Almost the entire
political class has isolated itself not only from
people, Mission
Statement but
from the laws of physics, economics and common sense. (John
Brignell)
Tax
competition between
countries is good. International agreements that organise tax
harmonisation are bad. Tax competition
compels
governments to
economic use of
public resources. It stimulates efficient
public
services, prevents wasteful public
spending
and saves taxpayers money. Learn
the logic, ethics & Benefits of of
tax competition
in this
5
min Video by
Daniel J.
Mitchell Ph.D.
Richard
Epstein of the University of Chicago
talks with EconTalk host Russ Roberts
about
the relationship between happiness and wealth, the effects of
inequality on happiness, and the economics of envy and altruism. He
also applies the theory of evolution to explain some of the findings of
the happiness literature.
The “Great Deception” involves that successive treaties embodying
economic integration were needed to give more jobs and economic growth,
when the real agenda throughout has remained political integration, the
construction of a Federal European Superstate under the joint hegemony
of France and Germany.
Former Federal Reserve Chairman Alan
Greenspan, Former Treasury Secretary John Snow, and SEC Chairman Chris
Cox testified about the state of the economy, recent turmoil in the
U.S. and global financial markets, and the role of federal regulators
in the breakdown of the market on Wall Street. In response to sometimes
partisan and pointed questioning Mr. Greenspan said that he may have
been mistaken about the reliability of some financial instruments, such
as insurance-like credit-default swaps, that were not yet common when
he expressed his views about markets being able to police
themselves See the
24-10-2008 hearing here Listen
to Ron Paul's comments here
One
of the biggest fallacies of the current debate is that high oil
prices cause inflation. That is not true. Only excessive money supply can cause a general price
rise. Central Banks' easy money
is the only cause of the inflation they claim to fight.
Greenspan warns: More Bank Failures
in the Pipeline The
insolvency crisis will come to an end only as US home prices begin to
stabilise, and this is when the absorption of the huge excess of vacant
homes that emerged from the housing boom is much further advanced than
it is now. (Aug 4 2008)
Mark Thornton explains the reason why
record setting skyskrapers are excellent forebodes of recessions:
Unnatural abundance of easy credit causes unnatural construction booms
which cannot but unwind in a bust when
overexpensive buildings find no tenants. (10 min. mp3) - 18
Aug 2008
Lessons
from the 1970s
The
only historical period that bears any resemblance to what is happening
today is the 1970s. Then, and now, an oil price shock turned into a
rise in the general price level. Both then and today, central banks
largely accommodated this price rise. It was a mistake then and is a
mistake now.
Monetary policy
has been excessively accommodating for more than a decade, building up
excessive inflationary
pressures in the global economy....
Must
hear Audio Podcasts
The
Role of
Zoning in
the Housing
Bubble How
Urban Planning and Land Use Regulation create
artificial shortages and harm our prosperity, our
quality of
life and our children's future
(cato Institute)
Prof.
Allan
Meltzer
talks with EconTalk host Russ Roberts about the current state of
monetary policy and the potential for inflation. Meltzer explains why
inflation hasn't happened yet, despite massive increases in reserves
created by Fed policy. Then he explains why inflation is coming and why
it will be politically difficult for the Fed to stop it. Meltzer also
analyzes the Japanese experience in recent years and talks about why so
many investment banks overreached and destroyed themselves.
Woods
gives
his free-market look at why the stock market collapsed, the economy
tanked, and government bailouts will make things worse. Tom Woods' web siteVon
Mises
Institute Review
Peter Boettke,
of George Mason University, debates with EconTalk host Russ Roberts on
the
Austrian analysis of business cycles, monetary policy and the
current state of the economy. The debaters explore the distortions and
exuberance resulting from of easy money policy and government
intervention. Another great
EconTalk podcast which
lifts the public debate on public policy on a higher level.
Robert
Higgs, of the
Independent Institute, talks with EconTalk host Russ Roberts about the
Great Depression, the
New Deal, and the effect of World War II on the
American economy. Using survey results, financial data, and the pattern
of investment in the 1930s, Higgs argues that New Deal
policies created
a climate of uncertainty that prolonged the Great Depression. Using
consumption data, he argues that prosperity did not return during
wartime, but rather after the war when government intervention in the
economy subsided.
States are aggressive entities which steal property through taxation
and expropriation, initiate physical force, create monopolies,
and restrict trade. States today are as normal as slavery was in the
old days.
For
the 13th year in a row Auditors refuse
to approve the European Union budget.
12 % of regional spending was not
accounted for. Farm subsidies got to Horse-breeding
and golf courses
The
rise of anti-Americanism in Europe is a danger to both American and
European pocketbooks, and our collective liberty. Here is why: Europe
and America are each other's biggest trading and investment partners,
and anything that damages that relationship is harmful to everyone
involved.
More
social spending by EU governments
is not the best way to reduce inequalities, and can have unintended
consequences, says Jan Krzysztof Bielecki, a former Prime Minister of
Poland. He argues that the fastest route to cohesion both between and
within member states is freer movement of people, capital and services
How
poor are the American Poor ?
Poverty
is an important and emotional
issue. Last year, the
Census Bureau released its annual report on poverty declaring
that
there were 37 million poor persons living in the United
States
in 2005. 12.6 percent of
all Americans. This number has varied from 11.3 percent to 15.1
percent of the population over the past 20 years. To understand poverty
in America, it is important to look behind these numbers—to look at the
actual living conditions of the individuals the government deems to be
poor. Official data show 43% of them own a three bedroom
dwelling. 80% enjoy air conditioning, 75% have a car and 31% of the
poor families even have two vehicles. American poor on average dispose
of 114 m² living space. Substantialy more than the European
agerage of poor ànd wealthy families together: 86 m² in
Belgium and 85m² in
the UK.
Using
data from the
U.S. Census Bureau, the Goldwater Institute finds High-tax and
-spending states suffer increases in poverty rates, both general
and
in childhood poverty rates. The paper provides scientific
evidence
that private-sector job growth is the most effective antipoverty
program.
Policymakers who seek to reduce poverty and improve the
lot of the poor should embrace policies promoting as much
private-sector growth as possible, and therefor reduce taxes and limit
the growth of public spending. Contrary to dogmatic beliefs and
special interest claims by those those employed by the government
programs the paper demonstrates that the promotion
of Big Government, high taxes and public
spending
destroy wealth and actually hurt the poor.
The
Laffer Curve explained In these short
Youtubes, Dan
Mitchell
explains the relationship between
tax rates
and tax revenue, and the reasons
why marginal tax revenu
declines
when tax rates increase. Historical examples
proove the case for moderate tax rates. by
Daniel J. Mitchell Ph.D. Part
1Part 2Part 3
Destructive
State Agencies by
Dr. Martin De Vlieghere Ph.D Not
only dictatorships but also democracies have appallingly destructive
state agencies, that threaten both internal and international peace.
Apparently western civilization has not yet developed an adequate
understanding of the dangers of state power. Martin De Vliegere
analyses the destructiveness of state activities and investigates the
reasons why Why it is so difficult to curb the growth of government.
.
„There
will be no further crash in our lifetime“, John Maynard
Keynes
Detlev
Schlichter talks about the Folly of Elastic Money, the benefits of
deflation and the chaos of the Coming Monetary Breakdown. He explains
why our "Paper Money sytem" is inherently unstable and due to Collapse
just as all fiat monetary systems in collapsed in the past. (Youtube)
Article
123 : Overdraft facilities or any
other type of credit facility with the European Central Bank or with
the central banks of the Member States (hereinafter referred to as
"national central banks") in
favour of Union institutions, bodies, offices or agencies, central
governments, regional, local or other public authorities, other bodies
governed by public law, or public undertakings of Member States shall
be prohibited, as shall the purchase directly from them by the European
Central Bank or national central banks of debt
instruments
Article 125 : The Union
shall not be liable
for or assume the commitments of central governments, regional, local
or other public authorities, other bodies governed by public law, or
public undertakings of any Member State,
without prejudice to mutual financial guarantees for the joint
execution of a specific project. A Member State shall not be liable for
or assume the commitments of
central governments, regional, local or other public authorities, other
bodies governed by public law, or public undertakings of another Member
State, without prejudice to mutual financial guarantees for the joint
execution of a specific project.
"If France is downgraded, a number of French banks will almost
certainly be downgraded, following which other European banks will face
the same destiny. Such a scenario has the potential to cause calamity
across Europe. The 90 European banks which recently went through the
(so-called) stress test organized by the European Banking Authority
need to roll a total of €5.4 trillion1 (!) of debt over the next 24
months. A massive amount even during the best of times. Probably
undoable during times of stress.... The demographics of
Spain and Italy are horrendous, soon to be on a level with Japan. The
government portion of GDP in France is already 53% and is only going to
get worse as aging Boomers have been promised monster
benefits.... If Greece defaults on its debt, the
E.C.B. will not only lose a pile on its holdings of Greek bonds but
must return the bonds to the European banks, and the European banks
must fork over $450 billion in cash."
Investment
strategist Jeremy
Grantham, explains why stimulus
packages fail to stimulate the real economy. The sole effect of the
artificially
low interest rates is risky asset bubbles, causing massive damage when
they
burst. The wealth effect of manipulated stock markets is minute.
Grantham
advises his investment strategy during times inflating global asset
bubbles
In
substance,
the current eurocrisis can be summarized to the systemic flaw that a
single monetary policy for economies with highly different growth rates
is not sustainable and leads to the leveling down of growth prospects.
On average, the growth deficit due to the single currency can be
estimated at a yearly 2 to 3%. For Ireland, the introduction of the
euro caused an abrupt end to a most prosperous period of 20 years of
unprecedented growth.
A
cheerful survey of the never ending story of human development. Ridly
explains the
rationality behind its accelerating trend. Profit seeking innovators,
improving communications, advancing science and creativity, and
globalizing trade are all multiplicative
forces ever increasing the pace of progress and improving our use of
resources. Time after time apocalyptic alarmism about depletion
is being denied by reality: the stone age did not end by lack of stone,
nor did the bronze age by lack of bronze. Even so will the oil age end
long before we run out of oil. History is an ever lasting repetition of
improving products, tools and processes. For sure next generation of
Ipad’s and gadget will be better than today’s. For sure entrepreneurial
greed and globalizing trade will make our cars ever more fuel
efficient. The only treat to nature and mankind are restrictive
forces obstructing progress: Statism... and environmentalism.
Some more evidence
here:
Swiss
Lessons from the Belgian
Constitutional Debacle
It is
more than
four months now since the elections, and the formation of a Belgian
government seems further away than ever. Walloon and Flemish
politicians are diametrically opposed on a new Finance Act. The degree
of regional fiscal autonomy is the discordant issue. read
more....
Negative
growth
effects of high public debt start already from levels of around
70-80% of GDP, through delirious effects on private saving;
total factor productivity and sovereign long-term nominal and
real interest rates. From a policy perspective, the results provide
additional arguments for debt reduction to support
longer-term economic growth.
The
environmental lobby gradually succeeds in promoting "the environment"
to the "Golden Calf" of the 21st century. Rationality and sense of
proportion have vanished from the environmental debate. Whoever
questions Al Gore's climate alarmism gets labeled as "negationist"
worse even than Holocaust deniers. Even human rights, democracy and
prosperity give way to the new idolatry.Recent research
however learns how much the climate alarmists exaggerate “global
warming” an its effects. Anti-globalist motives seem to dominate the
Copenhagen Climate Conference rather than environmental concerns. This
hidden agenda is likely to distort global trade and inflict development
and the environment more bad than good.
Not Capitalism
but our ill conceived
Monetary System caused the Crisis
We do
not need to replace the Capitalist
System with a Swedish style social model as UN economist Jeffrey Sachs
argues. We only need a just monetary system. Such system can only
be equitable and achieve efficient allocation of resources when money
growth is zero or at the most limited to the growth of the real
economy. A return to the gold standard may be the best guarantee thereto
Prices
on
credit default insurance on US government bonds are rising, meaning it
costs investors more to protect their investment in Treasury bonds
against default than before the crisis hit. It even, briefly, cost more
to buy protection on US government debt than on debt issued by
McDonald’s....
Two
key questions Keynesians never aswer about their bailouts and spending
stimulus packages are: Where does the money come from? How
would the money have been spent without public interference?
The fact of the
matter is that the money spent or re-allocated by governments allways
comes
from somewhere else in
the economy. Public programs are financed through higher taxes, through
borrowing or -worse still- through inflationary money printing. Buying
power is thereby withdrawn from the private sector and public spending
is therefor allways crowding out private spending. Moreover public
agencies face high
operating costs and lack the tradition, knowledge and incentives for
efficiency, making public initiatives
far less productive than the
foregone private investment. Public interference is therefor hindering
growth and
productivity rather than
boosting it. Japan's
lost decade is a typical example how public misallocation of
resources has lead to a long lasting stagnation. From
The
Wallstreet Journal
RAHN:
The optimal Size of Government Spending
Fundamental research shows that economic growth and new job creation
begin to slow when total government spending is larger than about 25
percent of GDP, Government spending in the United States is actualy
about 36 percent of gross domestic product (GDP). Is Obama's big
spending policy really the way to to create more jobs and boost
economic growth? See
the Washington Times The Chris Martenson
Crash Course
Learn
everything you need to know about the economy in the shortest amount of
time. A unique series of 20 spoken presentations of ± 5 minutes
each. The series helps to understand the challenges in
these troubeled times
of creative destruction of malinvestment and
excessive bureaucracy and helps to see the
opportunities in this transgression to a more
prosperous society.
The
centralisation of power in the European Union continues apace. Last
week, the Bruges Group and Free-Europe.org exposed the policies
that the EU wants to force on Europe over the coming year. These plans
include adding more costs onto business; more EU control over financial
services; EU oversight of the nuclear industry; more EU control over
energy policy; complete EU control over asylum and immigration; even
more EU threats to consumer rights; more EU control over transport;
more EU control over justice and home affairs; and more EU involvement
in health and education...
Interest
rate cuts may be desirable, but
are ineffective in dealing with the current crisis. The
only effective instrument to prevent economic downturn is fiscal policy.
We
now hear almost every
day that banks will not lend to each other, or will do so only at
punitive interest rates. Credit spreads -- the difference between the
government cost to borrow and what private-sector borrowers must pay --
are at historic highs. Ms. Schwartz,
co-author
with Milton Friedman of "A Monetary History of the United States"
explains that this is not due to a lack
of money available to lend, but to a lack of faith in the ability
of borrowers to repay their debts.
"The
Fed," Ms. Schwartz argues, "has gone about
as if the problem is a shortage of liquidity. That is not the basic
problem. The basic problem for the markets is the uncertainty if the
balance sheets of financial firms are credible." Ms.
Schwartz explains how
to restore interbank trust and how to avoid the present financial
crisis from develloping in a full blown depression. more
here
" If
a loose monetary policy and rapid asset
price inflation really were the
route to economic prosperity, Argentina would be the richest country in
the world by now." Read this and 8 other most pertinent
observations on the present
financial crisis and the
inevitable conclusion here
(another great
analysis from John Mauldin's Frontline
Thoughts )
It
was fear for loss of their
sovereignty which made the Irish vote NO against the Treaty of Lisbon:
fear that European law would prevail
above national law particularly in
the field of taxation, morals and abortion. The European Court of
Justice now seizes the power which the Irish People rightfully refused
to grant her. In the Metock ruling the European Court lets prevail
European laws above national immegration laws anyway. This is a most
dangerous precedent as in this way Europeans step by step loose their
souvereighty. Denmark has the most immediate problem: this
jugment declares their recent immigration
legislation completely void and worthless. 04 Aug 2008read more here
Dr. Hans Herman Hoppe
shows that small countries are performing much better than large ones.
Prosperity, well being and democratic rule are better in small states.
He explains why the EU superstate is not about free trade and peace,
but about bureaucracy and about harmonising
legislation and tax regimes throuhout Europe to avoid
tax competition and enabling exploitation
of hard working European citizens by the political elites.
The
French
and Dutch peoples rejected the EU Constitution in their
2005 referenda. In
order to avoid more defeats, the political
elites
annuled referenda in 5
other countries. In stead they disguised the rejected
Constitution as the "Treaty of Lisbon" with identical content.
Only the Irish people
were asked for their consent, and the verdict
again was a clear NO ! Politicians
of other
EU states agreed to give up their sovereignty to Brussels without
referenda. The
political elites are thereby violating EU rules and transforming
European democracies
into a Sowjet-like centralised bureaucratic superstate. Under EU laws,
if
one member state rejects a treaty, the EU must scrap
the
bill. Should the Eurocrats ignore the Irish NO-vote and pursue anyway,
the EU would loose its
legitimity and EU democracy will be changed in an
illegitimate
autocracy
of manufactured consent.
The text most
governments introduced to their
Parliaments is NOT
the same as the final version of
the Treaty.Governments
sold a pig in a poke. Peter
Mach discovered a
seemingly
inconspicuous sentence in the middle of the final consolidated version
enabling the EU Council of Ministers to adopt directives
on minimum rates for taxes and excise duties upon a claim
that
national rates distort
competition. The sentence gives a fatal blow to the sovereignty of
member states in the most crucial field of fiscal matters. This was not
approved as
such by Parliament.
The fraud exposes what
this treaty really is about:
disabling Tax
Competition and transforming
the European continent in a
huge HIGH TAX CARTEL from which no escape is
possible. more.... Why
the
EU can get along without Lisbon Treaty very
well.
PART
1PART
2: EUSSR EU
Commissioner Wants Far-Reaching New Powers for Brussels
The EU's monetary affairs
commissioner has called for far-reaching new powers for the European
Commission. He would like Brussels to have greater control over
economic policy in euro zone countries and wants its members to speak
with one voice on the international stage
Everyone,
including politicians, agrees that
red tape stifles the economy. Unnecessary and preventative regulation,
based on no data or scientific investigation, let alone a risk
assessment, impedes entrepreneurial activity, social existence and
liberty. It makes the lives of those it tries to protect, empty and
dull; it prevents technological development; and lowers economic
performance, keeping many people in poor conditions. Read the
pdf paper here
June
4th 2008. Milton Friedman once declared: "Europe
is becoming ever-more
susceptible to asymmetric shocks. Sooner or later, when the global
economy
hits a real bump, Europe's internal
contradictions will tear it apart." Friedman foresaw all to
well that at some point, the weaker European countries were
going to
need more monetary stimulation than the majority of the countries in
the union. The major asymmetric shock may well come from an
unexpexted source: Asia. Asian
central banks have long been buying US$ and Euro
to prevent their
currencies from rising. Rapidly
rising food and energy are now leading to fast inflation rates across
Asia. This has
triggered a change in Asian monetary
policy, notably a willingness to let the currencies appreciate and slow
down their
inflation. As a result Asian central banks will no longer buy
as much Euro bonds, and at least some European
governments may well find it very difficult to raise further financing.
Will
this Asian asymmetric shock mean the end of the Euro? Maybe. The
problem is that Europe is not a nation and the Euro is still an
experiment in cooperation, and that
governments go bust when they issue too much debt in a currency that
they cannot print themselves. Considering the number of players
involved in the monetary decision process policy paralysis could soon
grip
Europe. Markets have
finally acknowledged that the European solemn
promises to converge have not been kept. All across Europe, spreads
between bonds of the "stronger" nations (Germany, Holland..) and the
"weaker" signatures (Italy, Greece, Belgium, France) are widening.
Another question, of course, in the present credit crunsh is what would
happen in the event a major European bank went bankrupt. Would EU's
competition rules allow the ECB
or government to bail out the failing institution? Read the
analysis hereMore on the Euro here
Surging
inflation will stoke riots and conflict between nations, says report.
Merrill says inflation will widen gap between rich and poor and that
governments must curb rising prices. Riots, protests and political
unrest could multiply in the developing and developed world as
soaring inflation widens the gap between the "haves" and the "have
nots", the investment bank predicted...
The
single greatest danger to human life is the centralized political
State, who extinguished more than 170 million souls during the
bloodiest rampage in recorded history. Modern States are the last and
greatest remaining predators. The danger has not abated with the demise
of communism and fascism. All Western democracies currently face vast
and accelerating escalations of State power and centralized control
over economic and civic life. In almost all Western democracies, the
State chooses how children are educated, the interest rate
citizens can
borrow at, the value of currency, how employees can be hired and fired,
how more than 50% of their citizens’ time and money are disposed, when
to go to war, who can live in the country, where we can build our
houses etc...Most of these intrusions into personal liberty have
occurred over the past 90 years. States are parasites which always
expand until they destroy their
host population. Most
people are
comfortable with the idea of reducing the size
and power of the State. Most
become uncomfortable with the idea of getting rid of it completely. It
could be done and make us all hapier and
wealthier... read more
here
The
world’s
most important central banks:Fed,ECB and BoE are losing all
credibility. They persistently fail in their prime duty of fighting
inflation. Fake official inflation figures fool people about the pace
their savings are loosing value. Monetery policy is no
longer targeted at price stability but at bailing out the banking
sector
from their greedy malinvestments at the expense of people's buying
power and living standard. More about the political pressures
facing Central
Banks in
this ***** podcast
By
Wolfgang Munchau
(Financial Times)
Burst
asset price bubbles triggered the Great Depression in the 1930s and
more recently cost Japan a decade of economic growth. The
stupidity that got us into the presenty financial mess was low, and
occasionally negative, real interest rates over long periods of time.
Now that the housing bubble has burst, central banks are responding by
cutting
interest rates yet again....
By
Paul de Grauwe, K. U. Leuven
The
subprime crisis laid bare the unsustainability of the US
economy. US monetary authorities allowed Credit
and liquidity to expand to unsustainable
levels. This fueled the unsustainable
US consumption boom. What the US needs is a higher savings rate.
There is no way around it. The best way to achieve the structural
reforms needed is through an old-fashioned recession. Unfortunately US
authorities will do everything they can to prevent such a structural
reform.
Why
are central bankers giving us misleading m2 money supply figures and
deceptive
(partial) Consumer Price Indices (CPI)? Central bankers do not want You
to know the real rate at which they are
printing
money nor that M3 Growth rates hit
all-time highs all over the
world. They do not want people to know at what rate our
money is loosing its value. John Williams (Shadow
Government Statistics) is interviewed
here
by CNN. He expects the
deception wil end in a deep depression. In
this interview with "Financial Sence Newshour" (Apr 12th 2008),
Williams warns US m3 money growth
reaches 17% and that real inflation already is a
double digit rate. Williams forecasts that the FED's continued low
interest policy will lead to a massive flight out of the Dollar and
forecasts a hyperinflationary Depression in the US by 2010. Inflation
is the only way out to avoid US government from defaulting
on its massive debt and unfunded social security
obligations amounting to 400% GDP.
The
International
Monetary Fund last week gave central banks some wicked advice*. They
should no longer ignore residential property prices when setting
interest rates. At the same time, the IMF recommends central banks
should retain their inflation-targeting frameworks. It all sounds very
plausible. Unfortunately the two goals are inconsistent.
Inflation targeting proponents
view central banks’ responsibilities as minimalist. But the subprime
crisis shows that central banks cannot avoid taking responsibilities
that include the prevention of bubbles and the supervision of all
institutions that are in the business of creating credit and liquidity.
See this CNN report how easy
money and the bank
sector's greed causes social drama. See how aggressive mortgage
sales &
refinance loans lead to overindebtness and tragic situations in
millions of
American households. It is time to
fundamentally rethink this monetary system which favours such abuse and
risks to
cause a
global crisis. High
finance caused too much grief already.
In
the past, housing shocks were
transmitted across the Atlantic. Will it happen again? There is a high
correlation between US and EU house prices. Deutsche Bank measured the
sensitivity of European house prices to change in US house prices, and
concluded that Ireland and Spain are most vulnerable to a slowdown in
US housing...
The
credit crisis
is the school model of malinvestment resulting from exorbitant credit
expansion. Runaway money supply, highly underrated
inflation and disguised credit risk disturbed the correct pricing of
the risks of credits and
lead the credit mania.
The
repackaging of CDOs (known as CDO repacks) is a relatively recent
phenomenon arising from the poor performance of a number of CDOs in
2002 and 2003. Repacks are considered to be ‘first derivatives’ of CDOs
and, as Moody’s explains: “In a typical repack, the terms of the
existing CDO are restructured, with changes in seniority, notional
amount, coupon, maturity and waterfall priority. The cashflows of the
existing debt are used to support restructured debt securities to
achieve the desired ratings.” Learn
How mortgage CDOs work in this 3 minute graphic presentation
Moody's,
Standard & Poors as well as US Chief accountant
Comptroller General David WALKER confirm: Social
security may pressure US and European public debt ratings if medicare
and social security reforms
are not carried out. Moody's Investors Service cautioned, adding that
subprime risks do not affect the government's rating. 'In the
very long term... these two programs are the largest threats to the
long-term financial health of the US and to the government's 'Aaa'
rating,' said Moody's vice president Steven Hess. Loss of AAA
rating would skyrocket the burden of the public debt service.
ncreased
international tax competition will make it more difficult for
governments to collect corporate and personal income taxes from their
citizens. Taxes on consumption will become a more important
source of revenue. This tax shift will however improve economic
efficiency, boost growth and protect employment as it will encourage
savings and investment. It will also reduce marginal
tax rates and
thus increase the incentives for indeavour. Specific indirect
taxes can also be help to improve efficiency and environment
friendlyness. Distortions from consumption taxes are
much less harmful than those from income taxes.
Read the full OECD report here
High
public spending does not only cause slow economic growth. Big
Government also significantly lowers the quality of life. This
is the main conclusion of an empirical research into the
effects of government involvement in the economy and into the question
whether public involvement is conducive
or detrimental to life
satisfaction in a cross-section of 74 countries.
Christian Bjørnskov,
Axel Dreher and Justina Fischer provide a test of a longstanding
dispute between standard neoclassical economic theory, which predicts
that government plays an unambiguously positive role for individuals’
quality of life, and public choice theory, that was developed to
understand why governments often choose excessive involvement and
regulation, thereby harming voters’ quality of life. Results of the
empirical research show that life satisfaction decreases with higher
government spending.
This negative impact of the
government is stronger
in countries with a leftwing median voter. It is alleviated by
government effectiveness – but only in countries where
the state sector is already
small.
Before
government hijacked charity in the form of the New Deal and Great
Society, compassion and charity began at home. People were to feed the
hungry, clothe the naked, visit prisoners, care for widows and orphans
and love their enemies. Those were biblical commands to individuals,
not government.
Democratic politicians see things
differently.
Apparently believing there aren't enough caring people, they want
compassion to originate in Washington or Brussels, depriving it of its
true
meaning. They define compassion as big and ever-growing government and
a guaranteed check forever with no expectation - or requirement - the
recipient will ever better his or her circumstances.
Traditionally,
Republican compassion has encouraged private charity with government
picking up the leftovers of what religious and other charitable
institutions were unable to do. President Bush, through his
"faith-based initiative," took this one step further by subsidizing
religious groups with federal money. This removes the responsibility
and privilege from individuals and turns it over to government. When
that happens, religious organizations become one more constituency in
the never-ending campaign for political support. ...When politicians
speak of compassion, put your hand on your wallet because they intend
to spend your money, not theirs.
The subprime Meltdown
Is
the Credit Crisis
really over ?
The fundamental Analysis
Your Banker won’t disclose.
To find out whether the
present financial crisis annex real estate bubble and hedge fund
collapse will remain confined
to a minicrash or whether more turmoil is still to come, the authors
investigate whether the deeper causes leading to the crisis are now
remedied. The credit crisis is
the school model of malinvestment
resulting from exorbitant credit expansion. Runaway
money supply during the boom and
highly underrated inflation disturbed the correct pricing of the risks
of credits and lead to a credit mania.
The
ECB played a
central role in the credit expansion. For the sake of the lagging
countries in the European
Monetary Union the ECB maintained interest rates too low for too long,
causing an exorbitant 11.7% money growth rate which was still adding to
the worldwide credit bubble initiated by the FED. The
essay launches an original and justified plea for a reduced money
supply not higher than the growth rate of the real economy for as long
as gold
standard is not restored. The essay ends with an strong advise to
savers to closely monitor the money growth rates and interpret any
further acceleration as an unmistakable early warning of worse to
come. More here.... pdf format here....
The
turmoil in the
US subprime mortgage market has developed into an international credit
crisis. It is eroding investor confidence in credit and credit-related
products and, most important, raising concerns about the solidity of
the banking sector, as evidenced by banks' elevated funding terms and
diminished stock prices.
As a direct response to the
credit crisis, the US
Federal Reserve Bank lowered borrowing costs even further, disregarding
the alarming risks of inflation since early 2006. Financial
markets are speculating that
the US central bank could cut rates even further. The cause of the
international credit crisis lies in the government-controlled
paper-money regime and their systematic attempt to push interest rates
below the natural market rate in an effort to boost the economy. This
artificial boom can last only as long as the credit
expansion progresses at an ever-accelerated pace. The boom will come to
an
end as soon as additional quantities of fiduciary media are no longer
thrown upon the loan market.
In the
first wave of the housing crisis, homeowners across the U.S. lost their
properties to foreclosure. Now, many of the nation's
small and midsize home builders are on the ropes....
The
onrushing
financial collapse in the United States is receiving ample coverage.
The financial problems
are however not limited to the US; they are of a global nature. It
seems unknown to most, that in
fact the majority of the
Western 'developed' world and not just the United States is facing
national bankruptcy shortly ahead.
Standard &
Poor's warn that European indebtness is just as
unsustainable as the American, and that downward rating of public debt
is in the pipeline.
New
Statistical Study Confirms that High Tax Rates
Discourage Productive Behavior: America Should Learn From Europe's
Mistakes
The Center
for Freedom and Prosperity Foundation
today released a study estimating the negative employment impact of
high tax rates on labor. The Prosperitas report, which analyzed data
from the United States and several European nations, is adapted from
A.J. (Bram) de Bruin's thesis, submitted as part of the graduate
program in Econometrics and Management Science at Erasmus
University in Rotterdam, Netherlands.
Mr. de Bruin's
paper entitled, "Labour Supply and Marginal Tax Rates: A case
study of Belgium, France, Italy, the Netherlands, the United Kingdom
and the United States of America,"
investigates the effect of labor income taxes on the supply of paid
labor for several Western countries over the last two decades. In
addition to confirming the damaging effect of labor income taxes, the
paper also gives specific estimates of its magnitude for several
countries and at the same time sheds some light on the amount of time
it takes for changes in taxation to affect the labor market.
Peter
Heemeijer, a lecturer on quantitative economics at the University
of Amsterdam, who wrote the policy
summary for this study, found that the "conclusions of this paper are
consistent with the notion commonly known as the Laffer Curve, which
holds that a decrease in marginal tax rates on productive activity in
high-tax societies will stimulate economic activity, thereby generating
at least some additional government revenues that compensate for the
revenue loss due to the lower tax
rate." Link
to
Paper: http://www.freedomandprosperity.org/Papers/bruin.pdf
Tax
Competition File
We should favour Tax competition between countries and fight against international tax
cartels and
tax harmonisation because tax competition compels governments to
economic use of public resources.
It stimulates efficient public services, prevents wasteful public
spending and saves taxpayers money.
The
German government purchased a CD with stolen information from a
Liechtenstein bank as part of a wider jihid against tax evaders. Germany
always had a problem with tax evasion because of high marginal tax
rates. Slovakia with its 19% flat tax has no such problem. Austria,
which has one of the lowest tax rates of the industrialised countries,
has no such problem either, even though, unlike Germany, it has a
direct border with Liechtenstein...
High-tax
nations and international organizations such as the European Union, OECD
and UN seek to squelch tax competition between nations.
Severe sanctions against tax havens and countries protecting financial
privacy are already in place. The OECD is incriminating
tax competition as being “harmful”. This a reversal of reality.
Competition is on the contrary encouraging
efficiency and higher growth rates. Tax competition limits the ability
of governments to limitless tax increases and provide
politicians with incentives to improve government efficiency. Competition
between governments encourages efficient public services save
taxpayers money and prevent wasteful public spending. Tax
competition therefor promotes good fiscal policy and
protect human rights. The anti tax-competition campaigns
and the attacks on financial privacy are intended to
perpetuate highly uncompetitive structures and wasteful
bureaucracies rather than searching to
reform the European high-tax regimes.
People aiming to
stifle tax competition often assume that competition is a zero-sum
game. In reality, the large economic gains made possible by tax rate
cuts mean that tax competition can be beneficial for all
countries. As countries adopt more efficient tax systems,
economic growth is maximized, and all citizens have higher incomes. All
countries end up better off as each country pursues its own interests.
Tax harmonization initiatives aim to place higher taxes on capital, yet
capital formation is the key to economic growth. Higher taxes on
savings and investment result in less investment, lower real wage
growth, and more poverty. Tax competition is therefor beneficial to
both prosperity and freedom. Read the analysis here
Tax competition exists when people can
reduce their tax
burdens by
shifting capital and/or labour from high-tax to low-tax jurisdictions.
This migration disciplines
profligate governments and rewards nations that engage in pro-growth
tax reform. This process is good for the global economy since lower tax
rates increase incentives to work, save, and invest. Not surprisingly,
some high-tax governments despise tax competition and would like to see
it reduced or eliminated....
International competition
between
governments is akin to market competition for products. Market
competition encourages production efficiency and satisfaction of
consumer demands. Tax competition provides politicians with incentives
to improve government efficiency and satisfy voter demands. The result
of tax competition should be that the level of taxes reflects typical
preferences within each jurisdiction. Tiebout’s theory focused on local
governments, but with growing international flows of labor and capital,
national governments are becoming more like local governments as they
compete for taxpayers across national borders.
Rising
tax competition has caused governments to also adopt defensive rules to
prevent residents and businesses from enjoying lower tax rates abroad.
Defensive responses to tax competition include proposals to harmonize
taxes across countries and to restrict countries from offering tax
climates that are too hospitable to foreign investment inflows. Such
defensive responses are detrimental to progress as well as to tax
receipts... : http://www.cato.org/pubs/pas/pa431.pdf
Too much sloppy thinking concerns itself
with evasion. Low-tax
and notax environments offer many social benefits, writes Daniel J
Mitchell. Many “onshore” nations are tax havens, and this is a
good
thing. Tax havens, wherever they are based, promote good fiscal policy
and protect human rights. The anti-tax competition campaigns of
international bureaucracies, by contrast, are based on bad economics
and dubious morals. If high-tax nations want to reduce tax evasion,
they should fix their tax systems. Thanks to tax competition, this
process already is under way, but many politicians from high-tax
governments – particularly in Europe – are fighting to preserve their
uncompetitive welfare states. The narrow and selfish agenda of these
politicians should not be allowed to undermine the valuable role of tax
havens in the global economy.
ABSTRACT
"This paper
examines various arguments addressed in favour and against
tax competition. We pay attention to deӿnitional matters of tax rates
and bases, review empirical evidence concerning development of
corporate taxes in the EU and the OECD countries over last decades and
investigate whether anything suggests that there has been
interdependence in corporate tax rate setting across countries.
Furthermore, we recapitulate efforts done both by the OECD and the EU
to stop tax competition. Finally, we argue that tax competition is not
harmful and that it emerges as a means of constraining governments to
discipline." Number
2, 2006, New Perspectives on Political Economy, Volume 2, , pp.
86 – 115, by Dalibor Rohác, Evidence and Myths about Tax
Competition http://pcpe.libinst.cz/nppe/2_2/nppe2_2_3.pdf
The Economist
has an entire section on the "offshore" world
in the latest issue. Among the
key findings are that so-called offshore financial centers promote growth and
discourage wasteful government:
…the most
vexing problem that highly mobile financial flows pose for governments
is that
when they cross borders they may take tax revenues with them. …As
companies
become ever more multinational, they find it easier to shift their
activities
and profits across borders and into OFCs. …Financial liberalisation—the
elimination of capital controls and the like—has made all of this
easier. So has
the internet, which allows money to be shifted around the world
quickly, cheaply
and anonymously. …tax, regulatory and other competition is healthy
because it
keeps bigger countries' governments from getting bloated. Others argue
that OFCs
may be an inevitable concomitant of globalisation. "Even if today's
OFCs were
somehow stamped out, something like them would pop up to take their
place," says
Mihir Desai of Harvard Business School. Some academics have found signs
that
OFCs have unplanned positive effects, spurring growth and
competitiveness in
nearby onshore economies. …International organisations have launched
various
initiatives to try to get OFCs to tighten supervision, co-operate more
with
foreign governments to catch tax cheats and, at least in Europe,
eliminate
"harmful" tax practices. OFCs think such initiatives are designed to
force them
out of business. The countries that set these standards "are an
oligopoly trying
to keep out smaller competitors. They are both players and referees in
the game.
How can they be objective?", asks Richard Hay, a lawyer in Britain who
represents OFCs. …the broader concern over OFCs is overblown. Well-run
jurisdictions of all sorts, whether nominally on- or offshore, are good
for the
global financial system.
The FT
notes that tax competition between
nations encourages responsible behavior by the tax-authorities and that
low taxes promote growth. Unfortunately Europe's big-tax lobby will not be
satisfied until all such pro-growth tax policies are exterminated.The European Commission seems to
recognise no limits in its drive to
impose tax harmonisation across Europe. Having issued a sanction
against Luxembourg last July for its preferential tax regime on holding
companies, Brussels is now trying to put pressure on
a country outside
the European Union by targeting Swiss cantons' tax breaks
and low
business tax rates.
Such
a move, if it succeeds, will hurt not only the
Swiss but all taxpayers in Europe. Tax
competition gives you - the
entrepreneur or citizen - the opportunity to escape fiscal pressure
from your own government by moving to jurisdictions with more
favourable tax regimes. It gives strong incentives for all governments
to lower taxes, allowing taxpayers to keep more of their money and
making markets less distorted. Such
tax competition has existed for
some time in Europe and is being intensified by
globalisation. The EU harmonisation logic will inevitably lead EU
bureaucrats to attack other regimes that benefit taxpayers, be they in
the EU or outside. In Ireland, for example, the corporate tax rate is
lower than in Swiss cantons and in Estonia undistributed corporate
profits are simply not taxed. When can we expect pressure on Ireland to
raise its rates or on Estonia to repeal a system that has contributed
to its economic dynamism? Read
the FT essay here More concerns over Europe's
attempted Tax Cartel hereand hereand hereand here.....
Excellent
New Study on European Tax Cartel
The
European Tax Cartel and Switzerland’s Role
Most
European States
expect to record high increases in public spending, due to the lack of
adaptation of social dependency programs in the face of demographic
change. The taxpayers' fiscal exhaustion leads some Member States to
use the European Union to centralize and standardize tax systems in
order to render less competitive those countries deemed too attractive
for capital or residents, increasingly encouraged to "vote with their
feet
Tax
centralization at
European Union level progresses at a much faster pace than is generally
perceived. High minimal rates for the VAT, which represents more than
one third of all tax revenues, the standardization of excise taxes and
tariffs, the Savings Tax Directive and the project of a Common
Consolidated Corporate Tax Base for corporate income taxes are all
examples suggestive of the extent to which the European tax cartel is
already a reality. The EU makes use of such dubious concepts as
"harmful tax competition" or "fiscal state aid" in order to attack less
penalizing tax regimes, as in the case of the current tax dispute with
Switzerland.
Fiscal
diversity places
some limits on an excessive tax burden and thus favors capital
accumulation at the source of innovation and economic progress. It
leads to greater overall prosperity than under a standardized tax
regime. Tax competition is also an essential condition for
institutional innovation by allowing comparisons between countries and
the emulation of best practices. Finally, fiscal diversity is a
necessary bulwark for individual freedom and legitimate rights by
restraining the potential for abuse of the monopoly of force intrinsic
to the State and by making "voting with one's feet" easier. (Link to
full study below.)
If
we want to apply to Irish recipe to other countries, we should not use
the wrong ingredients. The Goldwater Institute identifies the key
features of the Irish growth.
In
the
mid-1980s, Ireland transformed its economy from a European backwater
into the “Celtic Tiger” by achieving impressive rates of economic
growth. Government non-interest spending declined, from a high of about
55 percent of gross national product in 1985 to about 41 percent of GNP
by 1990. The top Irish tax rate dropped from 65 percent in 1985 to 44
percent in 2001. The standard income tax rate dropped from 35 percent
in 1989 to 22 percent in 2001. All these measures increased Irish
wealth and reduced poverty. According to the Goldwater Institute, some
experts have been drawing the wrong lessons from Ireland’s economic
success in attributing it to subsidies in biotechnology. The Irish boom
began many years before these investments were made. In fact, these
subsidies may have harmed the growth. According to the author, the key
feature for Ireland’s sustained growth has been an increasing economic
freedom. Read the full
report here.
Ireland's economic boom and
explains that smaller
government and lower tax rates are the key reasons the nation's
explosive growth. Bureaucrats in Brussels and opponents of limited
government sometimes claim that subsidies from Brussels deserve the
credit, but advocates of this position are unable to explain why Greece
and Portugal (which received similar subsidies) have remained poor.
Tax
relief—particularly corporate tax relief—has played an indispensable
role in Ireland’s economic success. At present, Ireland has a
12.5 percent corporate tax rate, which has made it a magnet for
powerhouse firms: Google, Yahoo, Microsoft, and scores of other
companies have established their European headquarters in
Ireland. In 2004, then-Irish finance minister Charlie McCreevy,
who now serves as EU commissioner for internal markets, proudly
declared: “In Ireland, I have reduced the standard and top rate of tax
by 6 percentage points each since 1997 and have put in place measures
which have resulted in a situation where 35 percent of all income
earners are now outside the tax net.” In the same speech, McCreevy
urged envious nations calling for Ireland to raise its corporate tax
rate to mind their own business.
There
have been increasing signs of
optimism from European economy watchers. After some years in the
doldrums, with slow growth and rising unemployment, things appear to be
looking up: labor markets are more efficient; growth was good for 2006;
and the euro is doing well against the dollar after years of weakness
following its inception in 1999. However these promising signs must not
be misunderstood as indications of permanent improvement, for the
conditions that caused Europe's decline—rigid and inflexible markets,
too-high public spending, and excessive taxation—are still there. The
long-term survival of the European "social model," with its massive
welfare spending, will ensure that the continent will lag behind
America, much to the chagrin of the chauvinistic French, and the
Germans who seem to have forgotten the Erhard doctrine and the secret
of the success which once made Germany the world's third-biggest
economy... Although there once was a radical freemarket
tradition in France, this is now but a distant memory. Formal Marxism
might be dead, but it still casts a long shadow. read the essay
article here
Writing
in the Washington Times, Helle
Dale points to a recent OECD study which found that the EU and
other European countries are falling further behind the United States
as Europe's economy continues to stagnate. Among the key reasons for
Europe's economic woes are protectionist policies which favor national
companies at the expense of foreign competition. American politicians
who are intent on turning the clock back on free trade can learn a
valuable lesson: According the OECD Economic Survey of the
European Union (www.oecd.org/eco/surveys/eu), the EU and other European
countries are falling further and further behind the United States in
standard of living as the U.S. economy continues to outgrow those of
Europe.
The Mona Lisa, Leonado da
Vinci's oil painting from 1503 - and in excellent condition is perhaps
the most famous and most desired piece of art in the world. It is
property of the French state, and may come up for in five to ten years,
when France's doomsday of bankruptcy nears.
Other lines of thougt to finance France's unfunded pension debt go in
the direction of more discrete sale and lease-back formulas.
Indian financiers are reported to have made conctrete sale and lease
back proposals for both the Louvre Museum and Eifel Tower, which have
however been dismissed by Frensh officials as these were seen as the
greatest humiliation of France since the state last went bankrupt in
1720.
France is bankrupt and
can no longer afford to pay its workers generous salaries and
subsidies, its prime minister has declared. Francois Fillon
made the undiplomatic outburst during a trip to the French island of
Corsica, where farmers were demanding more government money. "I
am at the head of a state that is in a position of bankruptcy," he
said.
read here : http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/09/24/wfra124.xml
Public finances should be put on a
sustainable path so as to avoid large increases in taxes – and hence in
the excess burden of taxation – or brutal cuts in social programmes
when ageing related budget pressures rise. The HFC estimates that
public finances would be on a sustainable path if the structural budget
balance were increased to a surplus of 0.3% of GDP in 2007 rising to
1½ per cent of GDP over 2011-18 before slowly falling back to
zero by 2030 as the budget costs of ageing rise. Public debt would fall
from 97% of GDP in 2004 to 30% by 2030. Effectively, lower interest
payments make room for higher ageing-related budget costs on this
trajectory. There is still some way to go to put public finances onto
this path – taking into account announced measures and abstracting from
non-recurring transactions, the structural budget balance is projected
by the OECD to be a deficit of around ½ per cent of GDP in 2007,
similar to the estimated current level. The government should take
consolidation measures to increase the structural budget balance
(abstracting from non-recurring items) by about 1% of GDP by 2007 so as
to put public finances on a sustainable path. In view of Belgium’s
already high tax burden and the adverse effects that this has on
economic activity, the priority should be given to expenditure
restraint in budget consolidation
The IMF and the Itenera Institute
caution the Danish reality is bleaker than it appears. In the
latest edition of their bi-annual study of Westen social models, the
Brussels Free Institute for Economic Research found Danish performances
deplorable. Obligate employment in low-productive jobs ruins
productivity and leads to social regression. They warn flexicurity is a
painfull and totally useless exercise and that the social cost is high.
Flexicurity means late retirement, early school leave, loss of job
security, shrinking leisure and time for a decent family life and
lacking opportunity for the children's education. Flexicurity is not an
economic miracle nor the social paradise some want us to beleive. The
institute found the Irish model by far the best performing alternative.
Hard working Yuppies have no time to think.
Whenever they
get a few days off, their suitcases are packed to fly to Ibiza for a
weekend-party or for some pro-active off-road Hummer-adventure. Their
vacations are as hectic as their jobs. So even then there is no
opportunity to reflect on their lifestyle. This is a vicious circle:
pressed by the mass media and the advertisement industry the young
professionals do not get the chance to question their cultural image of
normality. Politicians
do not have the courage to tackle the squandering either.
Rather than simply taxing energy consumption they create a new
bureaucracy with thousands of inspectors and technicians to promote
‘ecological’ technology. A CO2tax
is much more simple and effective. Let the polluters pay the ecological
cost of their squander. High fuel prices can stop the madness and
encourage research without new bureaucracy. ...continue
reading Martin De Vliegere's analysis here...
Increasing
taxes on pollution and
resource use while lowering taxes on
income and wages is a powerful new tool for protecting the environment,
reports a new study from the Worldwatch Institute titled Getting the
Signals Right: Tax Reform to Protect the Environment and the Economy.
Such a tax shift could also create millions of jobs and boost living
standards of the working poor.
Countries around the world are now
experimenting with environmental
taxes, says the report, which documents how five nations have made
revenue-neutral "tax shifts," using the money from environmental taxes
to cut the conventional taxes that penalize work and investment. Continue reading the
Worldwatch views here. (Worldwatch is an Independent
research institute for an environmentally sustainable and socially just
society.)
In
this eye-opening documentary viewers will discover how the most
respected researchers from all over the world explode the doom and
gloom of global warming. Humans stand accused of having set off a
global climate catastrophe by increasing the amount of carbon dioxide
in the atmosphere. The prophecy of doom is clear and media pass on the
message uncritically. Now serious criticism has arisen
from a
number of heavyweight independent scientists. They argue that most of
the climatic change we have seen is due to natural variations.
Western
Europe and the United States are wealthy. Both achieved this
because of sensible policies and institutions. While much of the world
was and
still is crippled by the absence of functioning market economies,
Europe and the
United States have enjoyed remarkable growth thanks to property rights,
the rule
of law, and minimal government.
However over the last decades some European
nations allowed the burden of government to climb to depressing levels.
Government spending consumes more than 50 percent of GDP in
France and Sweden and more
than 45 percent in Germany and Italy.
Their
poor performance
provide useful lessons
about the economic
consequences of bigger government,
and these lessons suggest that also America is
on the wrong
track. The most important lesson to be learned is that GDP is linked
to policy.
Even a cursory review of
European economic performance shows
that excessive government has
serious adverse
effects: slower growth, higher
unemployment, lower living standards, and a bleak future. Bluntly
stated, the
United States is in danger of becoming a decrepit
welfare state like France. Find out
more here at :
Judging
by the pot-holes, rusting street lamps, broken traffic lights and
pencil-thin residents of Harare, Zimbabwe's capital city, the former
model of an African economy is at the end of its
tether. The water supply
fails in much of Harare as frequent electricity cuts
hit. With each
passing month the city is darker, a bit more decrepit and home to more
child-beggars. Those with jobs are forced to walk for hours to get
home, as wages no longer cover the cost of public transport. Hunger is
spreading. Life expectancy has dropped to roughly 35 years as AIDS and
lack of food bite. More families skip meals entirely. Political tension
is rising high: divisions in the ruling Zanu-PF party; a series of
violent attacks by police on the opposition Movement for
Democratic
Change this month ....
One
more very sad example confirming Hayek"s law:
when dictators rule the economy rather than free markets
they only
create create artificial scarcity, inflation, and price- and market
distortions, economic stagnation and ultimately political
instability....
In a
report on the Swedish economy, the Oecd the notes the problems
of
Sweden's high tax rates and excessively generous welfare
benefits. It
calls for the elimination of the wealth tax and reductions in punitive
marginal tax rates. It even suggests that Sweden abolish
the state
income tax alltogether.
Sweden's new government has will stick
to the target for general
government net lending of 2% of GDP over the cycle which is necessary
to keep public finances on a sustainable path. Underlying this target
is the assumption that taxes can be sustained at current levels which
could be difficult in the future, not least due to mobile tax bases and
international tax competition.
The share of 20 64 year olds who depend
on public income transfers has
declined to 20% in 2006, but it remains much too high. Sickness absence
among those employed and the number entering disability pension
increased rapidly from the late 1990s. The numbers are now falling,
although the stock of disability pensioners remains among the highest
in the OECD.
Letting people keep a bit more of the
value they create is vital to
encourage both labour supply and entrepreneurship. The plans to abolish
the wealth tax should therefore be endorsed as it might lead to
repatriation of capital, possibly making more investment capital
available for new small firms. Marginal income taxes are also
important. The combination of social contributions, income and
consumption taxes drives the effective marginal tax rate above 70% for
over a third of the full-time employed, helping to explain why working
hours for those employed are below the OECD average. In fact,
completely abolishing the state income tax would cost just 1½
per cent of GDP.
Big
Public Spending means
poor Growth. Slow
Growth
results in Poverty.
These
are the key findings from our research
confirming the results of earlier
studies such as this
which compared the growth differentials of 30 OECD countries
over 45 years (
over 1000 data-pairs !!! )
Suggestions
and help welcome - Please give us a link on your webpage
The monetary union
drives the EU toward further political
integration. It sets in motion forces that are difficult to control
probably ending in a United States of Europe, a real federal
state with a central fiscal, social, educational, trade and foreign
policy. Martin De Vlieghere explains why this will likely happen, why
it is better to stop this development but why it is so difficult to
stop, and what the
history learns us about earlier monatary unifications.
It
could still go the other way. This means broadening
the European Union, but not deepening it, by accepting additional
member states (the more the better) without abandoning the veto-right
of each member state in matters such as fiscal and social
harmonisation. The ten new member states have had a beneficial effect
on European politics. They have caused mounting pressure to reform the
Common Agricultural Policy. Since the Poles joined, for instance, their
agriculture has gained access to an enormous market and it will grow
enormously. There are no physical restraints to the expansion and the
productivity rise in Polish agriculture. But under the current CAP
rules the numerous Polish farmers and the emerging big industrial farms
will devour the entire European budget. European agricultural policy
will simply collapse if it is not changed drastically. Continue reading.printerfriendly
version
The
introduction of the Euro was an erroneous policy inspired by Europe's
haughty ambition speed up integration and to catch up with the US.
Europe's economies were unsufficiently synchronised for
justifying a common monetary policy. Today the consequences of
this political gamble disregarding economical reality are dramatic. 7
years only after the launch of common currency, European economies have
seriously grown apart. In just 7 years a fast modernising country like
Ireland gained 37% in competitivity relative to the OECD average,
whilst Italy lost 19%. This adds up to an intramonetary union
difference in competitivity gain of 57%. In a system with national
currencies the Lira would have continued its long term tradition of
depreciations and Italy would have maintained its competitiveness. With
this option now excluded, and international labour mobility lacking
Italy faces the risk of a deep depression if it stays inside the EMS.
Unable to set interest rates at an appropriate level for its fast
growth, Ireland now risks run-away inflation, and a sudden and sad end
to its uninterrupted quarter century success-story of fabulous
growth. ..... Find out more here
The
population in Europe is aging and declining. A trend that could have
been perfectly manageable with foresight could turn into a catastrophe
given the increasing unfunded liabilities arising from pay-as-you-go
(PAYGO) public pension programs, now more than 200 percent of GDP in
France and Italy, and more than 150 percent of GDP in Germany. This
situation is especially difficult in a continent where entitlements are
deeply entrenched in a welfare state culture. The European
Commission
recently stated, "There is a risk of unsustainable
public finances in some half of EU countries. Belgium, Germany, Greece,
Spain, France, Italy, Austria and Portugal are on this black list."
EMU countries with Unfunded
pension schemes may want to follow the old Latin American
recipe—namely, devaluation, so that the ensuing inflation reduces the
purchasing power of benefits. But "Funded EMU countries " will probably
oppose devaluing the euro. A clash may ensue amidst the centers of
decisionmaking in Europe, especially within the board
of the European Central Bank.
So, the PAYGO pension system could turn out to be one of the gravest
threats to the single European currency.
In this paper
the European Central Bank (ECB) studies the performance and the
efficiency of the public sectors of 23
industrialised OECD countries. They compute public sector performance
(PSP) and efficiency
indicators (PSE) for the government as whole and for its core functions. When
deriving performance indicators they distinguish the role of government in
providing "opportunities" and a level playing field in the market process and the
traditional "Musgravian" tasks of government. The results
for Belgium are remarkable: Although
Belgium has the second best industrial productivity in the
world, it has the third worst public sector efficiency....
Lawrence Reed explains how Governments and the Central
Bank catastrophically
mishandled a moderate slowdown of the business cycle, and so caused a
mild recession to
degenerate in the full blown 1929
financial crisis. He explains how the excessive money supply in
the late
twenties first caused the reckless stock market mania and a generalised asset
bubble. When the Fed finally decided to slow the asset inflation they unexpectedly contracted the money supply by a massive
1/3 in six months from August'29
till March'30. The market reacted most vigorously. Stocks plummeted
and asset
prices crashed. Governments then tried to remedy the
accelerating recession by raising import duties, causing reprisal trade bareers by
trading partners. The new tariffs slowed down international trade,
boosting unemployment. Facing declining revenues and increasing wefare
demands
President Hoover doubled income taxes in his 1932 Revenue act. In 1933,
Roosevelt
symply seized peoples gold holdings, abandoned the gold standard, and
devalued
the dollar with 40%....
It was
in deed not free market failure which produced the 1929
depression. It was political bungling on a grand scale, with the one policy blunder succeeding the other: tradecrushing
tariffs, incentive-sapping taxes, mind-numbing controls on production
and competition, senseless destruction of crops, coercive labor
laws and not in the least the FED's mismanagement. The social cost of the political blunders
was the severest crisis in history.
Stocks fell
to 10% of their pre-crash value, income fell by 28%, car
production fell by 75%, banks failed in record numbers, dragging down
hundreds of thausends of customers. 13 million unemployed in the
US causing rumors of revolt even.
The
author also impressively describes how massive public spending in Roosevelts' New Deal and the excessive dirigism in the National Recovery Act (NRA)rather than remedying the 1929 crisis, prolonguedit well into the fourties.
"Denmark
is a country where few have too much, and even fewer have too little".
They seek to equalize the masses and prevent the accumulation of
wealth. This is presented as a noble cause. The failure of this thought
is what incentive to build and grow a business, take risk, does the
individual have in a society that both prevents his failure and limits
his success? The great success of America is the unlimited ability to
succeed. The ability to fail and succeed are as important to life as
air. Socialists in general apparently abhore risk. Hence they move to
create a risk free Utopia when in reality there is no such beast. I for
one would forgo all saftey nets for the chance to achieve greatness.
One final thought, name one great economic industry or product
innovation to come from Denmark? Which countries bring forth the latest
innovations, technologies, medicines? The free market is equality of
opportunity. Socialism is equlity of outcome and misery.
Europe's
social model is unable to tackle the modern challenges of
globalization, and has left Europe with gigantic problems: an
unsurmountable public debt and pension liabilities, a rapidly ageing
population, 19 million unemployed, and an overall youth unemployment
rate of 18%. The unemployment figures may easily be doubled to account
for hidden unemployment. The untold reality is that Europe's real
unemployment stands at the level of the 1932 Depression. The very
essence of the welfare state is at stake. A man-made
Disaster : Europe's social disaster is
unfolding while the rest of the world is booming at its fastest rate in
three decades. 2004 and 2005 were record years for China and India,
which have double-digit growth rates, and for the USA, which fully
enjoys the benefits of globalization. The world's economy is booming at
an average rate of over 4%, but Europe's growth has stagnated at an
inflated 1.5%.
There
are two economic systems in the West. Several nations--including the
U.S., Canada and the U.K.--have a private-ownership system marked by
great
openness to the implementation of new commercial ideas coming from
entrepreneurs, and by a pluralism of views among the financiers who
select the
ideas to nurture by providing the capital and incentives necessary for
their
development. Although much innovation comes from established companies,
as in
pharmaceuticals, much comes from start-ups, particularly the most novel
innovations. This is free enterprise, a k a capitalism.
The other system--in Western Continental
Europe--though also based on private
ownership, has been modified by the introduction of institutions aimed
at
protecting the interests of "stakeholders" and "social partners." The
system's
institutions include big employer confederations, big unions and
monopolistic
banks. Since World War II, a great deal of liberalization has taken
place. But
new corporatist institutions have sprung up: Co-determination (cogestion,
or Mitbestimmung) has brought "worker councils" (Betriebsrat); and
in Germany, a union representative sits on the investment committee of
corporations. The system operates to discourage changes such as
relocations and
the entry of new firms, and its performance depends on established
companies in
cooperation with local and national banks. What it lacks in flexibility
it tries
to compensate for with technological sophistication. So different is
this system
that it has its own name: the "social market economy" in Germany,
"social
democracy" in France and "concertazione" in Italy...
The
time has come for Europeans to ask themselves the unthinkable: can
their vaunted social model endure? Something is
rotten in the state of western Europe.
The continent retains valuable assets from the past. But these are
showing symptoms of decay. The underlying cause seems increasingly
evident: the hypertrophy of the state. Symptoms are not hard to find:
this is a continent of high and persistent unemployment, declining
productivity growth, rapid ageing and growing fiscal strains; it is
also one whose once-proud role in knowledge-creation is in
decline.
But in one respect, western Europe
remains pre-eminent: its states are the taxand-spend champions of the
world. This is the heart of the European model. But it is no model for
well-informed outsiders.
Maybe they can see what Europeans will not.
The European state is maternal: protective but also infantilising. Its
high taxes and benefits discourage anybody from doing too well, while
ensuring that nobody does badly. Its services are available to all, but
are also mediocre and inflexible.
It is an example of what the journalist Andrew Neill, following
Friedrich Hayek, calls the "fatal conceit": the view that society can
be rationally planned and directed.
One year after the NO-vote: Two thirds of
Frensh and Dutch voters want to either take back powers from the EU or leave it
altogether.
According to a new poll,
around two thirds of voters in both France and the Netherlands want to either take back powers from the EU or
leave it altogether. Detailed opinion polling
immediately after the Dutch referendum revealed that the top seven reasons given for voting no all
reflected opposition to deeper integration and opposition to losing control. The top
three reasons people voted no were over fears that "the Netherlands will have less
influence under the Constitution" (54%), that "large countries will determine the future
of Europe" (52%), and that "politicians will take decisions over our heads" (42%).
Results of the poll :
The ECB
names Ireland and Spain as examples of successful expenditure reforms
and concludes: "further expenditure reforms are needed in many
countries to reduce the level of spending on non-core tasks of the
public sector, enhance the efficiency and incentive effects of public
spending and prioritise productive objectives within public sector
activity. Spending reductions would alleviate fiscal imbalances while
also allowing for lower taxes. Such measures would support
macroeconomic stability, promote growth and create a better environment
for price stability."
read more: ECB Monthly bulletin page
61-73
"America's social model is flawed, but so is France's,"
the Parisian
newspaper Le Monde recently wrote. According to Le Monde Europe should
adopt the "Scandinavian model," which is said to combine the economic
efficiency of the Anglo-Saxon social model with the welfare state
benefits of the continental European ones. The praise for the Nordic model comes from
Bruegel, a new
Brussels-based think tank, "whose aim is to contribute to the quality
of economic policymaking in Europe." The think tank is a Franco-German
government initiative and is heavily funded by EU governments and
corporations. In October Bruegel published a study
In 1970, Sweden's level of prosperity was one quarter above
Belgium's.
By 2003 Sweden had fallen to 14th place from 5th in the prosperity
index, two places behind Belgium. According to OECD figures, Denmark
was the 3rd most prosperous economy in the world in 1970, immediately
behind Switzerland and the United States. In 2003, Denmark was 7th.
Finland did badly as well. From 1989 to 2003, while Ireland rose from
21st to 4th place, Finland fell from 9th to 15th place. Together with Italy, these three
Scandinavian countries are the worst
performing economies in the entire European Union. Rather than taking
them as an example, Europe's politicians should shun the Scandinavian
recipes.
Retirement Finance Reform Issues
Facing the European Union by
William G. Shipman
Changing demographics are forcing countries around the world to
reexamine their public pension systems. The EU nations are among those
facing the greatest social, budgetary, and economic challenges as a
result of their aging populations. Therefore, EU members will be forced
to rethink their public pension programs and move away from traditional
pay-as-you-go (PAYGO) pension models to new systems based on savings
and investment. Given
demographic trends, the current PAYGO pension plans of EU member states
are unsustainable. Major
reform is, therefore, inevitable. This paper examines many of
the issues involved in reforming European pensions and reaches the
following conclusions:
1. Long-run data from many countries
show that the yield on market assets is sufficient
to provide adequate retirement income at a reasonable cost. Indeed,
such income is likely to be significantly higher than income that can
be provided through PAYGO systems.
2. A market-based system would not necessarily reduce the
redistribution that some Europeans consider an important characteristic
of EU pension programs. Moreover, those programs may be far less
redistributive than commonly believed.
3. Moving to a market-based pension system can help promote labor
market flexibility by more closely linking contributions and benefits.
In addition, a market-based system would eliminate incentives for older
workers to leave labor markets prematurely.
4. Although transition financing would be a complex issue, it is
cheaper to move to market-based systems than to continue current PAYGO
systems. It is possible to design a transition scenario that is a
winwin situation for all generations. Administrative costs in a
market-based system can be kept low. Market-based systems would
increase asset ownership and give workers greater control of the
wealth-producing assets of
society.
Full
text of
SSP No. 28 (PDF, 24 pp, 232 Kb)
The dogmatic belief that loose monetary
policy can boost economic growth is increasingly being questioned. Ever more
empirical evidence is In deed pointing at total ineffectiveness of
monetary
policy. Two decades of close to zero interest rates in Japan
and
Switserland have been unable to stimulate their
sluggish growth. Since over 30 years, Nobel-prize winners Friedman,
Lucas
and Phelps are expressing their doubts about the effectiveness of
easy money policy.
Most remarkable are
the recent empirical findings by prof. J-P. Chevallier
(2006). Chevallier found
that "Excess Money Supply"
(EMS: Growth of the Money
Supply M3 in excess
of the growth rate of the real economy) has a most remarkable
inverse relation to
the real economy's growth rate. High EMS coincides with low growth.
Chevallier's
study is based on over 550 data pairs covering 47 years of US monetary
history
from 1960 till 2006. read more here ....
by Matthew Bishop, Liam Halligan, L.
Jacobo Rodríguez,
(2006)
We are facing a demographic time bomb: by
2050, there will be 2 workers to
every 1 retired person in most European countries. In some countries
that ratio
will be 1:1. The harsh reality is that current pay-as-you-go pension
systems are
simply financially, economically and socially unsustainable - without
reform,
pensioners will bankrupt the welfare
state.
It is time to defuse the pensions time bomb. This timely book offers
Europe a way ahead
The present Governor of the Bank of England, Mr Mervyn King, once
observed that "Central banks are often accused of being obsessed with
inflation. This is untrue. If they are obsessed with anything, it is
with fiscal policy."[1] I would not go quite as far as to call it an
obsession. But it is certainly true that central bankers in general,
and European central bankers in particular, take a close interest in
public finances. And this is hardly surprising. Perhaps it is not by
chance that having a strong public finance background -experience
either in academia or in government, or in both - is not uncommon
amongst central bankers.
I
would not elaborate
more on whether and how the professional career of central bankers
affect their interest in public finance issues. ....
Speech
by José Manuel González-Páramo, Member of
the Executive Board of the ECB. Universidad Complutense Madrid, 13 May
2005.
As Britain
watches the birth of the Euro and euro-integrationists advocate Britain
joining euro-land as soon as possible it is surely time for an honest
debate to begin? Many have forgotten the personal suffering and the
huge disincentives to enterprise and investment induced by a culture of
high taxation. They need to remember fast, before advocating such a
colossal folly. Whether by accident or design, many have misled
when explaining the meaning of EMU and the emergence of a European
Single Currency. EMU does not stand for European Monetary Union, as
they have tended to suggest, but instead stands for Economic and
Monetary Union. This is a crucial error to make and neglects one of the
key effects of the introduction of EMU: the harmonisation of nations'
economic and monetary policies and ultimately of fiscal and taxation
policies. As the current president of the Bundesbank, Hans Tietmeyer,
remarked in October 1995 "it is an illusion to believe that the States
will retain their independence in fiscal policy."
Economists and politicians agree that
Europe's economy has been suffering from a serious disease. In
2000 the Lisbon Agenda
identified
the symptoms of this disease – high unemployment and low economic
growth. In his presentation Peter mach argues
that the Lisbon Agenda misunderstood the real cause
of the underperformance of European economy, and therefore prescribed
wrong treatment..
Recently, I was invited
by the Ludwig von Mises Institute Europe to address an audience on what
Friedrich von Hayek would have thought about the enlargement of Europe.
I decided to reread his classic, The Road to Serfdom. Old hat, of
course, because since Francis Fukuyama's The End of History and the
Last Man, we know that after the collapse of the Berlin Wall,
capitalist liberal democracies are the end-state of the historical
process. So there is nothing to worry about. Yet, even before finishing
the introduction (by Milton Friedman) and the (three) prefaces of
Hayek's magnum opus, I realised that I was completely wrong. The Road
to Serfdom still contains insights that today are as visionary and
relevant as when they were published for the first time in 1944.
Imagine the
Zeitgeist of the thirties and forties! The free market economy was
under siege, because it was believed to generate chaos with its
business cycles and monopoly power. The planned society envisaged under
socialism was supposed to be not only more efficient than capitalism,
but socialism -- with its promise of social justice -- was expected to
be fairer. It was considered the wave of the future. Only a
reactionary, it was argued, could resist the inevitable tide of
history. In this context The Road to Serfdom appeared with a seemingly
anachronistic message.
But the
message was not obsolete. It had a profound impact on the development
of our economies and societies at large. In his recently published book
European Integration, 1950 - 2003, Superstate or New Market Economy?,
the American historian John Gillingham reveals that a few years before,
in 1939, Hayek published an article on a (classical) liberal project
for the integration of Europe. That is why Gillingham ranks Hayek
alongside Jean Monnet and many others as one of the founding fathers of
the new era..... read
more here
The burden of the welfare state may be analysed from an economic as
well as a more normative perspective.
This paper attempts to do both things. By the use of the case of Sweden
the expansion and the costs of the welfare state is described, partly
in international comparison, and explained, largely in terms of
unintended consequences.
Special attention is given to the effects of taxes. Next, the concept
of dignity is explicated and used to evaluate the Swedish welfare
state. The overall conclusion is that the burden of the welfare state
is high indeed, both in economic terms and from the perspective of
human dignity.
Consequently, if we want to promote economic efficiency, growth and
dignity the size of the state should be radically decreased.
Quando se
fala
do peso excessivo do Estado, imediatamente quem def(p)ende (d)a sua
existência clama que se responda, sem ambiguidades, qual deve ser
a dimensão do Estado. Vou hoje fazer algumas reflexões
sobre essa matéria, sublinhando todavia que não é
um problema de solução única. A
solução depende da eficiência do próprio
Estado, da «qualidade» do sistema fiscal e do
projecto que se tem para o país: Qual o doseamento entre
desenvolvimento e
igualitarismo.
Como eu
escrevi há
dias «Sem a existência de um governo suportado num
aparelho estatal está
instalada a anarquia e não é possível uma
actividade económica sustentável, nem
há condições para o progresso económico e
civilizacional.». Ou seja, se a
despesa pública fosse 0% (ou não houvesse impostos), a
receita fiscal seria 0 e
o PIB seria nulo. Haveria produção, para
subsistência, mas esta não teria
expressão monetária, visto que «a ameaça
de expropriação é real e
permanente. A actividade económica reduz-se à
subsistência». Esse seria o
limite inferior.
À
medida
que as taxas de imposto vão aumentando, os bens e
serviços públicos essenciais ao funcionamento normal do
mercado vão sendo disponibilizados – justiça, defesa,
infra-estruturas básicas, educação básica.
Nesta zona os efeitos destes aumentos em eficiência produtiva
vão contrabalançando os efeitos desincentivadores das
taxas de imposto para a actividade
económica.
A
Dimensão do Estado.....
Is
the European "social model" doomed? It's a question that
comes up with
increasing frequency as unemployment across Western Europe has climbed
into the double digits and economic growth has ground to a virtual halt
across much of the Continent. Updated GDP figures for the euro
zone came out last week, and growth in the first quarter was a
disappointing 0.5%. Last month both the European Commission and the
European Central Bank cut their annual growth forecasts for the euro
zone to 1.6% from 2%, and that ugly word recession is in the air.
The
Nobel committee credits Phelps for clarifying the relationship between
inflation and unemployment. Indeed, he did make a contribution in this
respect. What he did not do is what most economists credit him for
doing: identifying the true causes behind the phenomenon of stagflation.
The
phenomenon of stagflation is characterized by the simultaneous
occurence of a strengthening in the growth momentum of prices and a
decline in real economic activity. A famous case of stagflation
occurred during the 1974 — 75 period. In March 1975, industrial
production fell by nearly 13% while the yearly rate of growth of the
consumer price index (CPI) jumped to around 12%. Likewise a large fall
in economic activity and galloping price inflation was observed during
1979. By December of that year, the yearly rate of growth of industrial
production stood close to nil while the rate of growth of the CPI stood
at over 13%.... read more here....
This
paper shows that excessively large government has reduced economic
growth. These findings present a compelling case that rather than
devising new programs to spend any surplus that may emerge from the
current economic expansion, Congress should develop a long-range
strategy to reduce the size of government so we will be able to achieve a more rapid rate of
economic growth in the future.
The expansion of the U.S. economy has now moved into its eighth year
and it has been 15 years since there has been a major recession.
Despite this positive performance, the growth of real GDP in the 1990s
is less than half the rate achieved during the 1960s. In fact, the
average growth rate of real GDP has fallen during each of the
last three decades. The economies of other developed nations have
followed this same pattern of more stability, but less rapid growth.
The OECD
countries currently spend 15 percent of GDP or less on the
core functions of government-protection of persons and property,
national defense, education, monetary stability, and physical
infrastructure. When governments move beyond these core functions, the
empirical evidence indicates that they retard economic growth. The
reduction in GDP growth rates in the United States and in many nations
around the world can be traced directly to their increases in
government expenditures far in excess of the growth-maximizing
level.
Taxes and Economic
Growth November
2006
by Gerald W.
Scully Senior Fellow National Center for Policy Analysis
New study shows high cost of big
government. A thorough new study from the National Center for Policy
Analysis concludes that the size of government is far above the
growth-maximizing level. That's the good news. The bad news is that the
study indicates that the growth-maximizing level of taxes is 23 percent
of GDP. This almost surely is an overstatement, especially since it
implies that Hong Kong today would grow faster by increasing its tax
burden, or that the United States would have grown faster before World
War I by doubling the tax burden. In reality, studies such as this are
constrained by the absence of good data from nations with small
governments for the unfortunate reason that such nations no longer
exist. As such, statistical studies looking at the growth-maximizing
size of government generally conclude that it should be about the size
of the smallest governments in existence during the periods covered by
the study:
Beyond some minimum level, however, government becomes a net drain on
the economy. Empirical evidence shows that as the tax burden rises
beyond a certain level, the rate of economic growth slows. As
government grows, money flows to less productive projects (think
"bridges to nowhere"), and taxes are increasingly used to redistribute
income through transfer payments (such as Social Security and Medicare)
and to fund myriad special interest group projects. Whereas private
decision-makers tend to make decisions based on economic costs and
economic benefits, elected offi cials tend to make decisions based on
political costs and political benefi ts (as refl ected, for example, in
votes, campaign contributions and so forth). High tax rates reduce the
incentives of taxpayers to produce, while benefi ciaries of government
largesse are discouraged from additional effort. ...To maximize
economic growth, federal, state and local taxes combined should average
about 23 percent of gross domestic product (GDP). Tax revenues as a
share of GDP have not been at that level since 1950, and for years have
averaged between 30 percent and 34 percent of GDP. Real GDP increased
at a compound growth rate of 3.5 percent per year from 1950 to 2004. If
instead of rising to 30 percent and more, an average tax burden of
about 23 percent of GDP had been in effect throughout the 54-year
period, the growth rate would have been 5.8 percent per year
.
There
is a vast empirical literature investigating the relationship between
government size and economic growth. But the empirical evidence of
growth effects of public expenditure using cross-country regres-sions
is still inconclusive. According to a number of authors this is not
surprising since the negative rela-tionship only applies for rich
countries with a large public sector. Restricting their analysis on
rich coun-tries only they can show the predicted negative impact.
Naturally, a selection of a sub-sample of rich countries is always
somewhat arbitrary. Another possibility is to concentrate on
governments within a rich country. However, only few studies
investigate the effect of state and local spending on economic growth.
This paper concentrates on the relationship between public expenditure
and economic growth within a rich country using the full sample of
state and local governments from Switzerland over the 1981-2001 period.
The general finding is a fairly robust negative relationship between
government size and economic growth. However, in contrast to public
spending from operating budgets there is no significant impact on
economic growth by expenditure from capital budgets.
Growth
theory is an important part of modern macroeconomics. The analysis of
growth has long been based on the Solow (1956) "growth accounting"
approach, also termed as neo-classical growth theory, which has two
important predictions about growth in the long run. These predictions
are that economic growth occurs as a result of exogenous technological
change, and that income per capita of countries will converge. Since it
is presumed that all determinants of growth are exogenous, it is
obvious that government policy cannot affect growthrates, except
temporarily during
the transition of economies to their steady state. Consequently, the
role of government in growth process was usually not investigated in standard neo-classical growth models.
Empirical work
on the
determinants of economic growth seems to present strong evidence that a
large government sector negatively affects economic growth. This result
has been confirmed in numerous studies (e.g., Barro (1991), Engen and
Skinner (1992), Hansson and Henrekson (1994), Gwartney, Holcombe and
Lawson (1998), Fölster and Henrekson (2001)). More specifically,
in
recent studies, the negative impact of government size on factor
productivity and capital formation has been stressed, resulting also in
lower economic growth.
New
!!!
Now free on-line:
2006- Update of our Main Study
comparing Effectiveness of European Social Models
The
Path To Sustainable Growth Lessons
From 20 Years Growth Differentials In Europe Martin
De
Vlieghere and Paul Vreymans
Abstract:While the rest of the world is booming, Europe lags behind.Europe's
performance is weak in
spite of high productivity and knowledge, high level of
development and good labour ethics. Growth is also remarkably
dissimular among regions. France, Germany and Italy are stagnating, and
so do Denmark,
Sweden and Finland. All gained less than 44%
prosperity over the last 20 years. The Irish
economy grew 4 times faster, gaining 169%
wealth over the same period. In half a generation Ireland so
metamorphosed into Europe's second
richest country creating jobs for all. " Big
government " is the main
cause of Europe's weak performance. The oversized Public-Sectorlacks
productivity and undoes
the
entire productivity gains of the Private
Sector, eradicating
all of its outstanding performance and
productiveness. Europe can improve its overall performance by copying
the Irish
success formulas: Scaling down Public Spending, downsizing
bureaucracy, and shifting the tax burden
from
income on
consumption. This book demonstrates why the Lisbon
Agenda and decades of Keynesian inflationist demand stimulation have
failed. It devellops alternative and workable
supply-side strategies as well as effective cures
for humane growth and a financially sustainable social
security. This book reads as a
step-by-step manual for economic
recovery.
It is a data-reference for students and politicians
interested in growth, wellfare and in social modelling. It is a
classic
for economists concerned about Big
Government, poor public sector productivity and for parents worrying
about their declining standard of living and their children's future.
My
views on government spending can be summarizedby the following parable:
If you spend your own money on yourself, you are very concerned about
how much is spent and how it is spent. If you spend your own money on
someone else, you are still very much concerned about how much is
spent, but somewhat less concerned about how it is spent. If you spend
someone else's money on yourself, you are not too concerned abouthow
much is spent, but you are very concerned about how it is spent.
However, if you spend someone else's money on someone else, you are not
very concerned about how much is spent, or how it is spent.
Milton Friedman.
Business
& Economics 
Analysis Behind and
Beyond Government Economic Reporting 
The
single greatest danger to human life is the centralized political
State, who extinguished more than 170 million souls during the
bloodiest rampage in recorded history. Modern States are the last and
greatest remaining predators. The danger has not abated with the demise
of communism and fascism. All Western democracies currently face vast
and accelerating escalations of State power and centralized control
over economic and civic life. In almost all Western democracies, the
State chooses how children are educated, the interest rate
citizens can
borrow at, the value of currency, how employees can be hired and fired,
how more than 50% of their citizens’ time and money are disposed, when
to go to war, who can live in the country, where we can build our
houses etc...Most of these intrusions into personal liberty have
occurred over the past 90 years. States are parasites which always
expand until they destroy their
host population. Most
people are
comfortable with the idea of reducing the size
and power of the State. Most
become uncomfortable with the idea of getting rid of it completely. It
could be done and make us all hapier and
wealthier... 
Before
government hijacked charity in the form of the New Deal and Great
Society, compassion and charity began at home. People were to feed the
hungry, clothe the naked, visit prisoners, care for widows and orphans
and love their enemies. Those were biblical commands to individuals,
not government. 
To find out whether the
present financial crisis annex real estate bubble and hedge fund
collapse will remain confined
to a minicrash or whether more turmoil is still to come, the authors
investigate whether the deeper causes leading to the crisis are now
remedied. The credit crisis is
the school model of malinvestment
resulting from exorbitant credit expansion. Runaway
money supply during the boom and
highly underrated inflation disturbed the correct pricing of the risks
of credits and lead to a credit mania. 
Ireland's economic boom and
explains that smaller
government and lower tax rates are the key reasons the nation's
explosive growth. Bureaucrats in Brussels and opponents of limited
government sometimes claim that subsidies from Brussels deserve the
credit, but advocates of this position are unable to explain why Greece
and Portugal (which received similar subsidies) have remained poor.
Judging
by the pot-holes, rusting street lamps, broken traffic lights and
pencil-thin residents of Harare, Zimbabwe's capital city, the former
model of an African economy is at the end of its
tether. The water supply
fails in much of Harare as frequent electricity cuts
hit. With each
passing month the city is darker, a bit more decrepit and home to more
child-beggars. Those with jobs are forced to walk for hours to get
home, as wages no longer cover the cost of public transport. Hunger is
spreading. Life expectancy has dropped to roughly 35 years as AIDS and
lack of food bite. More families skip meals entirely. Political tension
is rising high: divisions in the ruling Zanu-PF party; a series of
violent attacks by police on the opposition Movement for
Democratic
Change this month ....
The monetary union
drives the EU toward further political
integration. It sets in motion forces that are difficult to control
probably ending in a United States of Europe, a real federal
state with a central fiscal, social, educational, trade and foreign
policy. Martin De Vlieghere explains why this will likely happen, why
it is better to stop this development but why it is so difficult to
stop, and 
The
introduction of the Euro was an erroneous policy inspired by Europe's
haughty ambition speed up integration and to catch up with the US.
Europe's economies were unsufficiently synchronised for
justifying a common monetary policy. Today the consequences of
this political gamble disregarding economical reality are dramatic. 7
years only after the launch of common currency, European economies have
seriously grown apart. In just 7 years a fast modernising country like
Ireland gained 37% in competitivity relative to the OECD average,
whilst Italy lost 19%. This adds up to an intramonetary union
difference in competitivity gain of 57%. In a system with national
currencies the Lira would have continued its long term tradition of
depreciations and Italy would have maintained its competitiveness. With
this option now excluded, and international labour mobility lacking
Italy faces the risk of a deep depression if it stays inside the EMS.
Unable to set interest rates at an appropriate level for its fast
growth, Ireland now risks run-away inflation, and a sudden and sad end
to its uninterrupted quarter century success-story of fabulous
growth. 
Lawrence Reed explains how Governments and the Central
Bank catastrophically
mishandled a moderate slowdown of the business cycle, and so caused a
mild recession to
degenerate in the full blown 1929
financial crisis. He explains how the excessive money supply in
the late
twenties first caused the 
It was
in deed not free market failure which produced the 1929
depression. It was political bungling on a grand scale, with the one 
The
author also impressively describes 
Henrik Rasmussen first lived in the Danish Wellfare State,
and then
under the American "Anglosaxon social model". He reports his ample
expericence. A testimony about two types of life-styles.
"America's social model is flawed, but so is France's,"
the Parisian
newspaper Le Monde recently wrote. According to Le Monde Europe should
adopt the "Scandinavian model," which is said to combine the economic
efficiency of the Anglo-Saxon social model with the welfare state
benefits of the continental European ones. 
As Britain
watches the birth of the Euro and euro-integrationists advocate Britain
joining euro-land as soon as possible it is surely time for an honest
debate to begin? Many have forgotten the personal suffering and the
huge disincentives to enterprise and investment induced by a culture of
high taxation. They need to remember fast, before advocating such a
colossal folly. Whether by accident or design, many have misled
when explaining the meaning of EMU and the emergence of a European
Single Currency. EMU does not stand for European Monetary Union, as
they have tended to suggest, but instead stands for Economic and
Monetary Union. This is a crucial error to make and neglects one of the
key effects of the introduction of EMU: the harmonisation of nations'
economic and monetary policies and ultimately of fiscal and taxation
policies. As the current president of the Bundesbank, Hans Tietmeyer,
remarked in October 1995 "it is an illusion to believe that the States
will retain their independence in fiscal policy."
Recently, I was invited
by the Ludwig von Mises Institute Europe to address an audience on what
Friedrich von Hayek would have thought about the enlargement of Europe.
I decided to reread his classic, The Road to Serfdom. Old hat, of
course, because since Francis Fukuyama's The End of History and the
Last Man, we know that after the collapse of the Berlin Wall,
capitalist liberal democracies are the end-state of the historical
process. So there is nothing to worry about. Yet, even before finishing
the introduction (by Milton Friedman) and the (three) prefaces of
Hayek's magnum opus, I realised that I was completely wrong. The Road
to Serfdom still contains insights that today are as visionary and
relevant as when they were published for the first time in 1944.
The
Nobel committee credits Phelps for clarifying the relationship between
inflation and unemployment. Indeed, he did make a contribution in this
respect. What he did not do is what most economists credit him for
doing: identifying the true causes behind the phenomenon of stagflation.
New study shows high cost of big
government. A thorough new study from the National Center for Policy
Analysis concludes that the size of government is far above the
growth-maximizing level. That's the good news. The bad news is that the
study indicates that the growth-maximizing level of taxes is 23 percent
of GDP. This almost surely is an overstatement, especially since it
implies that Hong Kong today would grow faster by increasing its tax
burden, or that the United States would have grown faster before World
War I by doubling the tax burden. In reality, studies such as this are
constrained by the absence of good data from nations with small
governments for the unfortunate reason that such nations no longer
exist. As such, statistical studies looking at the growth-maximizing
size of government generally conclude that it should be about the size
of the smallest governments in existence during the periods covered by
the study:
Growth
theory is an important part of modern macroeconomics. The analysis of
growth has long been based on the Solow (1956) "growth accounting"
approach, also termed as neo-classical growth theory, which has two
important predictions about growth in the long run. These predictions
are that economic growth occurs as a result of exogenous technological
change, and that income per capita of countries will converge. Since it
is presumed that all determinants of growth are exogenous, it is
obvious that government policy cannot affect growthrates, except
temporarily during
the transition of economies to their steady state. Consequently, the
role of government in growth process was usually not investigated in standard neo-classical growth models.
Empirical work
on the
determinants of economic growth seems to present strong evidence that a
large government sector negatively affects economic growth. This result
has been confirmed in numerous studies (e.g., Barro (1991), Engen and
Skinner (1992), Hansson and Henrekson (1994), Gwartney, Holcombe and
Lawson (1998), Fölster and Henrekson (2001)). More specifically,
in
recent studies, the negative impact of government size on factor
productivity and capital formation has been stressed, resulting also in
lower economic growth.
