A little government can do a lot of good. A lot of government can do little good.
Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.
Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.
Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.
The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.
Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.
I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.
Posted in Economics, The Market Process
Tagged cato, cato institute, center for freedom and prosperity, dan mitchell, economic growth, Economics, gdp, government, growth, rahn curve, richard rahn, size of government, spending
Cato’s Dan Mitchell gives a quick primer on the capital gains tax in the latest short video from the Center for Freedom and Prosperity.
President Obama wants to raise the rate from 15 percent to 20 percent. Dan gives six reasons why he should lower it to zero:
-Taxing saving and investment more means there will be less of it.
-Entrepreneurs will take fewer risks since higher capital gains taxes lower their return on investment. Why bother to innovate?
-America’s high capital gains tax rate makes us less competitive than other countries that have a lower tax rate – or no tax at all.
-IRS busybodies nosing around in our investment portfolios is hardly conducive to protecting privacy.
-Investment creates jobs. The capital gains tax lowers investment, and therefore job creation.
-A capital gains tax is inherently unfair. Tax laws should not penalize people based on how they earn, spend, or save their income. Taxes should be as neutral as possible.
Posted in Economics, Taxation
Tagged basic economics, capital gains tax, cato, cato institute, center for freddom and prosperity, dan mitchell, Economics, investment, savings, tax, tax cut, tax increase, Taxation
I have mixed feelings about the tea party movement. On one hand, it is wonderful that there is a large and vocal constituency agitating for lower taxes and lower spending. And while many tea partiers are appropriately wary of the Republican party, they certainly seem to skew conservative. And conservatives are no friends of limited government.
John Samples from Cato nails my sentiments exactly in the video below. Here is a list of his main points:
1. Republicans aren’t always your friends.
2. Some tea partiers like big government.
3. Democrats aren’t always your enemies.
4. Smaller government demands restraint abroad.
5. Leave social issues to the states.
Akbar Ganji, who spent six years in prison for writing articles critical of the Iranian government, is the winner of the 2010 Milton Friedman Prize. You can read more about Ganji’s story here. May his dream of a free, liberal, and democratic Iran come true.