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In this podcast discussion with Gene Tunny, I pontificate on several fiscal issues, including the ideal size of government, Wagner’s Law, and the importance of quality governance.

The conversation is a good introduction to the debate about “state capacity” generally and “state capacity libertarianism” more specifically.

Regarding the former, I explained last year why it would be a bad idea to expand the size and power of governments.

Most advocates of increased state capacity are on the left. For instance, Joseph E. Stiglitz, Todd N. Tucker, and Gabriel Zucman argue in an article for Foreign Affairs that high taxes and big government are a necessary condition for prosperity.

…markets have not flourished without the help of the state. …The invisible hand of the market depended on the heavier hand of the state. The state requires something simple to perform its multiple roles: revenue. It takes money to build roads and ports, to provide education for the young and health care for the sick, to finance the basic research that is the wellspring of all progress, and to staff the bureaucracies that keep societies and economies in motion. No successful market can survive without the underpinnings of a strong, functioning state. …States lay the basis for the healthy, educated populations that can participate in and contribute to the successful flourishing of markets. Allowing states to collect their fair share of revenue in the form of taxes will not usher in a dystopian era of oppressive government.

Their argument, in my humble opinion, is strikingly anti-empirical.

  • According to their theory, it was impossible for western nations to become rich in the 1800s when government was very small and there was no welfare state. Yet it happened.
  • According to their theory, it is impossible to provide public goods if government consumes only a modest share of economic output. Yet that’s not what we see in the real world.

For purposes of today’s column, let’s focus on the issue of “state capacity libertarianism.”

Professor Tyler Cowen from George Mason University basically asserts that libertarians should accept a “strong state” and focus on making it effective.

Strong states remain necessary to maintain and extend capitalism and markets.  This includes keeping China at bay abroad and keeping elections free from foreign interference, as well as developing effective laws and regulations for intangible capital, intellectual property, and the new world of the internet. …A strong state is distinct from a very large or tyrannical state.  A good strong state should see the maintenance and extension of capitalism as one of its primary duties…high levels of state capacity are not inherently tyrannical.  Denmark should in fact have a smaller government, but it is still one of the freer and more secure places in the world… Many of the failures of today’s America are…failures of state capacity.  Our governments cannot…much improve K-12 education, fix traffic congestion, or improve the quality of their discretionary spending. …Public health improvements are another major success story of our time, and those have relied heavily on state capacity.

Depending on how one interprets Tyler’s column, there’s some room for agreement.

  • If “strong state” means a jurisdiction that has the rule of law, I assume everyone favors quality governance.
  • If “strong state” means that a nation can survive with a big welfare state, Denmark shows that is possible.
  • If “strong state” means government re-focusing on provision of genuine public goods, I’m very sympathetic.

But there’s also room for disagreement.

In a column for the American Institute for Economic Research, Vincent Geloso and Alexander W. Salter make the critical point that proponents of state capacity get the causality backwards.

Cowen contends that state capacity (broadly, the government’s ability to accomplish its intended policy goals) is not inimical to liberty and development. In essence, a strong state can protect property rights and provide important public goods, which may support and even extend markets, so long as it is appropriately constrained. Thus, a strong and capable state promotes liberty and economic growth simultaneously. …If anything, the relationship runs backward – greater development invites greater state capacity. …while it doesn’t make much sense to claim state capacity causes development, it makes much more sense to claim development causes state capacity. …A rich country with a weak state invites the predation from other countries. The inability to defend a certain stock of appropriable wealth is a lure… The weak state-capacity country has two choices. The first is to be conquered and absorbed by the strong-state-capacity country. The second is to invest in state capacity (i.e. a centralized-hierarchical fiscal bureaucracy that can harness resources for the purposes of producing national defense and/or others). …growth generates an externality in the form of heightened attention from potential predators. …As such, state capacity is not causing growth. It is a product of growth.

Professor Ilya Somin, a law professor at George Mason University, is very skeptical of state capacity libertarianism, in part because he finds little evidence for the proposition that strong government is a predicate for growth.

…it’s worth asking exactly what Tyler means by “state capacity.” He does not provide a very clear definition. …Tyler fails to specify how we measure the type of “capacity” he considers important… state capacity theorists have not done a good job of differentiating cases where state capacity is the cause of good outcomes from those where it is a result of them (e.g.—a state in a wealthier society has more capacity than one in a poor society, even if the state did little to create that wealth). …looking at some of the greatest evils and injustices out there, I see many that libertarianism is very well-equipped to handle. …In each of these areas, there are enormous gains to be had simply by having government engage in less of the activity that is causing the problem to begin with. …none of these incremental reforms require much, if any, state capacity that doesn’t already exist. …The problems with education, traffic congestion, and discretionary spending are not a lack of “capacity” but a combination of inherent flaws of government and poor incentives.

He also is justifiably concerned that a strong government inevitably will misbehave, presumably for “public choice” reasons.

…even if “[a] good strong state” should see “the maintenance and extension of capitalism as one of its primary duties,” it doesn’t follow that it actually will. To the contrary, the more power the state has, the greater the temptation for politicians to misuse it, especially in a context where they are appealing to poorly informed voters. …at this point in history, it doesn’t seem like the US and other Western democracies lack the capacity to do such things as provide a modicum of security and public goods. Rather, the problem is that our governments are engaging in way too many other functions, many of which are both harmful in themselves and divert resources away from the things that government should do.

For what it’s worth, my view of state capacity libertarianism is the same as my view of national conservatism. And compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, and reform conservatism as well.

I will be highly skeptical until someone shows me the tiniest shred of evidence that further reducing economic liberty can lead to more prosperity.

P.S. While they’re definitely not libertarian, international bureaucracies are big advocates of boosting state capacity. They argue that bigger government will somehow kick-start grow in developing nations. Here’s my sarcastic – yet accurate – depiction of their methodology.

For those who disagree, all that I ask is that you successfully answer at least one of these two questions. Until and unless that happens, there’s no alternative to the tried-and-true recipe for prosperity.

P.P.S. Here’s Part I and here’s Part II of my “Fight on the Right” series.

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Merry Christmas, even for my left-leaning friends and politically correct friends.

The good news is that – contrary to reports – Santa Claus did not get arrested last night.

And that’s good news because he does many things each year that could land him in prison.

In a column for FEE, David Rosenthal addresses the same topic of overcriminalization.

While most people know Jolly Old Saint Nick as a friendly figure, he too is not immune from the perils of administrative overreach and overcriminalization. …here is a list of some of the potential crimes and violations of federal law… Under the Reindeer Act, signed into law by President Franklin D. Roosevelt in 1937, only Alaska Natives are allowed to own reindeer in Alaska. …Even if Santa gets around the Reindeer Act, he may face civil and criminal penalties under the Lacey Act if his purchase, sale, possession, or use of reindeer—or any other flora or fauna— violates any state or federal law or the law of any foreign nation, no matter what language or code that foreign law is written in. …Despite Santa’s many years of experience, there is no Mr. Claus listed in the Federal Aviation Administration’s pilot certificates database. If Santa is piloting his sleigh without an airman’s certificate, he is in violation of 49 U.S.C. § 46317. …Any white lie that falls within the jurisdiction of the U.S. government could be a federal crime. …A government agent need only ask Santa if he committed burglary, trespass, or larceny, or ask him, “Are you really Santa Claus?” In that case, Santa really would need a Miracle on 34th Street to stay out of the slammer for lying. …Under IRS gift tax rules, the giver of gifts above a certain threshold is taxed at a rate up to 40 percent of the value of the gift. …Willful failure to file a gift tax return can land Santa in prison for up to one year under 26 U.S.C. § 7203.

Regarding whether Santa Claus is real, there is a downside to people being too gullible.

In the past, I’ve looked at the debate over whether Santa Claus is right wing or left wing, as well as the debate over whether Jesus is libertarian or socialist.

Here’s an amusing 2×2 matrix that builds on those themes.

Whoever created this put Jesus in the anti-capitalism camp, which irks me, but it’s still clever (just like this pro-socialism Christmas humor).

If you liked this adoption video, I imagine you’ll like these Christmas songs.

Speaking of songs, here are some economic-themed Christmas carols.

And if you like videos, Remy has two of them (here and here) showing how the TSA hurts the Christmas spirit.

Needless to say, I also have to share these libertarian-themed Christmas videos.

P.S. If you like Christmas cartoons, here are some featuring President Obama.

P.P.S. And this Jay Leno joke is always amusing.

P.P.P.S. If you’re doing some last-minute shopping for libertarians, check out this video. If you’re shopping for a taxpayer, this household item might be a good present. And if you’re shopping for an environmentalist, you can’t go wrong with this low-carbon gift.

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Since I’m an out-of-the-closet libertarian with a track record of more than 5000 columns, there’s not much mystery about my philosophical outlook.

However, knowing my weakness for this kind of thing, a reader sent me an online “Political Sextant Quiz” and I naturally couldn’t resist.

Some of the questions were easy.

For instance, I know we shouldn’t abolish wages since that would be an extreme version of price controls. So “disagree” was the only sane answer.

Likewise, it’s a no-brainer (at least for me) to answer that I want government limited to core public goods (though fire services easily could be privately provided).

Other questions were harder to answer.

For instance, what does “my culture” mean in this next question, and what does it mean to say I “support those of my culture”?

Lacking any additional information, I interpreted this first question to be about my view on western civilization (rule of law, individual rights, etc), which I like. On the other hand, liking my culture doesn’t mean I want to reflexively put one of my neighbors “over” someone else.

So I opted for “slightly agree.”

And I gave the same answer for the second question because capitalism has produced immense material prosperity, yet “more than enough” implies that additional economic growth would be meaningless.

Needless to say, I wasn’t really happy with these questions.

The ambiguous wording left me wondering whether my answers would be interpreted the wrong way (such as being opposed to additional levels of production)?

But when I clicked to get my score, I was largely satisfied.

Since I want to get rid of 90 percent of government, it makes sense that I’m 90 percent anarcho-capitalist. I’ve never been sure what it means to be a bleeding-heart libertarian compared to a regular libertarian, but 88 percent seems reasonable. And I got my highest grade, 92 percent, for minarchism, which seems to a good description of my actual position.

Anyhow, here’s the link to the Political Sextant Quiz. See if you like your results.

And if you want to do more of this kind of thing, I’ve shared several other quizzes over the past decade.

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Every so often, I share quirky examples of libertarian policy in places that generally are not associated with a laissez-faire approach to governance.

Today, we’re going to add Germany to our list.

According to a report by Car and Driver, the German Parliament voted – by an overwhelming margin – against a proposal by the Green Party to impose speed limits on the autobahn.

Auto enthusiasts in Germany scored a major victory yesterday as the country’s federal parliament, the Bundestag, overwhelmingly voted to to defy a motion by the Green Party that would have asked the government to install a speed limit on the famous autobahn. The 80-mph limit suggested by the Greens would have effectively closed down one of the last roads where drivers can freely select their preferred speed. The autobahn is a defining factor in the perception of Germany abroad, but the topic is highly contested and politically charged at home. …The vote was 126 for a speed limit, 498 against, with seven abstentions.

The vote basically reflected a right-left split, though the Social Democrats tried to have their cake and eat it too.

…Green Party big shot Cem Özdemir claimed that roads would be safer with a speed limit, and he asked for German’s “special way” to be ended. …The post-communist Left Party volunteered that “electric mobility” should mean more “trains and trams,” while the Social Democrats, who are in a ruling coalition with the Christian Democrats, argued that they would support a speed limit were it not for their obligations to the coalition. The centrist CDU, the center-liberal FDP, and the conservative AfD all argued against a speed limit.

For what it’s worth, the autobahn is actually quite safe.

The autobahn road system, situated in one of the most traveled places on earth, is extremely safe. Accident rates have fallen dramatically over the past few decades, and many of the remaining deaths can be attributed to factors other than speed. Today, the fatality rate is one of the lowest in the world. Those opposed to a speed limit argue that this could be due to the fact that due to the differences in velocity, drivers are alert, generally stay to the right when not passing, and tend to stay aware of their surroundings.

Having driven many times in Europe, I can state with confidence that they are better (and more polite) drivers.

Slow cars don’t loiter in the left lane on highways, and that’s true in France and Italy as well as Germany.

I’ll close with some good news.

…speed limits have gradually eased all over the globe. Austria’s limit has been provisionally raised to 87 mph on select stretches; Abu Dhabi allows 100 mph on sections of the road system, and many U.S. states are raising limits as well.

I’m old enough to remember the horror of a nationwide 55-mph speed limit (one of the many awful policies adopted during the Nixon years).

The limit was increased in 1987 and then – in a rare moment of federalism – the nationwide speed limit was repealed in the mid-1990s (among the many good policies of the Reagan and Clinton years).

Let’s hope Germany holds firm so they don’t ever have to worry about repealing bad policy.

P.S. The article also noted that, “It has been reported that in the summer of 1995, Germany chancellor Angela Merkel, then minister for environmental affairs, broke out in tears over Helmut Kohl’s refusal to mandate a speed limit on the autobahn.” Given Merkel’s statism, I’m not surprised.

P.P.S. Enviro-zealots want onerous speed limits because of their quasi-religious opposition to energy consumption. Politicians, by contrast, view speed limits as a tool for generating tax revenue (which is why I’ve applauded civil disobedience in Washington, DC, and Arizona).

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I wrote yesterday about the debate among leftists, which is partly a contest between Bernie Sanders-style socialists and Elizabeth Warren-style corporatists.

Now let’s look at the debate on the right.

There’s an ongoing argument over what it means to be conservative, especially when thinking about the role of the federal government.

You can view this debate – if you peruse this “political compass test” – as being a battle over whether it is best for conservatism to be represented by Friedrich Hayek or Angela Merkel? By Donald Trump or Gary Johnson?

As far as I’m concerned, it’s a debate between whether the right believes in the principles of small-state classical liberalism or whether it thinks government should have the power to steer society.

Representing the latter view, here’s some of what Henry Olsen wrote for the Washington Post.

…libertarian-minded opinion leaders have criticized Trump… For these people, Trump was…an apostate whose heresies had to be cast out of the conservative church. Trump’s overwhelming victory in the primaries should have shocked them out of their ideological slumber. …the market fundamentalists seem to see nothing— absolutely nothing — about today’s capitalism to dislike. …National Review’s founder, William F. Buckley, famously wrote that…the federal government’s proper peacetime duties are solely to “protect its citizens’ lives, liberty, and property.” With respect to its efforts to do anything else, “we are, without reservation, on the libertarian side.” But that dog don’t hunt politically. ..libertarian-conservatives remain oblivious or intentionally in denial… The New Deal’s intellectual core, that the federal government should vigorously act to correct market failures, remains at the center of what Americans expect from Washington. Trump’s nomination and election proved beyond a shadow of a doubt that even a majority of Republicans agree. Less doctrinaire conservative thinkers understand this. Ramesh Ponnuru noted in his National Review essay that…capitalism “require[s] invigoration” as a result. The American Enterprise Institute’s Yuval Levin goes further, noting that “sometimes our economic policy has to be determined by more than purely economic considerations.” Other factors, such as social order and family formation, are also worthy goals to which pure economic efficiency or growth must bend at times. …this debate is fundamental to the future of conservatism and perhaps of the United States itself.

And here’s the beginning of a history-filled article by Joshua Tait in the National Interest.

When FOX television host Tucker Carlson recently attacked conservative faith in free market economics, he probably surprised a number of his viewers. For too long, Carlson charged, libertarians and social conservatives have ignored the fundamental part economic structures play in undermining communities. Families are crushed beneath market forces. Disposable goods—fueled by consumer culture—provide little salve for drug addiction and suicide. Markets are a “tool,” Carlson said, not a “religion.” “You’d have to be a fool to worship” them. Carlson put a primetime spin on an argument that has been brewing for some time on the right. Just as the 2008 economic collapse and the national prominence of Bernie Sanders have begun to shift the Democratic Party’s stance toward socialism, so the long effects of the downturn and Trump’s election have caused a rethinking of conservative commitment to free markets.

Last but not least, Jonah Goldberg examines a slice of this divide in a column for National Review.

The idea holding together the conservative movement since the 1960s was called “fusionism.” The concept…was that freedom and virtue were inextricably linked. …Today, conservative forces concerned with freedom and virtue are pulling apart. The catalyst is a sprawling coalition of self-described nationalists, Catholic integralists, protectionists, economic planners, and others who are increasingly rallying around something called “post-liberal” conservativism. By “liberal,” they…mean classical liberalism, the Enlightenment worldview held by the Founding Fathers. What the post-liberals want is hard to summarize beyond generalities. They seek a federal government that cares more about pursuing the “highest good” than protecting the “libertarian” (their word) system of individual rights and free markets. …On the other side are…conservatives who…still rally to the banner of classical liberalism and its philosophy of natural rights and equality under the law. …this intellectual mudfight really is…about what conservatism will mean after Trump is gone from the scene. …the so-called post-liberals now want Washington to dictate how we should all pursue happiness, just so long as it’s from the right. …Where the post-liberals have a point is that humans are happiest in communities, families and institutions of faith. The solution to the culture wars is to allow more freedom for these “little platoons” of civil society… What America needs is less talk of national unity — from the left or the right — and more freedom to let people live the way they want to live, not just as individuals, but as members of local communities. We don’t need to move past liberalism, we need to return to it.

For what it’s worth, I prefer Jonah’s analysis.

But I’ll also make three additional points.

First, if we care about maximizing freedom and prosperity, there’s no substitute for classical liberalism.

In my lifetime, there have been various alternatives to free markets. There was pre-Reagan Rockefeller Republicanism, post-Reagan “kinder and gentler,” George W. Bush’s so-called compassionate conservatism, reform conservatism, and now various strains of Trumpism and populism.

It may very well be true that some of these alternatives are more politically palatable (though I’m skeptical given the GOP’s unparalleled electoral success with an anti-big government message in 1980, 1994, 2010, and 2014).

But even if some alternatives are more popular, the associated policies will hurt people in the long run. That’s a point I made when arguing for supply-side tax cuts over family-friendly tax cuts.

In other words, you demonstrate compassion by giving people opportunity to prosper, not by giving them other people’s money.

Second, there’s nothing about classical liberalism or capitalism that suggests people should be selfish and atomistic.

Indeed, I pointed out, starting at the 3:36 point of this interview, that a libertarian society is what allows family, neighborhood, and community to flourish.

And, as Jonah explained, the “platoons” of “civil society” are more likely to thrive in an environment where the central government is constrained.

My third and final point is that I’m pessimistic.

The debate on the left is basically about how to make government bigger and how fast that process should occur.

Unfortunately, there isn’t a similar debate on the right, featuring different theories of how to shrink the size and scope of government.

Instead, the Reaganite-oriented classical liberals are the only ones who want America to become more like Hong Kong, while all the competing approaches basically envision government getting bigger, albeit at a slower rate than preferred by folks on the left.

In other words, we’re in a political environment where everyone on the left is debating how quickly to become Mexico and many people on the right are debating how quickly to become France.

No wonder I’ve identified an escape option if America goes down the wrong path.

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I had a chance to write about several interesting topics (Australian politics and policy, the economics of government spending, the structure of taxation) on my recent trip Down Under.

I also appeared on The Outsiders, one of Australia’s most popular political programs.

Here are a few links for those who want more information on some of the topics that were discussed.

  • Societal capital – I fear that there is a tipping point and that nations are doomed once people decide that it’s morally acceptable to use government coercion to live off the effort of others.
  • Demographics – Many nations face a built-in crisis because their redistribution programs are unaffordable now that people are living longer and having fewer children.
  • Social Security reform – It’s not pure libertarianism, but Australia’s system of private retirement accounts is vastly superior to America’s bankrupt tax-and-transfer Social Security system.
  • Socialism – It’s very troubling that many young people support the poisonous ideology of socialism, but I offered an optimistic spin that this doesn’t necessarily mean support for coercive statism.
  • Tax reform – Citing globalization as a driving factor, I couldn’t resist the temptation to spread the supply-side gospel of lower marginal tax rates on productive economic activity.
  • Donald Trump – As I’ve repeatedly pointed out, America’s president is an incoherent mix of good policies on tax and regulation mixed with bad policies on spending and trade.
  • Trade and protectionism – Speaking of trade, I argued that the trade deficit doesn’t matter and also suggested a sensible approach for dealing with China.

P.S. This interview was an encore performance. I also appeared on The Outsiders in 2017. Part of my plan to curry favor so that I can escape to Australia if (when?) America suffers Greek-style chaos.

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Today was the first full day of the annual Friedman Conference in Australia. I presented on tax competition as a means of controlling the “stationary bandit” of government.

Being at an event with several hundred libertarians reminds me that we are a strange group. In a good way, of course, but still easy to caricature.

So rather than write about a serious topic today, I’m going to augment my collection of libertarian humor.

They say we’re a bit dorky. There’s probably some truth to that. The good news is that we’re probably not going to cheat on our significant others since we’re too focused on changing minds.

But if Libertarian Doofus is any indication (see here, here, here, and here), we also don’t have much success with procreation. Here’s another example.

That being said, if we miraculously manage to procreate, we have some handy rules for raising kids.

(Though not all parents are sympathetic.)

Or maybe we opt for a same-sex partner.

That might create logistical challenges in terms of children, but it creates an opportunity to share this button.

The holy trinity of libertarianism: Sex, drugs, and guns. What every happy home needs!

I’ve saved the best for last.

In previous examples of libertarian humor, I’ve pointed out that you may not want libertarians at Thanksgiving dinner.

Well, it’s probably not a good idea to have them as night clerks at a hotel, either.

To be sure, this isn’t really a joke.

We are on a trajectory for economic misery. People do need wake-up calls if we’re going to avert Greek-style fiscal and economic chaos.

Though I realize that hotel guests probably don’t want that message right before bed.

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