Tag: big government

A Rare Sign of Fiscal Sanity in France

We have an amazing man-bites-dog story today.

Let’s begin with some background information. A member of the European Commission recently warned that:

“Tax increases imposed by the Socialist-led government in France have reached a “fatal level”…[and] that a series of tax hikes since the Socialists took power 14 months ago – including €33bn in new taxes this year – threatens to “destroy growth and handicap the creation of jobs”.

Given the pervasive statism of the European Commission, that was a remarkable admission.

But the Commissioner who issued that warning, Olli Rehn, is Finnish, so French politicians presumably don’t listen to his advice any more than they listen to the thoughtful, well-meaning, and generous suggestions I make.

Indeed, based on the actions of the current President and the former President, we can say with great confidence that French politicians compete over who can pursue the most misguided policies.

But maybe, just maybe, there are some people inside France who realize the house of cards is in danger of collapse.

Here are some excerpts from a story I never thought I would read. At least one senior official in France has woken up to the dangers of ever-rising taxes and an always-growing burden of government spending.

France’s state auditor urged the government Tuesday to redouble efforts to limit spending rather than increases taxes… The head of the state auditor, Didier Migaud, said the interruption in deficit reduction stemmed primarily from lower-than-expected tax revenue, due to the weak economy. Yet, he said “the spiraling welfare debt was particularly abnormal and particularly dangerous.” During his first year in power, President François Hollande relied on large tax increases to plug holes in public finances, including social programs such as pensions, unemployment benefits and health care. But economic stagnation in 2012, coupled with a mild recession at the start of 2013, has waylaid the plan, while both companies and households are crying foul over what some have called “a tax overdose.” Mr. Migaud added his voice, saying: “The strategy of fixing the system by collecting new revenue is reaching its limits.”

Before any further analysis, I have to make one correction to the story. Hollande’s plan was not “waylaid” by a recession. Instead, his policies doubtlessly helped cause a recession. You don’t impose huge tax hikes on productive behavior without some sort of negative impact on economic performance.

So the “holes in public finances” are at least partially a result of the Laffer Curve. As I’ve repeatedly warned, higher tax rates rarely - if ever - collect as much money as politicians expect.

Returning to the specific case of France, the fiscal variable that should set off the most alarm bells is that the burden of government spending has soared to 57 percent of GDP. And based on projections from the BIS, OECD, and IMF, that number is going to get even worse in the future.

This is the data that presumably has convinced Monsieur Migaud that France is approaching the point of no return on taxes and spending.

Interestingly, the French people may be ahead of their politicians. Polling data from 2010 and 2013 show that ordinary people very much understand the need to limit the size and scope of government.

Heck, a majority of French people have said they would be interested in escaping to the United States if they had the opportunity. And successful people already have been leaving the country because of punitive tax rates.

But I’m not sure I believe the aforementioned polls. If the French people genuinely have sound views, why do they keep electing bad politicians? Of course, the same thing could be said about the United States, so perhaps I shouldn’t throw stones in my glass house.

P.S. My favorite example of government running amok in France is the law threatening three years in jail if you say your husband is a fat slob or if you accuse your wife of being a nag.

P.P.S. The most vile French official may be the current Prime Minister, who actually had the gall to complain that some of his intended victims weren’t quietly entering the slaughterhouse.

P.P.P.S. Just in case you think I’m exaggerating about France being a fiscal hellhole, more than 8,000 households last year were subjected to a tax burden of more than 100 percent . Obama must be very envious.

Four Charts Showing How Obama’s Statist Agenda Is Hurting Jobs and Growth

President Obama made a much-hyped pivot-to-the-economy speech yesterday in Chattanooga, Tennessee.

I already explained, immediately following the speech, why his “grand bargain” on corporate taxes was not a good deal because of all the hidden taxes on new investment and international competitiveness.

But I also had a chance to dissect the President’s overall track record on the economy for today’s Chattanooga Times Free Press.

Here’s some of what I wrote.

…he didn’t say anything new or different. His audience was treated to the same tax-spend-and-regulate boilerplate that the President has been dispensing ever since he entered political life. …with Obamanomics, not only has America failed to enjoy the traditional period of four-to-five percent growth at the start of a recovery, the economy hasn’t even gotten close to the long-run average of 3 percent. That’s a damning indictment. But it gets worse. The data on employment is downright depressing. A look at the numbers reveals that the nation is suffering from the worst period of job creation since the Great Depression. Most startling, we still haven’t recovered the jobs we lost during the recession.

That’s some strong rhetoric, but there are plenty of numbers to back up my assertions.

Let’s take a look at the interactive website maintained by the Minneapolis Federal Reserve Bank. This site allows users to compare all business cycles since World War II.

Let’s start by comparing the current business cycle to what happened under Reaganomics.

AFP Reagan v Obama GDP

As you can see, we’ve had a very sluggish recovery compared to the boom we enjoyed in the 1980s.

Not all of this is Obama’s fault, by the way. Here’s some more of what I wrote for the Chattanooga Times Free Press.

…all of these problems started before President Obama ever got to the White House. President Bush also was guilty of too much spending and excessive regulation, and his policies helped push the economy into a ditch. Unfortunately, even though he promised “change,” President Obama has been adding to Bush’s mistakes — and also raising taxes.

Some people may be wondering whether it’s fair to compare Reaganomics to Obamanomics. Maybe I’m cherry-picking data to make Obama (and Bush) look bad.

Can You Spell L-A-F-F-E-R C-U-R-V-E?

I’m thinking of inventing a game, sort of a fiscal version of Pin the Tail on the Donkey.

Only the way my game will work is that there will be a map of the world and the winner will be the blindfolded person who puts his pin closest to a nation such as Australia or Switzerland that has a relatively low risk of long-run fiscal collapse.

That won’t be an easy game to win since we have data from the BIS, OECD, and IMF showing that government is growing far too fast in the vast majority of nations.

We also know that many states and cities suffer from the same problems.

A handful of local governments already have hit the fiscal brick wall, with many of them (gee, what a surprise) from California.

The most spectacular mess, though, is about to happen in Michigan.

The Washington Post reports that Detroit is on the verge of fiscal collapse.

After decades of sad and spectacular decline, it has come to this for Detroit: The city is $19 billion in debt and on the edge of becoming the nation’s largest municipal bankruptcy. An emergency manager says the city can make good on only a sliver of what it owes—in many cases just pennies on the dollar.

This is a dog-bites-man story. Detroit’s problems are the completely predictable result of excessive government. Just as statism explains the problems of Greece. And the problems of California. And the problems of Cyprus. And the problems of Illinois.

Obamanomics and Big Government: Bad News for Young People

I periodically post TV interviews and the second-most-watched segment - edged out only by my debate with Robert Reich on Keynesian economics - was when I discussed how President Obama’s statist policies are bad for young people.

So there’s obviously some concern about the future of the country and what it means for today’s youth.

The Center for Freedom and Prosperity has examined this issue and taken it to the next level, cramming a lot of information into this six-minute video.

The video highlights four specific ways that government intervention disadvantages younger Americans.

1. Labor market interventions such as minimum wage mandates make it more difficult for young people to find employment and climb the economic ladder.

Government is even bigger in Europe...leading to even worse results for young people2. Obamacare harms young people by requiring them to pay substantially more to prop up an inefficient government-run healthcare system.

3. Young people are trapped in a poorly designed Social Security system and politicians such as Obama think the answer is to make them pay more and get less.

4. Government has created a major third-party payer problem in higher education, putting young people on a treadmill of ever higher tuition and record debt.

What makes this situation so surreal is that young people - as noted at the start of the video - are the one group who think the “government should do more”!

I hope you share this video with every young person you know and help them understand that statism is the enemy of hope and opportunity.

And maybe also show them this poster if they need some extra help grasping the problem.

The Real Reason Politicians Want a Bigger Bite of Apple

Earlier this month, I explained four reasons why the Apple “tax avoidance” issue is empty political demagoguery.

And Rand Paul gave some great remarks at a Senate hearing, excoriating some of his colleagues for trying to pillage the company.

But this Robert Ariail cartoon may be the best summary of the issue.

Arial Apple Cartoon

What makes this cartoon so effective is that it properly and cleverly identifies what’s really driving the political class on this issue. They want more revenue to finance a bigger burden of government spending.

When I did my contest for best political cartoonist, I picked a cartoon about Greece and euro for Robert Ariail’s entry. While I still think that was a very good cartoon, this Apple cartoon would probably take its place if I did a new contest.

Washington’s Range of Policy Options

Ezra Klein writes in the Washington Post that congressional Republicans have moved to the right on such issues as health care, stimulus spending, and a carbon tax, forcing Democrats to move to the center to find common ground. And thus:

If you imagine a policy spectrum that that goes from 1-10 in which 1 is the most liberal policy, 10 is the most conservative policy, and 5 is that middle zone that used to hold both moderate Democrats and Republicans, the basic shape of American politics today is that the Obama administration can and will get Democrats to agree to anything ranging from 1 to 7.5 and Republicans will reject anything that’s not an 8, 9, or 10. The result, as I’ve written before, is that President Obama’s record makes him look like a moderate Republicans from the late-90s.

His argument is that Mitt Romney and Newt Gingrich used to support “the basic architecture of the Affordable Care Act,” John McCain (R-AZ) supported a cap-and-trade bill, George W. Bush pushed a stimulus bill in 2008—but now Republicans don’t want to support any of those policies. So, he says, Democrats have moved to the right, away from what they really want, like single-payer health care, command-and-control environmental regulation, and no cuts to entitlements plus massive new spending. He says that leads to center-right policy.

But another way to look at it is this: on his scale of 1 to 10, where 1 represents bigger government and 10 represents smaller government, what’s happening? Is government getting bigger or smaller? Take health care: if 1 represents national health care and 10 represents a free market in health care, then surely with income tax preferences for health insurance, Medicare, the prescription drug benefit, and government paying for more than half of all health care, we were at least at 5 by 2009. Everybody from Michael Cannon to Joe Biden thinks Obamacare is a BFD on the road to total government control of medicine. So let’s say it put us at 3 or 4.

You can see the same pattern in the other issues Klein discusses. Carbon tax, cap and trade, stimulus spending—they all make government bigger than it is now. So when Republicans endorse any of those policies, they are playing on bigger-government territory. Now, Republicans say they’re not going to do that any more. So Klein’s complaint is not really that Republicans are insisting on “8, 9, or 10” policies; they’re just no longer proposing policies in the 3 and 4 range, hoping that Democrats will agree to make government only a little bigger, rather than way bigger. Sounds like maybe the debate is moving back toward the 50-yard line, instead of taking place entirely in Democratic territory.

Note: Klein talked only about economic issues, so I’ve done the same. There’s a clear trend in a liberal/libertarian direction on social issues such as marriage and marijuana. And Republicans who propose further restricting immigration or getting involved in yet another Mideast war are hardly advocates of small government. This analysis deals only with fiscal, regulatory, and entitlements issues.

Capitalizing on Big Government

The Securities and Exchange Commission is investigating “political intelligence” firms that promise to give investors advance word of what Congress and regulators may do next. A continuing Washington Post investigation reports:

Antonia Ferrier, a spokeswoman for [Sen. Orrin] Hatch, said the senator is aware that his staff participates in such events [as an investor phone call on Medicare and private insurers, organized by a Washington consulting firm] and that communicating with these types of groups is not unusual given the technical nature of the issues the committee handles.

“Staff members meet with stakeholders on every side of an issue as a means of better crafting policy solutions,” Ferrier said. “What information they share is the same information that Senator Hatch shares in an open and transparent way with his constituents. Senator Hatch has a zero-tolerance policy for anyone who would take advantage of privileged information, and he’s confident that no one on his staff has done that.”

This is just one more inevitable facet of the system we live under. As long as the federal government spends trillions of dollars, and reallocates more trillions through taxes and regulation, and issues bans and mandates on everything from contraception to local speed limits, you’re going to see a lot of money spent to control how those decisions are made. Which includes spending money to find out what the decisions will be, in order to make appropriate investment choices. 

I’ve been writing about this for years, apparently to no avail. I focused on why money flows to Washington way back in 1983 in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there.

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

As the size and power of government increase, we can expect more of society’s resources to be directed toward influencing government.

We can pass all the laws we want, launch insider training investigations – but as long as the federal government is acquiring and redistributing so much wealth, businesses and investors are going to go to great lengths to figure out where it’s going and how to get a piece of it.