If it were within my power to do so, I would like to introduce Mitt Romney to Richard W. Rahn. Undoubtedly you all remember Art Laffer and his now famous Laffer Curve. The Laffer Curve demonstrated that up to a point increasing taxes supported economic growth; but beyond that point increasing taxes were detrimental to economic growth. President Ronald Reagan thought Mr. Laffer¡s curve made sense and he bold reduced taxes and lw and behold the economy got better. The Laffer Curve was vindicated. Well Dr. Rahn has developed a Rahn Curve. The Rahn Curve is very similar to the Laffer Curve except it demonstrates that increasing government spending as a percentage of GDP is very beneficial to economic growth up to a point, beyond which it has a very negative effect on economic growth.
So, from the video we learn that empirically the optimum level of government spending is between 15% and 25% of GDP. That is a significant spread. However, we know for sure that for the US, the optimum level of spending is a whole lot less than our current level of about 40% of GDP. We also learn from the video that as bad as thing are here in the US, the situation is much worse in the European Union. Why then does Obama and the Democrat progressives want us to follow the European model. Its pure insanity.
Observing the reactions to the austerity programs in Europe we know that it is much easier to give than to take back. But it is not impossible. It has been done successfully. In another Dan Mitchell article, he shares two such success stories. I love this first example of New Zealand in the 1990s because Dan quotes an ex-minister who is rightly proud of what they achieved.
When we started this process with the Department of Trans-portation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee.… We achieved an overall reduction of 66 percent in the size of government, measured by the number of employees.
Can you imagine something similar taking place in the United States? That would be something to watch. Another success story is Slovakia:
- Slovakia is a more recent success story, but it may prove to be the most dramatic. After suffering from decades of communist oppression and socialist mismanagement, Slovakia is becoming the Hong Kong of Europe. With a 19 percent flat tax and a private social security system, Slovak leaders have charted a bold course that includes significant reductions in the burden of government. As Chart 3 demonstrates, government spending has plummeted in just seven years from 65 percent of GDP to 43 percent of GDP.
Well, 43% spending is still high, but if they keep going they may indeed become the Hong Kong of Europe.
Now you know why I would like for Mitt Romney to meet Richard Rahn. Who knows? Maybe Mitt Romney could be the next Ronald Reagan. A fella can dream, can’t he?
Well, that’s what I’m thinking. What are your thoughts?