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John F. Kennedy Liberal Democrat

John F. Kennedy Liberal Democrat
Source: U.S. Senator John F. Kennedy in 1960

Sunday, February 23, 2014

Townhall: Opinion: Daniel J. Mitchell: "Is America Doomed to Become a Failed European-Style Welfare State?": How Public Sectors Effect Economic Growth


Townhall: Opinion: Daniel J. Mitchell: Is America Doomed to Become a Failed European-Style Welfare State?

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One thing I tend to agree on with Progressive economists on is that there isn't any magic number to attach to how big the public sector has to be or how small it has to be that is the signal that government is too big and must be trimmed down. Before the Great Recession, America was doing very well economically for about 25 years, with a few slow-downs in between and periods of high unemployment, with our public sector to Gross Domestic Product ratio somewhere around 20 percent. The European Union as a whole did well economically also, especially Germany, with its public sector to GDP ratio around 45 percent during the same time period. And Scandinavia, among  the biggest governments in the developed world during the same period, grew well at around 65 to 70 percent.

When it comes to economic growth and the public sector, it is all about what you need government to do. What do people need to do for themselves and what do government and the people need when it comes to resources to be able to do for themselves so the society as a whole can prosper?With Scandinavia being rich in natural resources and land and with its socialist culture, it can afford expansive welfare states that come with higher taxes because it also has very small populations.

This situation is similar to Canada's but if you actually looked at the Canadian federal budget, the size of its government is not that much different fromAmerica's, the difference being that it has a much smaller national security budget and spends a lot more on public social insurance programs and on infrastructure.  Canada also has a great deal of land and is energy independent.  It also has a small population considering the vast physical size of the country.

America is different because we are rich in land and in natural resources but for whatever reason, we are still importing a hell of a lot of oil and gas when we are capable of producing all of the natural resources in the world, including oil and gas, and even though we are a country of 310 million people, we have thousands of square miles of land with very few people, the Dakotas, Wyoming, Montana, Nebraska, Iowa, Oklahoma, Montana, New Mexico, Nevada, Utah. And we could easily produce all of the energy we need for ourselves if we just got around to doing it

My point is that a Scandinavian welfare state, considering the size of our population and the fact that we are still importing a hell of a lot of energy and have a large deficit when it comes to infrastructure, would not be the right economic model for us with those factors alone.  Since that is not the right economic model for us, it doesn't mean it can't work in other countries and has worked in other countries, but not all countries are the same and they have different needs and populations.

It's all about what government needs to do and what you need people to do for themselves and what businesses need to be productive and profitable. Once you get those factors figured out, then you get to how big the national government should be and how much it should tax to finance those operations that is consistent with strong economic and job growth, where most of the country has well-paid jobs and can pay its bills without government overtaxing it.