Evidence that big government hurts the economy

June 30, 2010

In this Center for Freedom and Prosperity video, Dan Mitchell provides graphic evidence that government growth beyond a certain point actually hurts a nation’s economic performance:

While Mitchell doesn’t explain why this is true (something he does in other videos), the reason seems clear: government spending is inherently wasteful as money is often diverted to sub-optimal, politically oriented  purposes (such as vanity airports and bridges to nowhere), and that money is not disciplined by market forces. In other words, national governments’ wasteful deployment of capital is not punished by those governments’ going out of business. Furthermore, this money is taken out of private hands and consequently is no longer available for productive uses such as investing, saving, and job creation.

That isn’t to say all government is bad. By providing open markets, the consistent rule of law, and a strong protection of property rights, government actually helps create the conditions for prosperity. Beyond that point, however, it becomes a parasite, sucking the lifeblood from its host, the private sector.

If Mitchell and other free-market economists are right (and I strongly suspect they are), then one of the best things the federal government could do would be to reduce federal spending from its current 40% of GDP to about 15-20 percent.  That, however, is something that will not happen under the Democrats, and I have to wonder if even a Republican government would have the courage to make the needed cuts, given all the political oxes that would have to be gored.

Probably not, until the national consensus itself changes. And that may not be as far off as you think.

(via International Liberty)

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How the minimum wage costs jobs

June 14, 2010

In this video from the Center for Freedom and Prosperity, another of Dan Mitchell‘s former interns, Orphe Divounguy, gives us a lesson in how rising minimum wages, while seemingly good for the worker, actually kill job opportunities:

He makes several good points:

  • For workers with no real skills, for example, teenagers just entering the job market, a high minimum wage makes them not worth what the employer is required to pay them.
  • Minimum wages disproportionately hurt minorities, who often come from poor environments. Even if they’re willing to work to learn skill and prove themselves, the high minimum wage locks them out of the market.
  • A minimum wage makes some sense as a floor if it’s beneath the prevailing market wage, but a minimum wage higher than that inevitably leads to higher unemployment as the cost of labor gets beyond what an employer can afford.
  • Businesses aren’t charities. If a worker costs more than the revenue he generates, the employer won’t hire him.

I can’t imagine we’ll ever see a rollback or elimination of the minimum wage, however. Then again, these are not normal times and, with so many people unemployed, perhaps enough people can be convinced.


An example of American exceptionalism in action

June 5, 2010

Arthur Brooks in the Wall St. Journal on what the Greek demonstrations tell us about the differences between Americans and Europeans:

Many Europeans also expect others to work so they can live. The International Social Survey Programme asked Americans and Europeans whether they believe “It is the responsibility of the government to reduce the differences in income between people with high incomes and those with low incomes.” In virtually all of Western Europe more than 50% agree, and in many countries it is much higher—77% in Spain, whose redistributive economy is in shambles. Meanwhile, only 33% of Americans agree with income redistribution.

Simply put, Europeans have a much stronger taste for other people’s money than we do. This is vividly illustrated by the recent protests in the U.S. and Greece.

Why are citizens rioting and striking in Greece? Despite the worst economic crisis in decades, labor unions and state functionaries demand that others pay for the early retirements, lifetime benefits and state pensions to which they feel entitled. In America, however, the tea partiers demonstrate not to get more from others, but rather against government growth, public debt, bailouts and a budget-busting government overhaul of the health-care industry.

In other words, the tea partiers are protesting against exactly what the Greeks are demanding. It is an example of American exceptionalism if there ever was one.

(via Dan Mitchell)


Working for the tax man, UK edition

May 28, 2010

The British TaxPayer’s Alliance has posted a good video illustrating how long a typical UK resident has to work during the average day before starting to earn money for himself. It may not be America, but, pay attention; Obama and his allies want to put us on the same path.

(via Dan Mitchell)


Get rid of the capital-gains tax

May 3, 2010

As an investor (and one who believes that private investment is the best way for Americans to secure their retirement), I’ve never liked the capital-gains tax.  Dan Mitchell presents another Center for Freedom and Prosperity video on why the CG tax should be eliminated:

Dan offers six reasons, and I think they’re all sound.

LINK: More at Hot Air.


Government unions vs. the taxpayers

April 3, 2010

Larry Kudlow talks to Dan Mitchell about the startling disparity between compensation in the public vs. the private sectors:


The Flat Tax: Good for America, Bad for Washington

March 29, 2010

Dan Mitchell of the Cato Institute and the Center for Freedom and Prosperity has just released a video explaining why he believes a flat tax would be better for the country and fairer overall:

Here’s what he says about the “progressive taxes are more fair” argument favored by the left-liberals:

There are two big hurdles that must be overcome to achieve tax reform. The first obstacle is that the class-warfare crowd wants the tax code to penalize success with high tax rates. That issue is addressed in the video in a couple of ways. I explain that fairness should be defined as treating all people equally, and I also point out that upper-income taxpayers are far more likely to benefit from all the deductions, credits, exemptions, preferences, and other loopholes in the tax code.

You can read the other reason in his article at Big Government.

Personally, I’m drawn to the idea of a national sales tax or VAT as a replacement for the income tax. It makes sense to tax consumption instead of productive work, though I recognize some fear that it would be a hidden tax that fuels government growth.

Regardless, I think we can all* agree that the current tax system is a nightmare that needs to end.

*(Except for Democrats progressive statists and the tax-prep industry.)

LINKS: More at Hot Air.