Forget the effect on production incentives and GDP growth—Matt Lewis at Politics Daily points to an article in the Times of London arguing that confiscatory tax rates broke up the Beatles, which may be the most heinous crime of government since the liquidation of the kulaks.

The burden of government spending has skyrocketed during the Bush-Obama years. Many politicians claim that all this new spending represents necessary “investments” to boost economic growth. But as this new video explains, both cross-country comparisons and empirical analysis suggest government is far too big — not only in Europe, but also in America.

This is the second of a two-part series. The first installment, which focuses on eight theoretical reasons why excessive government undermines growth, can be viewed here.

Republicans made many big mistakes when they controlled Washington earlier this decade, so picking the most egregious error would be a challenge. But continued American involvement with the Organization for Economic Cooperation and Development would be high on the list. Instead of withdrawing from the OECD, Republicans actually increased the subsidy from American taxpayers to the Paris-based bureaucracy. So what do taxpayers get in return for shipping $100 million to the bureaucrats in Paris? Another international organization advocating for big government.

The OECD, for example, is infamous for trying to undermine tax competition. It also has recommended higher taxes in America on countless occasions. And now it is suggesting that Iceland impose high tax increases — even though Iceland’s economy is in big trouble and the burden of government spending already is about 50 percent of GDP:

Both tax increases and spending cuts will be needed, although the former are easier to introduce immediately. The starting point for the tax increases should be to reverse tax cuts implemented over the boom years, which Iceland can no longer afford. This would involve increases in the personal income tax… Just undoing the past tax cuts is unlikely to yield enough revenue. In choosing other measures, priority should be given to those that are less harmful to economic growth, such as broadening tax bases, or that promote sustainable development, such as introducing a carbon tax.

That’s my favorite placard from the Washington tea party protests on Saturday. No Child Left a Dime underlines perhaps the central concern of the protesters — the ongoing massive fiscal irresponsibility in Washington by both parties.

We’ve got deficits of more more than $1 trillion for years to come. Federal debt will approach World War Two levels within a decade. Even so, the Democrats are trying to ram through a $1 trillion health care expansion, and the head of the Republican National Committee, Michael Steele, is defending against any cuts to Medicare, the program that is the single biggest threat to taxpayers. People are marching not just because Obama and the Democrats are scaring their pants off, but because most Republicans in positions of power are spendthrifts as well.

The chart illustrates that no child will be left a dime because the government will have it all. This is the CBO’s “alternative fiscal scenario,” which essentially means the business-as-usual scenario if Congress doesn’t cut anything in coming years.

Note that the most rapidly growing box, the white box, is the program that Michael Steele doesn’t want to touch. The program is expected to grow by 6.3 percent of GDP by 2050. In today’s money, 6.3 percent of GDP is about $900 billion a year in added spending. So it’s like Steele doesn’t see anything wrong with tomorrow’s young families forking over an additional $900 billion a year in taxes on this one program, or about $7,700 a year for every American household.

It’s worse than that. The biggest box on the chart by 2050 is interest on the government debt, and by far the biggest contributor to the growth in interest is Medicare. So including interest, Michael Steele’s (ridiculous) Medicare position is sort of like supporting a more than $10,000 tax hike on every young family for this one program.

Come on Republicans, you can do better than that. How about starting simply by proposing some of CBO’s modest and commonsense Medicare reforms like raising deductibles?

(By the way, interest costs rise in coming years because of an excess of spending, not a shortage of revenues. Under this CBO scenario, all current tax cuts are extended, and yet federal revenues still rise as a share of GDP over time above the historical norm of recent decades).

In his blog post yesterday — appropriately entitled “Congressional Conflict of Interest” — my colleague Chris Edwards questioned the selection of Sen. Blanche Lincoln (D‑Ark.) to head the Senate Agriculture Committee:

Lincoln has been “a tireless advocate for the Arkansas rice industry’ and a ‘champion for agriculture.” You can see what 20 or so other agriculture lobby groups say about Lincoln here. These are very laudatory remarks, but what about the taxpayers? What do taxpayers think about her support for the $20 billion or so in annual giveaways to farmers?

I wonder what taxpayers think about the fact that Senator Lincoln and her family have received hundreds of thousands of dollars in farm subsidies?

From a 2007 USA Today article:

Members of Congress must report sources of income totaling more than $200, but most get payments through partnerships or other entities, so it can be difficult to learn which ones receive the subsidies. Recipients are searchable by name on www​.ewg​.org, but, for example, payments to Sen. Blanche Lincoln, D‑Ark., are listed under her maiden name, Lambert, at a Virginia address near Washington. Records show Lincoln and her family members collected $715,000 from 1995–2005, the most recent year complete data are available. She said she personally received less than $10,000 a year, and the subsidies ended in 2005 when her land was sold.

Let’s say I force a stranger under threat of imprisonment or violence to part with part of his or her paycheck, and proceed to give that money to a friend. I would rightly be labeled a thief or worse. Suppose I not only gave the money to my friend, but kept a cut for me and my family. That would be even worse.

But when politicians do it we call them “public servants”?

Michael Tanner and Michael Cannon have been doing an excellent job exposing the fallacies and misconceptions of Obama’s proposal to further expand government intervention in the health-care sector. One of their challenges is explaining to people that many of the problems that currently exist are the fault of government.

For instance, I went for my annual checkup today (though “annual” is a slight exaggeration since I went 35 years without a checkup and this is just my second visit in the past 3.5 years). As I dealt with a blizzard of paperwork at the doctor’s office, I realized that this was just the beginning of a tedious process. At some point in the next few weeks, I’ll receive incomprehensible statements from my insurance company, followed by similarly indecipherable bills from the doctor. And since I also went down the hall to a different office for my blood test, I suspect I’ll have two statements and two bills — neither of which I’ll have the energy to figure out (though I shouldn’t complain too much since I once went to a local clinic after spraining my ankle playing basketball and somehow had to deal with three separate bills).

I’m guessing that this type of experience is one of the reasons why Americans express some degree of unhappiness with our current system — especially when they wind up having to write a check and suspect that their insurance company is squeezing them in some unknown way.

But how many people realize that this bureaucratic process is the result of government interference? For all intents and purposes, social engineering in the tax code created this mess. Specifically, most of us get some of our compensation in the form of health insurance policies from our employers. And because that type of income is exempt from taxation, this encourages so-called Cadillac health plans. This seems great, at least on the surface, but now let’s consider the unintended consequences.

We have replaced (or at least augmented) insurance with pre-paid health care. Insurance is supposed to be for unforeseen major expenses, such as a heart attack. But our gold-plated health plans now mean we use insurance for routine medical costs. This means, of course, we have the paperwork issues discussed above, but that’s just a small part of the problem.

Even more problematic, our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans.

We need to consider how this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? (It is worth noting that costs keep falling and quality keeps rising in the few areas — such as laser-eye surgery and cosmetic surgery — that are not covered by insurance.)

Imagine if auto insurance worked this way, or homeowner’s insurance. Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money. But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

So what does all of this mean? We have a problem caused by government. (This little rant of mine doesn’t even touch on other problems caused by government, such as Medicare and Medicaid.) People are unhappy because they have to deal with the unintended consequences of government intervention. Clever politicians then say the only way to make people happy is to have even more government. I’d like to try to explain why this makes sense, but I have to fill out some forms.

Commenting on a recent article of mine in The Wall Street Journal, Peter Gartside claims that:

Prior to 1913, the U.S. annual gross domestic product changes oscillated between extremes of approximately plus or minus 15%. After the establishment of the Federal Reserve Board, the limits of GDP oscillations narrowed to approximately plus or minus 6%.

You may well wonder where he got that idea, since there are no official estimates of gross domestic product (GDP) for years before 1929. In the early 1960s, however, John Kendrick and Simon Kuznets bravely attempted to construct such estimates for gross national product (GNP). That would be close enough to modern GDP data were it not for the primitive statistics and technology they had to work with.

The table (after the jump) shows these heroic old estimates for real GNP from 1889 to 1914. In that period, there was only one year (1908) in which the drop in GNP exceeded 6% and none that remotely approaches the “minus 15%” figure of Mr. Garstide’s imagination.

Real GNP
billions of 1958$

1889 49.1
1890 52.7
1891 55.1
1892 60.4
1893 57.5
1894 55.9
1895 62.6
1896 61.3
1897 67.1
1898 68.6
1899 74.8
1900 76.9
1901 85.7
1902 86.5
1903 90.8
1904 89.7
1905 96.3
1906 107.5
1907 109.2
1908 100.2
1909 116.8
1910 120.1
1911 123.2
1912 130.2
1913 131.4
1914 125.6

Historical Statistics of the U.S., Series F4

CEA chair Christina Romer’s research shows that these early estimates “exaggerate the size of cycles because they are based on the assumption that GNP moves approximately one for one with commodity output valued in producer prices.” If we tried to estimate recent GDP figures on the basis of commodity output and prices, then postwar cycles would look even wilder than they already do. Consider, for example, using the recent gyrations in producer prices of oil and metals as a proxy for GNP.

Even if we relied on the ancient and flawed pre-Romer GNP estimates above, however, there were still no downturns before 1913 that were nearly as extreme as 1929–33 or even 1920–21. And there was no recession between the 1870s and 1913 that lasted as long as the slump of 2008–2009.

Whether we’re talking about fiscal or monetary fine-tuning, all the technocrats efforts at taming the business cycle in the past 40 years appear no more successful than the pre-Fed policies of doing without a central bank and doing without deferred tax increases (debt-financed “fiscal stimulus” plans).