to the National Conference of State Legislatures, every state other than Vermont has some sort of balanced budget requirement. Yet those rules don’t prevent states like California, Illinois, Connecticut, and New York from adopting bad fiscal policy.
  3. Favorable evidence for the alternative approach of spending restraint – While balanced budget rules don’t seem to work very well, policies that explicitly restrain spending work very well. The data from Switzerland, Hong Kong, and Colorado is particularly persuasive.

Advocates of a balanced budget amendment have some good responses to these points. They explain that it’s right to push good policy, regardless of the political situation. Since I’m a strong advocate for a flat tax even though it isn’t likely to happen, I can’t argue with this logic.

Regarding the last two points, advocates explain that older versions of a balanced budget requirement simply required a supermajority for more debt, but newer versions also include a supermajority requirement to raise taxes. This means – at least indirectly – that the amendment actually is a vehicle for spending restraint.

This doesn’t solve the political challenge, but it’s why advocates of limited government need to be completely unified in favor of tax-limitation language in a balanced budget amendment. And they may want to consider being more explicit that the real goal is to restrain spending so that government grows slower than the productive sector of the economy.

Interestingly, even the International Monetary Fund (which is normally a source of bad analysis) understands that spending limits work better than rules that focus on deficits and debt.

Here are some of the findings from a new IMF study that looks at the dismal performance of the European Union’s Stability and Growth Pact. The SGP supposedly limited deficits to 3 percent of GDP and debt to 60 percent of GDP, but the requirement failed largely because politicians couldn’t resist the temptation to spend more in years when revenue grew rapidly.

An analysis of stability programs during 1999–2007 suggests that actual expenditure growth in euro area countries often exceeded the planned pace, in particular when there were unanticipated revenue increases. Countries were simply unable to save the extra revenues and build up fiscal buffers. …This reveals an important asymmetry: governments were often unable to preserve revenue windfalls and faced difficulties in restraining their expenditure in response to revenue shortfalls when consolidation was needed. …The 3 percent of GDP nominal deficit ceiling did not prevent countries from spending their revenue windfalls in the mid-2000s. … Under the SGP, noncompliance has been the rule rather than the exception. …The drawbacks of the nominal deficit ceiling are particularly apparent when the economy is booming, as it is compatible with very large structural deficits.

The good news is that the SGP has been modified and now (at least theoretically) requires spending restraint.

The initial Pact only included three supranational rules… As of 2014, fiscal aggregates are tied by an intricate set of constraints…government spending (net of new revenue measures) is constrained to grow in line with trend GDP. …the expenditure growth ceiling may seem the most appealing. This indicator is tractable (directly constraining the budget), easy to communicate to the public, and conceptually sound… Based on simulations, Debrun and others (2008) show that an expenditure growth rule with a debt feedback ensures a better convergence towards the debt objective, while allowing greater flexibility in response to shocks. IMF (2012) demonstrates the good performance of the expenditure growth ceiling

This modified system presumably will lead to better (or less worse) policy in the future, though it’s unclear whether various nations will abide by the new EU rules.

One problem is that the overall system of fiscal rules has become rather complicated, as illustrated by this image from the IMF study.

Which brings us back to the third point above. If the goal is to restrain spending (and it should be), then why set up a complicated system that first and foremost is focused on red ink?

That’s why the Swiss Debt Brake is the right model for how to get spending under control. And this video explains why the objective should be spending restraint rather than deficit reduction.

And for those who fixate on red ink, it’s worth noting that if you deal with the underlying disease of too much government, you quickly solve the symptom of deficits.

Read Full Post »

Since I’m an advocate of smaller government, you might imagine I’m perpetually depressed. After all, I work in Washington where I’m vastly outnumbered by people who specialize in looting and mooching. At times, I feel like a missionary in a house of ill repute.

But I always look for the silver lining when there’s a dark cloud overhead. So while it’s true that government squanders our money and violates our rights, at least we sometimes get some semi-amusing stories about sheer incompetence and staggering stupidity.

Like Detroit spending $32 to issue $30 parking tickets.

The State Department buying friends.

Or Georgia’s drug warriors raiding a house because of okra plants.

FEMA house guidelines that make houses less safe in hurricanes.

Federal rules that prevent school bake sales.

Bureaucrats defecating in hallways.

Yes, I realize I also should be outraged about these examples. But I can’t help being amused as well.

So let’s add to our collection of bizarre, foolish, and wasteful behavior by government.

Here are some passages from a Washington Post exposé on mismanagement and waste at the federal department that is infamous for secret waiting lists that resulted in denied health care (and in some cases needless deaths) for America’s veterans.

The Department of Veterans Affairs has been spending at least $6 billion a year in violation of federal contracting rules to pay for medical care and supplies, wasting taxpayer money and putting veterans at risk, according to an internal memo written by the agency’s senior official for procurement. In a 35-page document addressed to VA Secretary Robert McDonald, the official accuses other agency leaders of “gross mismanagement” and making a “mockery” of federal acquisition laws that require competitive bidding and proper contracts. Jan R. Frye, deputy assistant secretary for acquisition and logistics, describes a culture of “lawlessness and chaos” at the Veterans Health Administration.

I confess that it’s hard to find anything amusing about this story, but I’m worried that I might go crazy if I simply focus on how a bureaucracy gets more and more money every year, yet also manages to waste money with no negative consequences.

Or maybe I just enjoy the fact that I have a new reason to mock a wasteful government department (sorry to be redundant).

Here’s an example of spending that is so silly that it’s okay for all of us to laugh. Enjoy this blurb on how tax dollars are being wasted by the foreign aid bureaucracy.

American taxpayers might come down with a case of the blues when they hear about how the State Department is spending their tax dollars. According to ForeignAssistance.gov, India has requested $88,439,000 in U.S. foreign aid for the year 2015, but the State Department plans to spend additional funds on diplomacy: music diplomacy. The U.S. Mission to India is offering a $100,000 grant opportunity titled “Strengthening US-India Relations Through Jazz.” Eligible applicants include public and private universities as well as non-profit organizations. …Another grant available to universities and non-profit groups is for a “Visual Exhibit on Indian Faith and Traditions in America.” For $75,000, U.S. taxpayers will fund a “photographic exhibit that showcases both the ways that Indian-Americans practice their faith traditions in the United States, and the ways that Indian faith traditions have been adopted by American communities.” According to the offering, “The images will capture the diversity of the Indian-American community, so that a broad range of religious traditions are depicted.

These numbers are small compared to, say, the malfeasance and waste at the Department of Veterans Affairs. But that doesn’t mean we shouldn’t get upset in addition to being amused.

Think about it from this perspective. The amounts being wasted in this example are equal to the entire federal tax burden for several American families.

Do any of us think it’s okay to confiscate so much of their income and then have it squandered so pointlessly and irresponsibly?

Besides, the foreign aid bureaucracy is also capable of wasting huge amounts of money.

But remember that the federal government doesn’t have a monopoly on foolish and stupid behavior.

Here’s another example of inane government behavior. And you won’t be surprised that it took place in California because, as Reason reports, it involved a raid against an establishment serving probiotic tea.

Last Friday, an undercover officer from the state’s Alcohol Beverage Control (ABC) “infiltrated the temple,” Vice reports, “clearing the way for a 9 PM incursion by five officers.” What manner of crazy bootlegged hooch were the agents there to confiscate? Kombucha. Blueberry kombucha. For the uninitiated, kombucha is a type of carbonated, probiotic tea, popular among hipsters and health foodies. It’s made by mixing regular tea, sugar, and a “symbiotic culture of bacteria and yeast” known as the “mother” and letting the whole business ferment for a few days. The end result is a somewhat vinegar-like beverage that’s packed with good bacteria (à la yogurt) and ever-so-slightly alcoholic….But because the tea contains slightly above 0.5 percent alcohol, it requires a special license to sell say ABC agents, who cited a Full Circle rep for misdemeanor selling alcohol without a license.

Reminds me of the story about the federal milk police at the FDA. Or the federal bagpipe police at our borders.

Don’t these bureaucrats have anything better to do with their time (and our money)?!?

P.S. How could I forget all the examples of insane anti-gun political correctness in government schools?

P.P.S. Or the examples of unconstrained stupidity at the TSA?

P.P.P.S. And the odd collection of “human rights” that governments have created.

Read Full Post »

There’s a Terror Wing in the Moocher Hall of Fame, so I guess it stands to reason that I should create a French Wing of the Bureaucrat Hall of Fame.

After all, few nations can compete with France in the contest to over-tax and over-spend.

And a lot of that spending goes to subsidize a bloated bureaucracy.

Moreover, I suspect many members of that bureaucracy work in jobs that shouldn’t exist and get wildly over-compensated.

Just last month, for instance, I honored one of those bureaucrats with membership in the Hall of Fame because she managed to squander an average of $145 of other people’s money on taxis each and every day (including weekends) even though she also had a taxpayer-provided car and chauffeur!

Wow. And she wasted that much money while working in a position (archivist for the country’s government-run media operation) that never should have been created.

Speaking of which, here are some amusing (only amusing because I’m not a French taxpayer) snippets from a story in the U.K.-based Times about some other ultra-spoiled French bureaucrats.

The 40 members of the Académie Française have…lavish perks… Their remuneration arrangements…include free flats in some of Paris’s most sought-after districts… The report, by the Court of Accounts, is likely to add to widespread resentment of a Parisian elite seen as clinging to its privileges.

The pay levels for these über-bureaucrats are absurd, but the perks are downright astounding.

Many [flats] were made available without justification to the intellectuals who belonged to the academies and their staff, the report said.Hélène Carrère d’Encausse, the historian who is its “permanent secretary”, received €104,768 a year and a free flat in Paris, the report said. The academy justifies her remuneration on the ground that her work is so great that she has to “renounce all literary work”. However, Mrs Carrère d’Encausse has produced nine books, largely on Russia, her specialist subject, since being given the post in 1999. …There is also criticism of Hugues Galls, the opera director who sits on the Academy of Fine Arts and runs one of its properties — the house and gardens where Claude Monet lived. The report said he received a BMW 125i, bought by the academy for €40,461. His garage fees of €1,700 a month are paid by the institution.

Hey, nice “work” if you can get it.

No wonder the OECD is based in Paris. The culture is perfect for elitist leeches.

And it shows that my First Theorem of Government applies in France as well as the United States.

The only silver lining to this dark cloud is that the French elite is slowly waking up to the reality that the government is running out of victims to finance such special-interest perks.

P.S. I rarely get to celebrate good news, so let’s enjoy this moment because the government thugs who stole $107,000 from Lyndon McLellan are being forced to return the money.

Reason has the wonderful details.

…the federal prosecutor assigned to the case was peeved. “Your client needs to resolve this or litigate it,” Assistant U.S. Attorney Steve West wrote in an email message. “But publicity about it doesn’t help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. The offer is good until March 30th COB.” That deadline came and went, but Lyndon McLellan, the convenience store owner who lost $107,000 to the IRS because it considered his bank deposits suspiciously small, refused to fold. That turned out to be a smart move, because West was bluffing. Yesterday the government agreed to drop the case and return all of McLellan’s money.

This is great news, but notice what happened. The Assistant U.S. Attorney initially tried to threaten this innocent man.

But as the case got more publicity, the hack bureaucrat was forced to relent, in much the same way cockroaches scurry into crevices when the kitchen light is turned on.

By the way, if anyone knows Steve West, make sure to let him know that he’s a despicable human being. I bet he’s friends with Robert Murphy and Michael Wolfensohn.

Read Full Post »

America has a giant long-run problem largely caused by poorly designed entitlement programs such as Social Security, Medicare, and Medicaid.

So when I wrote last month about proposals by some Democrats to expand Social Security, I was less than enthusiastic.

…demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades. So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund. …If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

But it turns out I may have been too nice in my analysis.

As reported by USA Today, independent researchers have discovered that Social Security is even more bankrupt than suggested by official estimates.

New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000. “These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.” …Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088.

By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs.

But if you don’t believe me, perhaps you’ll believe the Clinton Administration, which admitted back in 1999 (see page 337) that the Trust Fund is just a bookkeeping gimmick.

These balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. …They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

In other words, what really matters is that Social Security spending is climbing too fast and consuming an ever-larger share of economic output.

That means – in the absence of reform – that more and more money will be diverted from the economy’s productive sector, in the form of taxes or borrowing, to finance benefits.

And when I write “more and more money,” that’s not a throwaway statement.

Returning to the USA Today report, academic experts warn that the long-term shortfall in the program is understated because it is based on 75-year estimates even though the program doesn’t have an expiration date.

The bigger problem with the Social Security Administration is not disclosure, it’s accounting, said Laurence Kotlikoff, a Boston University professor of economics… Kotlikoff…wants the agency to calculate its liabilities using fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue. …Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088). …17 Nobel Prize-winning economists have endorsed Kotlikoff’s push for the SSA and other government agencies to use the fiscal gap accounting method more broadly. “We have a situation that is like Enron accounting,” Kotlikoff said. “And the public doesn’t want to hear about it.”

At the risk of being pedantic, I’m also not enamored with either approach mentioned in the above passage.

Sure, we should acknowledge all expenses and not arbitrarily assume the program disappears after 75 years, but the approach used to calculate “unfunded liabilities” is artificial since it is based on how much money would need to be invested today to finance future promised benefits (whether for 75 years or forever).

Needless to say, governments don’t budget by setting aside trillions of dollars to meet future expenses. Social Security, like other programs, is funded on a pay-as-you-go basis.

That’s why the most appropriate way to measure the shortfall is to take all projected future deficits, adjust them for inflation, and calculate the total. When you do that, the Social Security shortfall is a staggering $40 trillion.

And that’s based on just a 75-year estimate, so the real number is much higher.

Though keep in mind that this is just an estimate of the fiscal shortfall. What really matters is the total level of spending, not how much is financed with red ink.

Which is why the only real answer is genuine reform.

For further information, here’s the video I narrated for the Center for Freedom and Prosperity on the need to modernize the system with personal retirement accounts.

But if you prefer to trust politicians, you can always support the left’s favored solution.

P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

P.P.S. The “Trust Fund” is real only in the sense that the government’s legal authority to pay benefits will be constrained when the IOUs are used up. That’s why the USA Today article says that the government at that point would be able to pay only about 3/4ths of promised benefits (though one imagines that future politicians will simply override that technical provision and require full payments).

P.P.P.S. Many nations have adopted genuine reform based on private retirement savings, including Australia, Sweden, the Faroe Islands, Chile, and The Netherlands.

P.P.P.P.S. Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them live longer, but at least they would have a nest egg to pass on to their kids.

P.P.P.P.P.S. And don’t fall for the false argument that financial markets are too unstable for personal retirement accounts

Read Full Post »

I’ve openly stated that there are tax-hiking budget deals that theoretically would be attractive.

But notice that “theoretically” is part of that sentence.

That’s because in the real world, tax hikes have a poisonous effect on fiscal policy. Instead of being the lubricant that produces concessions from the big-government crowd, the prospect of additional revenue is like putting blood in the water when hungry sharks are circling.

The bottom line is that trying to cure deficits with taxes is like trying to cure alcoholics by giving them keys to a liquor store.

Indeed, the New York Times accidentally proved my point by putting together a chart showing that the only successful budget deal was the one that cut taxes instead of raising them.

So this is why I’m a huge fan of Americans for Tax Reform’s no-tax-hike pledge.

Simply stated, I want to restrain – and hopefully reduce – the burden of government spending. And that definitely won’t happen if politicians think more revenue is an option.

So I get excited any time voters express the same sentiment. As such, you can imagine my feeling of happiness that Michigan voters overwhelmingly rejected a big tax increase that was supported almost the entire political establishment.

Here are some of the joyous details from a Detroit Free Press report.

With all counties reporting, 1.4 million Michiganders voted no on Proposal 1 while less than 351,000 voted yes, according to the Michigan Secretary of State’s office. The 80-20 rejection may be the most one-sided loss for a proposed constitutional amendment in state history. …Proposal 1 would have hiked the state sales tax to 7% from 6%, taken the sales tax off fuel sales, and hiked fuel taxes — raising close to $1.3 billion extra for roads. When fully implemented, the plan would have also generated about $200 million a year more for schools; $116 million for transit and rail; sent $111 million more to local governments; and given a $260-million tax break to low- and moderate-income families through restoration of the Earned Income Tax Credit.

If the Michigan earned-income credit works the same way as the one in Washington, it’s not a tax break. It’s simply a wage subsidy, a form of redistribution that gets laundered through the tax code.

But that’s not terribly relevant for purposes of today’s discussion. What really matters is that politicians were pushing a big increase in the overall burden of spending financed by a big increase in the overall burden of taxation.

And they had special interests on their side, which enabled them to out-spend the pr0-taxpayer side by a margin of about 20-1.

the Safe Roads Yes committee, which pushed for a yes vote on Proposal 1, reported raising $9.6 million to spend on its campaign. Of that, $5.8 million came from the Michigan Infrastructure & Transportation Association, a lobbying group for road builders and their suppliers. …The main no committee, the Coalition Against Higher Taxes and Special Interest Deals, reported raising just under $500,000 as of Monday.

But special-interest money doesn’t necessarily translate into votes. At least it didn’t in Michigan on Tuesday.

By the way, I’m not claiming voters always make the right choices. As we saw from referenda in Oregon and California, they can sometimes be lured into voting yes on tax hikes if they’re told “the rich” are the only ones who will pay.

John Miller of Hillsdale College (site of my flat tax v. fair tax debate) explains that the politicians in Lansing were simply too greedy. Writing for the Wall Street Journal before the vote, Miller suggests voters were unhappy that they were being asked for a big tax hike, when 40 percent of the money was going to be diverted to non-transportation purposes.

…the measure would generate more than $2 billion in revenue a year. Yet the amount that would go to transportation—mostly roads and bridges, but also bike paths, light rail and “streetscape” projects that aim to improve the look of downtown areas—is only about $1.2 billion. …In other words, taxpayers will get less than $1.2 billion in roadwork for the price of more than $2 billion.

How typical. Politician proposed a tax hike for one reason, but then hijacked their own plan and made it a Christmas tree of special-interest spending.

P.S. Here are my five policy and five political reasons against higher taxes in Washington.

P.P.S. The international evidence also shows that higher taxes are a recipe for bigger government and more debt.

P.P.P.S. I don’t fixate too much on the bias of the establishment media. It’s annoying, to be sure, but it doesn’t help to get all agitated about things outside of my control. That being said, I thought it was very revealing that the home pages of both the New York Times and Washington Post didn’t have any stories on the Michigan referendum. If the vote had gone the other way, I feel 99 percent confident in stating that the story would have been prominently displayed with lots of “analysis” about why the vote was hugely important.

P.P.P.P.S. Needless to say, Republicans who refuse to take the no-tax-hike pledge should be viewed with considerable suspicion.

Read Full Post »

Okay, I’ll admit right away that the title of this column is an exaggeration.

But if you’re a public policy wonk and you worry about the rising level of government dependency and the erosion of self reliance, then you’ll understand why the chart below, which was presented earlier today at the Copenhagen conference of the Free Market Road Show, is so disturbing.

It was part of a presentation by Anders Krab-Johansen, the CEO and Editor-in-Chief of Børsen, which is the leading business newspaper in Denmark. It shows his nation’s dependency ratio, and it reveals that the number of people getting money from the government has more than doubled while the number of people in the economy’s productive sector is stagnant.

It’s very hard to be optimistic about Denmark given the trend line (and, please, no complaints about Mr. Krab-Johansen writing “of” instead of “off” since his English proficiency is 99 percent, which is far above my 0.0 percent Danish proficiency).

No wonder my Danish friend, Mads Lundby Hansen of the Center for Politiske Studier (CEPOS), put together the “party boat” to show that far too many of his countrymen are living off the labor of an ever-shrinking number of producers in the private sector.

It seems that “Lazy Robert” has lots of company.

You won’t be surprised to learn that a massive level of dependency necessarily means an onerous burden of government spending.

In his presentation, Mr. Krab-Johansen shared this chart looking at consumption spending by governments in the developed world.

For further elaboration, there are different types of government spending,

Spending on core public goods, such as provision of the rule of law, is associated with good economic performance.

Other types of government spending, such as outlays for physical capital and human capital, have a mixed record. Some of the spending on things like roads and education is productive, but some of it is wasteful and counterproductive.

The bulk of government spending, however, is for transfers and consumption, and those outlays are associated with weaker economic performance.

The bottom line is that it’s a very bad sign for Denmark to have the developed world’s second-highest burden of public consumption outlays.

And if there’s an excessive burden of government spending, you won’t be surprised to learn that the tax burden is onerous.

I’ve previously joked that the tax system is so onerous that birthers should accuse Obama of being born in Denmark.

So it’s no surprise that business entrepreneurs identified tax-related issues as being two of their three biggest challenges.

 

It’s also worth noting that bureaucracy and regulation also are listed as problems.

P.S. This set of cartoons is the American version of Denmark’s party boat.

P.P.S. If anyone cares, my speech at the Copenhagen conference focused on the importance of policies that enable labor, capital, and entrepreneurship to generate economic growth.

P.P.P.S. I don’t want to leave readers with a totally grim perspective on Denmark. Yes, the fiscal burden is terrible, but the country actually is very free market in other areas. And the government is even taking some modest steps to reduce dependency, so policy makers realize there’s a problem.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,777 other followers

%d bloggers like this: