Transcript OECD

Will the Fiscal Crisis Create
an Opening to Shrink the
Burden of the State?
August 2013
Liberty Conference
The Looming Fiscal Crisis
Because of poorly designed entitlement
programs and demographics, the western
world is in deep trouble.
Politicians probably won’t deal with problems
until they face Greek-style fiscal chaos.
Let’s look at numbers from the Bank for
International Settlements, Organization for
Economic Cooperation and Development, and
International Monetary Fund.
France – 400 Percent of GDP
Germany – 300-plus Percent of GDP
Greece – 400 Percent of GDP
Ireland – 300 Percent of GDP
Italy – 250 Percent of GDP
Netherlands – 400 Percent of GDP
Japan – 600 Percent of GDP
Portugal – 300 Percent of GDP
Spain – 300 Percent of GDP
U.K. – 500-plus Percent of GDP
U.S. – 450 Percent of GDP
In other Words…
What’s the Response to Crisis?
Is Naomi Klein (author of The Shock
Doctrine: The Rise of Disaster Capitalism)
right that chaos leads to free-market reform?
Or is Robert Higgs (author of Crisis and
Leviathan: Critical Episodes in the Growth of
American Government ) right that chaos
leads to more statism?
Some evidence on both sides, with Chile and
former Soviet Bloc offering some hope for
libertarians.
Which Direction for the West?
Things will get worse before they get better.
Nations such as Greece, Spain, and Italy have
been forced to finally cut spending.
Unfortunately, they’ve raised taxes even
more, stifling the private sector.
Can a nation re-learn the work ethic and
entrepreneurship?
Don’t be surprised to see a loss of democracy
in some nations.
Big Government Inevitably…
…Erodes America’s Social Capital
But there is Room for Optimism
The fiscal crisis in Europe has had a sobering
impact - on both elites and ordinary people.
Widespread agreement that dramatic change
is needed.
Over time, it will become increasingly
apparent that the tax-hike option no longer is
feasible.
When all other options are exhausted,
politicians may do the right thing.
The U.S. Example
Politicians rarely take steps that will irritate
special interest groups – particularly if they’re
being asked to cast symbolic votes.
Yet the House of Representatives – for three
consecutive years – has voted for a budget
that would dramatically restructure both
Medicare and Medicaid.
A genuine example of legitimate patriotism.
Signs of Hope Elsewhere
Switzerland is in good shape and its “debt
brake” is a good role model.
Nordic nations have too much government,
but also have implemented lots of freemarket reform.
Some good signs in Eastern Europe, including
flat tax.
Even Germany is being semi-sensible.
What Should Be Done?
The answer is simple – just restrain the
growth of spending.
Nominal GDP almost always expands, even in
stagnant economies.
Key to long-run fiscal sanity is to have
government grow slower than the private
sector.
Enables a virtuous cycle for both numerator
and denominator of Gov’t/GDP.
Where Do We Go?
Three challenges
Correctly identifying the problem – big
government is the disease. Deficits and
debt are symptoms.
Figuring out ways to “bend the cost curve”
of government spending.
Convincing people that liberty is better
than dependency.
Conclusion
For more info
www.cato.org
www.danieljmitchell.wordpress.com
@danieljmitchell
www.youtube.com/afq2007