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Real World Economies Tell Us A Lot (Vol. 159)

Policies that Work Well - and Those That Doesn’t

In our recent book, The Greatest Ponzi Scheme on Earth, which economist Dan Mitchell and I co-authored, there are 3 primary sections.  


Section I:  The United States is Bankrupt.  In this Section we describe our economic problems and what is driving them.  And we describe what might happen when the Ponzi scheme collapses.


Section II:  Real World Fiscal Lessons.  In this section we describe real world examples of failing and prospering countries, and what we can learn from them.


Section III:  What the Hell Can We Do About It?  In this section, we explain how we can fix the major problems and get on the road to fiscal sanity.  


In Section II, we explain all you need to know about what really works - and what does not.  You will find this educational and interesting if you have concerns, as we do, about the future of our country.  Many will not take the time to read the book, so I will give you an overview.  Understanding this is important, because it will drive good policy, if enough of us ‘get it’ and express our concerns to the folks in Washington that make policy.  


  1. Limited (smaller) governments work much better for economic prosperity than large governments.  The logic behind this is simple:  the less taken by the government, the unproductive sector, the more that is left in the private, productive sector,  to invest and spend.  Investment is what drives productivity and growth which provides an increasing standard of living for all of us.  

  2. Excessive government regulation hurts growth.  It is very costly to adhere to heavy regulations.  This drives up costs and hurts productivity.  In some cases it virtually stops production, such as trying to develop a mine to get needed raw materials.  

  3. Industrial policies never work.  This is the case when the government is trying to encourage or subsidize an industry because the government thinks it is good for any number of reasons.  The market picks winners and losers, not the government.  The losses the government has incurred in its efforts to do this are enormous, costing taxpayers billions.

  4. Deficits and debts hurt the economy.  Fiscal responsibility is directly associated with success in the economy.   With limited government and fiscal responsibility, you will have lower taxes.  Deficits must be financed, and this means borrowing or printing money, both are adverse to a prospering economy.  And printing money faster than output  is growing is the recipe for inflation.  

  5. Private Property and Rule of Law are essential for a prosperous society.  Incentives matter - a lot.  You must be able to keep the fruits of your labor to be incentivized to succeed.  Remember Adam Smith’s Invisible Hand.  That is self-interest and that guides our actions. 

 


BOTTOM LINE


You can summarize these concepts in a simple formula I have often repeated:


LIMITED GOVERNMENT + REASONABLE TAXES + BALANCED BUDGET =

MORE INVESTMENT + ECONOMIC GROWTH

This is clearly documented in our examination of the real world.  If you want the specifics, take the time to read it.


LEARN ECONOMICS, THEN VOTE SMART

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