Feeds:
Posts
Comments

Posts Tagged ‘Statism’

The coronavirus obviously is bad news, but I repeated my long-held view in this interview that excessive government intervention is the greatest threat to China’s prosperity.

My hypothesis is that the coronavirus almost certainly will be a short-term challenge.

What’s far more worrisome, especially in the long run, is that government has far too large a role in China’s economy. Yes, there was a good period of pro-market liberalization starting in 1979, but there’s been very little progress this century.

As a result, China only ranks #113 according to Economic Freedom of the World. Which makes the Chinese tiger a paper tiger.

Let’s look at five potential threats to China’s economy.

1. Coronavirus. We don’t know whether the disease is contained or getting worse. But unless it becomes a pandemic like the 1918 Spanish Flu, the effects presumably will be transitory. This is why I downplayed its importance during the interview.

2. Trump’s trade war. I gave this issue a passing mention in the discussion. Trump is hurting both America and China with his trade war, but China is probably bearing a heavier burden. In an ideal world, China wouldn’t practice mercantilism. But in that ideal world, Trump would have addressed the issue more effectively by utilizing the World Trade Organization.

3. Hong Kong. The host gave this issue a passing mention at the end of the interview. I’ll merely note that a Chinese crackdown would have an adverse impact on how global investors view China.

Now let’s look at the two biggest threat’s to China’s long-run prosperity.

And we’ll start with an issue that I failed to mention in the interview (though I have discussed it in the past).

4. Bad demographics. This is a global problem, but it is especially acute in China because of the coercive one-child policy. That oppressive system has been relaxed, but that may be too little, too late. Here are some excerpts from a column by George Will.

Demography does not dictate any nation’s destiny, but it shapes every nation’s trajectory… Although China’s working-age population (there, 15-64) almost doubled between 1975 and 2010, fertility has been below the replacement level for at least 25 years. China’s population will shrink after 2027; its working-age population has been shrinking for five years and will be at least 100 million smaller by 2040… Furthermore, there will be “tens of millions of surplus men” in China because during the “one-child” policy (1979-2015), many parents chose abortion rather than the birth of a girl.

5. Bad public policy. I’ve saved this issue for last because it’s the most important and merits the most attention.

A column in the Wall Street Journal by the Hudson Institute’s John Lee neatly summarizes the problem.

The model involves offering state-owned enterprises and national champions such as Huawei cheap finance and privileged domestic-market access at the expense of an independent private sector. China showers state businesses with subsidies… The current Chinese model is self-defeating. Less-deserving companies continue to receive the bulk of finance and opportunity. The staggering misallocation of capital is worsening, which makes the mushrooming debt even harder to manage. And allocation of opportunity is political. This means that the private sector, and therefore household income, will continue to remain artificially suppressed… China’s economy is inefficient, bloated, dysfunctional—plagued by institutions and policies that are not fit for their purposes.

I mentioned in the interview that President Xi may be moving China in the wrong direction.

This article, published last month in Hong Kong’s South China Morning Post, augments my concern.

China has implemented a new regulation to officially put Communist Party committees at the centre of power in running state-owned enterprises, a move reflecting Beijing’s strong desire to enhance the control of its vast state sector. …“All major business and management decisions must be discussed by the Communist Party organ before being presented to the board of directors or management for decision,” according to the regulation. …For those enterprises under the direct control of the central government, the board of directors must include a “special deputy party secretary” who takes no management role and is exclusively responsible for “party building”. The first role of the directors or executives who are party members is to execute the will of the party in performing their duties, it added.

I’ll cite one more article, this one by Desmond Lachman for the Bulwark.

In much the same way as our fears about Soviet and Japanese economic dominance proved to be illusory, there is good reason to think that China’s rapid economic rise will prove to be another paper tiger. …One factor..that does not bode well for China’s future economic performance is President Xi’s apparent intention to destroy the foundation on which China’s economic miracle rested. He is reversing the economic reforms introduced by Deng Xiaoping in 1979, aimed at giving the private sector increased room to breathe dynamism into the Chinese economy. Fearful of the challenge that a thriving Chinese private sector might pose to the Communist Party’s political hold on the country, President Xi is now reestablishing party discipline and increasing the role of China’s state enterprises. …Even more troubling for China’s long-run economic outlook are its highly unbalanced economy and it’s gargantuan credit bubble. …China has a massive amount of unused industrial capacity and an enormous overhang of unoccupied housing and commercial property.

The bottom line, as I stated in the interview, is that China is in trouble. It’s been pursuing a toxic combination of Keynesianism and industrial policy.

My hope, for what it’s worth, is that China’s leaders reverse the current trend and resume the 1979-2000 path of economic liberalization that was so successful in reducing mass poverty.

To modify an existing phrase, let’s call it Reaganism with Chinese characteristics. If this chart is any indication, that would be a good idea.

Or how about Hong Kong with Chinese characteristics?

P.S. Amazingly, both the IMF and OECD want to further hurt the Chinese economy with big tax hikes.

P.P.S. Discouragingly, there are folks in the United States (advocates of ideas such as “national conservatism” and “common-good capitalism“) who think the United States should mimic aspects of China’s failed industrial policy.

Read Full Post »

Politicians such as Bernie Sanders and Alexandria Ocasio-Cortez say that their goal of “democratic socialism” is very different from the socialism of Cuba, North Korea, and Venezuela, as well as the socialism of the former Soviet Union.

And they doubtlessly would get very upset if anyone equated their ideology with the “national socialism” of Hitler’s Germany.

Such angst would be understandable. There are profound differences among the various versions of socialism. At the risk of understatement, a politician who wants to take my money is much better than one who wants to take my life.

From the perspective of economic policy, though, there’s a common link. All strains of socialism reject free enterprise. They want to replace capitalism with some sort of regime based on government planning and coercion.

This observation gets some people rather upset.

In a column for the Washington Post, Ronald Granieri of the Foreign Policy Research Institute expresses dismay that some people are pointing out that Hitler’s National Socialist Workers’ Party was, well, socialist.

Did you know that “Nazi” is short for “National Socialist”? That means that Hitler and his henchmen were all socialists. …There is only one problem: This argument is untrue. Although the Nazis did pursue a level of government intervention in the economy that would shock doctrinaire free marketeers, their “socialism” was at best a secondary element in their appeal. …The Nazi regime had little to do with socialism, despite it being prominently included in the name of the National Socialist German Workers’ Party. …The NSDAP’s 1920 party program, the 25 points, included passages denouncing banks, department stores and “interest slavery,” which suggested a quasi-Marxist rejection of free markets. But these were also typical criticisms in the anti-Semitic playbook …linking socialism and Nazism to critique leftist ideas became a political weapon in the post-World War II period, perhaps unsurprisingly given that the Cold War followed directly on the heels of World War II. Scholars as diverse as Zbigniew Brzezinski and Hannah Arendt used the larger concept of “totalitarianism” to fuse the two. …National Socialism preserved private property, while also putting the entire resources of society at the service of an expansionist and racist national vision, which included the conquest and murderous subjugation of other peoples. It makes no sense to think that the sole, or even the primary, negative aspect of this regime was the fact that it used state power to allocate financial resources.

Mr. Granieri makes some very good points. I’m not a historian, but I assume he’s correct in stating that Nazis hated capitalism in large part because it was associated with Jews.

And he’s definitely correct in stating that there are much more important reasons to despise Nazis other than their version of socialism (private ownership, but government control, often referred to as fascism).

But none of that changes that fact that all forms of socialism involve hostility to capitalism. Especially among the most repugnant forms of socialism.

Indeed, Nazism and communism are like different sides of the same coin. Joshua Hofford, in a column for the Foundation for Economic Education, examines the commonalities and differences between the two ideologies.

Karl Marx and Frederick Engels are the fathers of both…the swastika and the hammer-and-sickle. …The platform for Soviet socialism was nearly identical to that of National Socialism under the Nazi Party. Though the application of Soviet socialism was Marxian in nature—committed to international socialist revolution and the elimination of class enemies—and National Socialism under the Nazi Party was instituted to the elimination of racial enemies, both were dedicated to the remaking of mankind… Endemic to both Soviet and Nazi socialism, the destruction of class and racial enemies was a literal, not figurative, stage of revolution. …both versions of socialism were dedicated to constructing a new social reality by any means necessary… In addition to belonging to the shared brotherhood of worldwide socialism, clearly, both communism and Nazism were equally totalitarian. …The Nazis rejected the call to international revolution and the class warfare of their Soviet Marxist kin, however, this made them no less socialist. All substantial power and ownership of German business under the Third Reich, while managed and owned by individuals, was in the hands of the state. Price controls, salary caps, and production quotas were set by the nation and left owners to navigate a glut of bureaucracy.

In a column for the Wall Street Journal, Juliana Pilon shares a historical tidbit to illustrate the disdain for capitalism that characterized Nazis and communists.

Known officially as the Treaty of Non-Aggression Between Germany and the Union of Soviet Socialist Republics, the Hitler-Stalin pact…stunned the world. …As German negotiator Karl Schnurre had observed…, “there is one common element in the ideologies of Germany, Italy and the Soviet Union: opposition to the capitalist democracies. Neither we nor Italy have anything in common with the capitalist West. Therefore it seems to us rather unnatural that a socialist state would stand on the side of the Western democracies.” …capitalist democracy was their common enemy.

And Michael Rieger, writing for FEE, notes that there are genuine differences among different strains of socialism, though all involve a powerful state.

The Nazis didn’t call their ideology “national socialism” because they thought it sounded good. They were fervently opposed to capitalism. The Nazi Party’s chief propagandist, Joseph Goebbels, even once remarked that he’d sooner live under Bolshevism than capitalism. …why…would the Nazis call themselves “socialists”? In part, it’s because the term “socialism” has been constantly evolving and changing since its inception. …Marxist-Leninists came to more narrowly define “socialism” to mean the intermediary period between capitalism and communism where the state owned the means of production and centrally managed the economy. In establishing national socialism, the Nazis sought to redefine socialism yet again. National socialism began as a fusion of socialist ideas of a technocratically-managed economy with Völkisch nationalism, a deeply anti-Semitic form of German nationalism. …The Nazis also distinguished themselves from Marxists in their support for private property, although this came with some caveats. The Nazi government did not own the means of production in Germany, but they certainly controlled them. They set up control boards, cartels, and state-sponsored monopolies and konzerns, which they then carefully planned and regulated. …democratic socialists don’t believe in total government ownership of the means of production, nor do they wish to technocratically manage the economy as the Nazis did. …The wide variance between utopian socialism, communism, national socialism, and democratic socialism makes it remarkably easy for members of each ideology to wag their fingers at the others and say, “That wasn’t real socialism.” …all self-described socialists have shared the belief that top-down answers to society’s problems are superior to the bottom-up answers created by the free market.

To add to the above excerpts, here are two passages from Paul Johnson’s Modern Times: The World from the Twenties to the Nineties.

  • Page 133: “Hitler took over a small proletarian group called the German Workers’ Party…and reorganized its economic aims into a radical twenty-five point programme: …abolition of unearned incomes, state to take over trusts and share profits of industry, land for national needs to be expropriated without compensation. he also added the words ‘National Socialist’ to its title. …the radical and socialist element in his programme always remained strong.”
  • Page 293: “He regarded himself as a socialist, and the essence of his socialism was that every individual or group in the state should unhesitatingly work for national policy. So it did not matter who owned the actual factory so long as those managing it did what they were told. …’Our socialism reaches much deeper. …Why should we need to socialize the banks and the factories? We are socializing the people.”

I’ll close by re-sharing my humble contribution to this discussion, which is a triangle to replace the traditional right-vs-left line.

My triangle acknowledges that there are differences between communists and Nazis (as well as between populists and democratic socialists, and between Republicans and Democrats).

But it makes the key point that there are ever-greater losses of economic liberty as one descends from libertarianism.

And the closer you get to the bottom of the triangle, the greater the likelihood that you lose political liberty as well.

P.S. I also recommend reading what Friedrich Hayek, Dan Hannan, and Thomas Sowell have written on this topic.

P.P.S. I also think we can learn something from this tweet by Senator Chris Murphy of Connecticut.

Read Full Post »

Given their overt statism, I’ve mostly focused on the misguided policies being advocated by Bernie Sanders and Elizabeth Warren.

But that doesn’t mean Joe Biden’s platform is reasonable or moderate.

Ezra Klein of Vox unabashedly states that the former Vice President’s policies are “far to Obama’s left.”

This is an issue where folks on both ends of the spectrum agree.

In a column for the right-leaning American Spectator, George Neumayr also says Biden is not a moderate.

Biden likes to feed the mythology that he is still a moderate. …This is, after all, a pol who giddily whispered in Barack Obama’s ear that a massive government takeover of health care “was a big f—ing deal,”…and now pronouncing Obamacare only a baby step toward a more progressive future. It can’t be repeated enough that “Climate Change” Joe doesn’t give a damn about the ruinous consequences of extreme environmentalism for Rust Belt industries. His Climate Change plans read like something Al Gore might have scribbled to him in a note. …On issue after issue, Biden is taking hardline liberal stances. …“I have the most progressive record of anybody running.” …He is far more comfortable on the Ellen show than on the streets of Scranton. He has given up Amtrak for private jets, and, like his lobbyist brother and grifter son, has cashed in on his last name.

If you want policy details, the Wall Street Journal opined on his fiscal plan.

Mr. Biden has previously promised to spend $1.7 trillion over 10 years on a Green New Deal, $750 billion on health care, and $750 billion on higher education. To pay for it all, he’s set out $3.4 trillion in tax increases. This is more aggressive, for the record, than Hillary Clinton’s proposed tax increases in 2016, which totaled $1.4 trillion, per an analysis at the time from the left-of-center Tax Policy Center. In 2008 Barack Obama pledged to raise taxes on the rich while cutting them on net by $2.9 trillion. Twice as many tax increases as the last presidential nominee: That’s now the “moderate” Democratic position. …raising the top rate for residents of all states. …a huge increase on today’s top capital-gains rate of 23.8%… This would put rates on long-term capital gains at their highest since the 1970s. …Raise the corporate tax rate to 28% from 21%. This would…vault the U.S. corporate rate back to near the top in the developed world. …the bottom line is big tax increases on people, capital and businesses. There’s nothing pro-growth in the mix.

And the ever-rigorous Peter Suderman of Reason wrote about Biden’s statist agenda.

Biden released a proposal to raise a slew of new taxes, mostly on corporations and high earners. He would increase tax rates on capital gains, increase the tax rate for households earning more than $510,000 annually, double the minimum tax rate for multinational corporations, impose a minimum tax on large companies whose tax filings don’t show them paying a certain percentage of their earnings, and undo many of the tax cuts included in the 2017 tax law. …as The New York Times reports, Biden’s proposed tax hikes are more than double what Hillary Clinton called for during the 2016 campaign. …Hillary Clinton…pushed the party gently to the left. Four years later, before the campaign is even over, the party’s supposed moderates are proposing double or even quadruple the new taxes she proposed.

The former Veep isn’t just a fan of higher taxes and more spending.

He also likes nanny-state policies.

Joe Biden says he is 100% in favor of banning plastic bags in the U.S. …let’s take a quick walk through the facts about single-use plastic bags at the retail level. …the plastic bags typically handed out by retailers make up only 0.6% of visible litter. Or put another way, for every 1,000 pieces of litter, only six are plastic bags. …They make up less than 1% of landfills by weight… 90% of the plastic bags found at sea streamed in from eight rivers in Asia and two in Africa. Only about 1% of all plastic in the ocean is from America. …Thicker plastic bags have to be used at least 11 times before they yield any environmental benefits. This is much longer than their typical lifespans. …Though it might seem almost innocuous, Biden’s support for a bag ban is symptom of a greater sickness in the Democratic Party. It craves unfettered political power.

Let’s not forget, by the way, that Biden (like most politicians in Washington) is corrupt.

Here are some excerpts from a Peter Schweizer column in the New York Post.

Political figures have long used their families to route power and benefits for their own self-enrichment. …one particular politician — Joe Biden — emerges as the king of the sweetheart deal, with no less than five family members benefiting from his largesse, favorable access and powerful position for commercial gain. …Joe Biden’s younger brother, James, has been an integral part of the family political machine… HillStone announced that James Biden would be joining the firm as an executive vice president. James appeared to have little or no background in housing construction, but…the firm was starting negotiations to win a massive contract in war-torn Iraq. Six months later, the firm announced a contract to build 100,000 homes. …A group of minority partners, including James Biden, stood to split about $735 million. …With the election of his father as vice president, Hunter Biden launched businesses fused to his father’s power that led him to lucrative deals with a rogue’s gallery of governments and oligarchs around the world. …Hunter’s involvement with an entity called Burnham Financial Group…Burnham became the center of a federal investigation involving a $60 million fraud scheme against one of the poorest Indian tribes in America, the Oglala Sioux. …the firm relied on his father’s name and political status as a means of both recruiting pension money into the scheme.

I only excerpted sections about Biden’s brother and son. You should read the entire article.

And even the left-leaning U.K.-based Guardian has the same perspective on Biden’s oleaginous behavior.

Biden has a big corruption problem and it makes him a weak candidate. …I can already hear the howls: But look at Trump! Trump is 1,000 times worse! You don’t need to convince me. …But here’s the thing: nominating a candidate like Biden will make it far more difficult to defeat Trump. It will allow Trump to muddy the water, to once again pretend he is the one “draining the swamp”, running against Washington culture. …With Biden, we are basically handing Trump a whataboutism playbook. …his record represents the transactional, grossly corrupt culture in Washington that long precedes Trump.

I’ll close by simply sharing some objective data about Biden’s voting behavior when he was a Senator.

According to the National Taxpayers Union, he finished his time on Capitol Hill with eleven-consecutive “F” scores (hey, at least he was consistent!).

And he also was the only Senator who got a lifetime rating of zero from the Club for Growth.

Though if you want to be generous, his lifetime rating was actually 0.025 percent.

Regardless, that was still worse than Barack Obama, Bernie Sanders, and Elizabeth Warren.

So if Biden become President, it’s safe to assume that America will accelerate on the already-baked-in-the-cake road to Greece.

P.S. Of course, we’ll be on that path even if Biden doesn’t become President, so perhaps the moral of the story is to buy land in Australia.

Read Full Post »

I’ve always been puzzled by those who criticize capitalism (“it’s unfair!” and “it’s coercive!”) and urge its overthrow or replacement.

I actually agree with them that markets can be harsh, especially in the short run (think of the damage to the typewriter industry when personal computers exploded on the scene).

But the critics are unable to suggest a successful alternative to capitalism.

This is why I keep reissuing my challenge for them to identify a single nation that has ever become rich because of big government.

Needless to say, my left-wing friends have never provided an answer.

(Some of them say the Nordic nations and other countries in Western Europe are relatively rich, and that’s true, but I point out that those jurisdictions became rich in the 1800s and early 1900s when government was very small.)

By contrast, we have lots of evidence that modern prosperity is the result of free markets.

And so long as we give capitalism enough breathing room to function, we’ll get even more prosperity in the future.

Michael Strain of the American Enterprise Institute, in a column for Bloomberg, debunks the notion that capitalism is failing.

Use of the term “late capitalism” has exploded during the past decade… Capitalism may have once delivered broad prosperity, the critics argue, but now the system serves to entrench the elite. …Now is an odd time to argue that capitalism is broken. Only 35 U.S. workers out of every 1,000 are looking for jobs but unable to find them — the unemployment rate is lower than it has been in a half-century. The rate at which people in their prime working years hold jobs is higher than it has been in over a decade. …The level of inequality is high, but this is an odd decade to bemoan its rise. …from the beginning of the Great Recession, when criticism of capitalism became much more common, to 2016 (the last year data are available), inequality actually decreased by 7 percent.

Here’s the part of the column that is most interesting.

…critics of modern capitalism seem to be confused about the market’s ability to distribute benefits. …In a 2004 paper, the economist and Nobel laureate William Nordhaus concluded that “most of the benefits of technological change are passed on to consumers,” not the innovators themselves. Using data from 1948–2001, his model suggests that innovators capture only 2.2 percent of the total social value they create. Applying a back-of-the-envelope calculation using Nordhaus’s result to Bezos suggests he has created $5.4 trillion in value for the rest of society. A team of economists…recently attempted to measure the benefit of several new digital services that are free to consumers. …The typical U.S.-based Facebook user in their study values the social networking site at $42.17 per month. …Because they are free, these services are not well captured in current national income statistics. Brynjolfsson and his coauthors calculate that the benefits from Facebook alone would have added between 0.05 and 0.11 percentage points to the annual growth in U.S. gross domestic product growth starting in 2004. …Capitalism has delivered significant increases in purchasing power for typical households. The phrase “late capitalism” suggests that capitalism is spent and exhausted. It isn’t.

Interestingly, the academic researchers confirmed the insights provided in this video.

Though it is helpful to have some rigorous evidence to confirm how free enterprise has made our lives better.

The Wall Street Journal recently editorialized about the blessings of capitalism.

…deregulation and tax reform unleashed a surge of business investment…which has drawn workers off the sidelines and raised wages. …wages for the bottom 10% of earners over age 25 rose an average 5.9% annually compared to 2.4% during Barack Obama’s second term, according to the latest demographic data from the Bureau of Labor Statistics. …Less educated workers have also seen the strongest gains. Wages have risen at a 6.1% annual clip for workers over 25 without a high school degree and 3.9% for those with some college—both about three times faster than during the second Obama term. …Socialism-loving young people are getting the biggest pay raises. Wages have increased on average 5.8% annually for teens, 4.4% for 20 to 24-year-olds and 4.8% for 25 to 34-year-olds during the Trump Presidency. …Forty million fewer people last year lived in households receiving government assistance than in 2016, and the food-stamp rolls have shrunk by 9.5 million over the past three years. Reduced government dependence is a social good far beyond the lower costs to taxpayers. …Between 2016 and 2018 the number of taxpayers earning less than $25,000 declined 5% while increasing 8% for those making between $100,000 to $200,000 and 13.9% for those making more than $200,000, according to IRS data.

Here’s the graphic that accompanied the editorial.

By the way, I always warn never to over-rely on short-term economic data.

Yes, the recent numbers look good, but what if they are – at least in part – the result of a monetary policy-driven bubble?

That wouldn’t be an argument against better tax policy and better regulatory policy, of course, but it might mean some of the gains are illusory (much as the good economic news in 2006 now looks rather hollow considering we now know the country was in the midst of a Fed-created bubble).

This is why I prefer to look at multi-decade comparisons. And when you compare market-oriented nations with statism-oriented countries, it becomes very obvious that capitalism is the only way to deliver broadly shared prosperity.

P.S. Regarding capitalism vs. statism, here’s the best-ever tweet.

P.P.S. And here’s the best-ever counter-tweet.

Read Full Post »

I’ve written about some of Elizabeth Warren’s statist proposals, but watching last night’s Democratic debate convinced me that I need to pay more attention to Bernie Sanders’ agenda.

When he ran for president last time, I warned that his platform of $18 trillion of new spending over 10 years would be “very expensive to your wallet.”

This time, “Crazy Bernie” has decided that his 2016 agenda was just a down payment. He now wants nearly $100 trillion of new spending!

Even CNN acknowledges that his platform has a staggering price tag.

…the new spending programs Sen. Bernie Sanders has proposed in his presidential campaign would at least double federal spending over the next decade… The Vermont independent’s agenda represents an expansion of government’s cost and size unprecedented since World War II… Sanders’ plan, though all of its costs cannot be precisely quantified, would increase government spending as a share of the economy far more than the New Deal under President Franklin Roosevelt, the Great Society under Lyndon Johnson or the agenda proposed by any recent Democratic presidential nominee, including liberal George McGovern in 1972, according to a historical analysis shared with CNN by Larry Summers, the former chief White House economic adviser for Barack Obama… Summers said in an interview. “The Sanders spending increase is roughly 2.5 times the size of the New Deal and the estimated fiscal impact of George McGovern’s campaign proposals.

My former colleague Brian Riedl has the most detailed estimates of the new fiscal burdens that Sanders is proposing.

Here’s some of what he wrote last year for City Journal.

All told, Sanders’s current plans would cost as much as $97.5 trillion over the next decade, and total government spending at all levels would surge to as high as 70 percent of gross domestic product. Approximately half of the American workforce would be employed by the government. …his Medicare For All plan would increase federal spending by “somewhere between $30 and $40 trillion over a 10-year period.” He pledges to spend $16.3 trillion on his climate plan. And his proposal to guarantee all Americans a full-time government job paying $15 an hour, with full benefits, is estimated to cost $30.1 trillion. …$3 trillion to forgive all student loans and guarantee free public-college tuition—plus $1.8 trillion to expand Social Security, $2.5 trillion on housing, $1.6 trillion on paid family leave, $1 trillion on infrastructure, $800 billion on general K-12 education spending, and an additional $400 billion on higher public school teacher salaries. …Such spending would far exceed even that of European social democracies. …Sanders’s tax proposals would raise at most $23 trillion over the decade. …Tax rates would soar. Sanders would raise the current 15.3 percent payroll tax to 27.2 percent… Sanders proposes a top federal income-tax rate of 52 percent…plus a 10 percent net investment-income surtax for the wealthy.

By the way, class-warfare taxes won’t pay for all these promises.

Not even close, as you can see from this chart Brian put together.

By the way, the above chart is a static snapshot. In the real world, there’s no way to collect 4.7 percent of GDP (red bar on the left) with confiscatory taxes on the rich.

if Sanders ever had a chance to impose all his class-warfare tax ideas, the economy would tank, so revenues as a share of GDP would decline.

And here’s another one of his visuals, looking at the spending proposals that Democratic candidates are supporting.

Senator Sanders, needless to say, favors all of these proposals.

As Brian noted in his article, the Sanders fiscal agenda is so radical that America would have a bigger burden of government spending than decrepit European welfare states such as Greece, France, and Italy.

To his credit, Bernie acknowledges that all his new spending can’t be financed by class-warfare levies (unlike the serially dishonest Elizabeth Warren).

But the new taxes he proposes would finance only a tiny fraction of his spending agenda. If Washington ever tried to adopt even part of his platform, it inevitably would mean a European-style value-added tax.

P.S. Even if tens of trillions of dollars of revenue magically floated down from Heaven, bigger government would still be bad for the economy since politicians and bureaucrats would be in charge of (mis)allocating a much greater share of labor and capital.

Read Full Post »

Last month’s election in the United Kingdom attracted considerable attention, not only because it would decide Brexit, but also because of the potential risk of a hard-left Labour government in the world’s 5th-largest economy.

The British dodged that bullet but the people of Spain are not so fortunate. A new government with a very statist platform has just been formed.

Writing for CapX, Luis Pablo de la Horra explains that Spain now faces a grim future.

The agreement between socialists and populists includes an economic agenda which, if carried out, would have a disastrous impact on the Spanish economy. …the new coalition government intends to repeal the labor-market reform passed by Rajoy’s conservative government in 2012. This reform, which was aimed at introducing flexibility in Spain’s dysfunctional labor market, has crucially contributed to reducing the unemployment rate from 26% in late 2012 to 14% today. In fact, a 2016 report by BBVA Research shows that the labor-market reform prevented the destruction of almost one million jobs between 2012 and 2015. ..Sánchez’s government plans to increase taxes on large corporations… The agreement between Sánchez and Podemos also includes the imposition of rent controls in large cities. …Given that the problem of housing in Spain is related to an insufficient supply of apartments in urban areas, rent controls would only aggravate the situation, reducing the number of dwellings available and pushing up prices in non-rent-controlled areas. …An increase in public spending is also among the plans of the soon-to-be new government of Spain. …Juan Ramón Rallo, professor of Economics at IE Business School, estimates that the increase in public spending planned by Sánchez’s government for this year amounts, in net terms, to 3 percentage points of GDP.

A column by Leonid Bershidsky for Bloomberg also notes the new government’s hard-left agenda.

The formation of the government headed by Socialist leader Pedro Sanchez and including the far-left Podemos group…commits him to a more resolutely leftist agenda than the Socialists would have advanced alone. Among other things, it calls for the repeal of the 2012 labor market reform, which succeeded in driving down unemployment from its peak of 26.3% in February, 2013 to about 14% today. …The coalition also plans to hike income taxes for corporations and high earners, starting with those individuals who make 130,000 euros ($146,000) a year and capital gain taxes. A minimum wage hike to 1,200 euros a month from the current 1,050 euros is planned. The leftist parties also have committed to unlink pensions from life expectancy…an ambitious tax-and-spend program.

By the way, I can’t resist sharing these excerpts from a BBC report on the hypocrisy-drenched leader of hard-left Podemos.

Pablo Iglesias and Irene Montero, the party’s spokeswoman, were accused of hypocrisy for spending €600,000 (£527,000; $700,000) on a house with a swimming pool and guest quarters. Mr Iglesias has previously criticised politicians who live “in villas”. …Some rank-and-file members said it undermined the party’s grassroots credibility. …Mr Iglesias formed Podemos in January 2014 with a group of fellow left-wing university lecturers. …He has previously made much of the fact that he lived in modest accommodation in the working class Madrid neighbourhood of Vallecas and that he bought his clothes in supermarkets.

The moral of the story is that people never get rich from leftist economic policy, but leftist politicians inevitably wind up fat and happy.

But I’m digressing.

What makes the new Socialist-Podemos government so disturbing is that Spain desperately needs to move in exactly the other direction.

Writing for Cayman Financial Review, Miguel Sanchez de Pedro warned about his country’s unpalatable fiscal position.

Spain is a welfare state… Public expenditures represent 43.9 percent ($498 billion, 2017) of GDP. …pensions, healthcare and education made up 68.2 percent ($418 billion) of total public expenses for the year 2017. …The quasi-federal regime has proven highly expensive and inefficient, particularly during troubled economic cycles that leave the central government largely without any capacity to influence expenditure and rebalance regional finances. …The untenable compulsory public pension system is threatened under current and foreseeable scenarios of an ageing population…the social security accounts show a technical bankrupt institution with a negative financial net worth…due to the growing mismatch between the number of contributing workers needed to pay per pensioner – actually 1.9 workers per pensioner.

And here’s a portion of an infographic he put together about his nation’s unstable pension system.

A big problem for Spain is that too many people are riding in the wagon and too few workers are generating prosperity in the economy’s productive sector.

In a column for E21, Daniel Di Martino highlighted this concern.

Sánchez’s plan is to increase spending and finance it by raising taxes on businesses and high-income individuals. …These measures would discourage work and solidify the culture of dependency on the state. …hiring more public workers would make more people want to switch to the public sector… there are more people who receive government pensions, are unemployed, or work for the government than there are workers in the private sector. …Prime Minister Sánchez’s measures would sentence Spaniards to joblessness and state dependency, while emptying the state coffers when millionaires and soccer players leave.

And here’s a pie chart from his column.

In a study for the Bank of Spain, five economists crunched numbers for the country’s economy and concluded that higher taxes don’t yield good results.

In this paper we adopt the narrative approach to estimate the output effects of tax shocks in Spain. To this end, we have constructed a detailed record of all the relevant legislated tax changes implemented during the period 1986-2015. …Next, we estimate the GDP effects of an exogenous tax change by constructing impulse-response functions derived from simple VARs. …We find that a 1% of GDP increase in taxes depresses output by around 1.3% after one year, this effect fading away at more distant horizons. …All things considered, our set of estimates provides a coherent picture of negative short-term output effects triggered by tax increases (and vice versa).

Here’s one of the graphs from the study.

This echoes earlier academic research showing that class-warfare tax increases are especially destructive.

And let’s not forget how higher corporate tax burdens in Spain also have backfired.

P.S. Supposedly right-of-center governments in Spain also have adopted bad policy, so maybe voters figured they should opt for the real thing.

P.P.S. Spain has a peculiar problem involvng its navy.

P.P.P.S. Politicians always claim they want to tax the rich, but the Spanish experience shows that people with modest incomes are the big victims, to it’s understandable that they do everything possible to protect their money from greedy government.

Read Full Post »

Fifty years ago, Venezuela was ranked #10 for economic liberty and enjoyed the highest living standards in Latin America

Today, the nation is an economic disaster. Hugo Chavez and Nicolas Maduro deserve much of the blame. Their socialist policies have dropped Venezuela to last place according to Economic Freedom of the World.

Predictably, this has resulted in horrific suffering.

And it’s going from bad to worse.

In ways that are unimaginable for those of us living in civilized nations.

For instance, the Associated Press reports that grave-robbing is now a problem in the country.

Even the dead aren’t safe in Maracaibo, a sweltering, suffering city in Venezuela. Thieves have broken into some of the vaults and coffins in El Cuadrado cemetery since late last year, stealing ornaments and sometimes items from corpses as the country sinks to new depths of deprivation. “Starting eight months ago, they even took the gold teeth of the dead,” said José Antonio Ferrer, who is in charge of the cemetery, where a prominent doctor, a university director and other local luminaries are buried. Much of Venezuela is in a state of decay and abandonment, brought on by shortages of things that people need the most: cash, food, water, medicine, power, gasoline. …Many who have the means leave, joining an exodus of more than 4 million Venezuelans who have left the country in recent years. …Some people sift through trash, scavenge for food.

And hyper-inflation is creating a barter economy according to the AP.

…the economy is in such shambles that drivers are now paying for fill-ups with a little food, a candy bar or just a cigarette. Bartering at the pump has taken off as hyperinflation makes Venezuela’s paper currency, the bolivar, hard to find and renders some denominations all but worthless, so that nobody will accept them. Without cash in their wallets, drivers often hand gas station attendants a bag of rice, cooking oil or whatever is within reach. …This barter system…is just another symptom of bedlam in Venezuela. …The International Monetary Fund says inflation is expected to hit a staggering 200,000% this year. Venezuela dropped five zeros from its currency last year in a futile attempt to keep up with inflation. …Venezuela, which sits atop the world’s largest oil reserves, was once rich. But the economy has fallen into ruin because of what critics say has been two decades of corruption and mismanagement under socialist rule.

Mary O’Grady of the Wall Street Journal points out that the poor are being hurt the most.

…the gap in living standards between the haves and the have-nots is wider than ever. It wasn’t supposed to be like this. Economic equality is the socialists’ Holy Grail. People are poor, the logic goes, because the rich have too much. Ergo, all it takes to end poverty is the use of state coercion to distribute economic gains evenly. …Tell that to the Venezuelan poor. Not only have their numbers increased under socialism, but the suffering among the most vulnerable has grown more intense. …Venezuela now experiences recurring blackouts and brownouts… in the “ranchos,”…residents now make “lamps” out of mayonnaise jars, diesel taken from vehicles, and pieces of cloth. One local described it to the reporter as going back to “prehistoric” times. With water, sanitation and other public services, the story is the same. …the have-nots are at Mr. Maduro’s mercy.

College students also are suffering, as reported by the Union Journal.

…5 youngsters had fainted and two of them have been whisked away in an ambulance. The faintings on the major college have turn into a daily prevalence as a result of so many college students come to class with out consuming breakfast, or dinner the evening earlier than. In different faculties, youngsters wish to know if there’s any meals earlier than they resolve whether or not to go in… Venezuela’s devastating six-year financial disaster is hollowing out the varsity system… Starvation is simply one of many many issues chipping away at them now. Thousands and thousands of Venezuelans have fled the nation in recent times, depleting the ranks of scholars and academics alike. …Many colleges are shuttering within the once-wealthy nation as malnourished youngsters and academics who earn nearly nothing abandon lecture rooms to scratch out a residing on the streets or flee overseas. It’s a significant embarrassment for the self-proclaimed Socialist authorities.

In a column for the New York Times, Nicholas Kristof shares some sad observations about the consequences of Venezuelan socialism.

This country is a kleptocracy ruled incompetently by thugs who are turning a prosperous oil-exporting nation into a failed state sliding toward starvation. …Serrano, 21, lives in the impoverished, violent slum of La Dolorita, where I met her. The baby was fading from malnutrition in May, so she frantically sought medical help — but three hospitals turned the baby away, saying there were no beds available, no doctors and no supplies. …Daisha…died at home that night. …President Nicolás Maduro’s brutal socialist government is primarily responsible for the suffering, and there are steps Maduro could take to save children’s lives, if he wanted to. …Venezuela may now be sliding toward collapse and mass starvation, while fragmenting into local control by various armed groups. Outbreaks of malaria, diphtheria and measles are spreading, and infant mortality appears to have doubled since 2008.

By the way, Kristof argues that sanctions imposed by Obama and Trump are making a bad situation worse.

That’s true, but it doesn’t change the fact that Venezuela’s awful government deserves the overwhelming share of the blame.

Let’s measure how the people of Venezuela have suffered. Here are the per-capita GDP numbers since Chavez took power in 1999. There’s volatility in the data, presumably because of changes in oil prices. But the trend is unmistakably negative.

The bottom line is that Venezuela’s living standards have collapsed by about 50 percent since the socialists took over.

That makes Greece seem like an economic powerhouse by comparison.

Let’s close, though, by comparing Venezuela to Latin America’s most market-oriented nation.

As you can see, per-capita economic output in Chile (in blue) has soared while per-capita GDP in Venezuela (in red) has collapsed.

In other words, free markets and small government are the right recipe if the goal is broadly shared prosperity.

P.S. I’ve explained on many occasions that lower-income people in Chile have been the biggest beneficiaries of pro-market reforms.

Read Full Post »

Older Posts »

%d bloggers like this: