TCS Daily

Reform Lessons for the United States

By Johnny Munkhammar - February 1, 2008 12:00 AM

The old expression "all politics is local" may be quite true for the American political debate, except for the fears of terrorism and of losing jobs to China and India. But there would be very good reason for US policymakers - and the Presidential candidates - to take the time to look more closely at some other countries in a positive way. Successful reforms lessons may provide solutions to hot issues like taxes, health care, immigration, schools and social security.

Reforming is usually seen as politically difficult. Luxemburg's then-Prime Minister Jean-Claude Juncker stated frankly that: "We all know what to do, but we don't know how to get re-elected once we have done it." Clearly, there are many opponents to reform - such as populist media, special interests and within the civil service. And reforms usually have a short-term cost, but larger long-term gains.

Reforming successfully usually demands that political leaders have the ability to stand up for what they know to be right and endure criticism in the short term. Indeed, that is what Ronald Reagan once did - and he was both re-elected and praised afterwards. In the current race for Presidential nominations in the US, there is much talk about change. But how much substance and determination is actually behind the words?

Every industrialised country in the world has launched free-market reforms during the past two to three decades. About a dozen of these countries have reformed substantially in a number of areas. The United States is one of these. But other countries have achieved more in areas where the US still has a lot do to. And the economic and social results from the reforms have often far exceeded expectations.

Spain managed to integrate more than one million non-European immigrants in the regular labour market, in a country with a population of 40 million. Openness to immigration was combined with temporary work contracts, de-regulations and tax decreases - later also combined with an amnesty for almost another million illegal aliens. Currently, employment rates among immigrants are at the same level as for native Spaniards.

Several countries cut taxes substantially and made them simpler. Ireland was the first country to decrease corporate tax radically, from 50 to 12.5 per cent. Average incomes have now doubled in one decade, and the low-income households decreased as a share of total households from 42 to 14 per cent in 15 years. Some 16 countries have introduced flat tax systems, making taxation simple and education beneficial.

The Netherlands launched a thorough health care reform, providing all citizens with private health care insurance - and care from providers in free competition. This allows choice, and most Dutch have used that right. It also benefits efficiency and quality. A price ceiling guarantees that people with chronic illnesses can afford treatment. Other countries have also opened up health care for competition, noticing increases in productivity.

Most countries need to reform pension systems, due to the demographic pressures and the need to cut public spending and taxes. And several countries have begun reform; Japan and Germany have indexed pensions. Australia has introduced funded pensions, Sweden has personal retirement accounts - and in reality no mandatory pensions age. This has made pensions more sustainable.

Sweden introduced school vouchers. Pupils and their parents get a voucher from the state representing 85 per cent of the public education cost, which can be used to pay for education in any school. The share of pupils in primary school that attend private schools increased from zero to eight per cent and for high school from almost zero to fifteen per cent in little more than a decade. Studies have shown that choice and competition lead to increases in quality in both public and private schools.

Reforms have thus not only proven possible, but also positive. Indeed, even areas that were thought to be "unreformable" - such as pensions and health care - have been reformed. And one wave of reforms has often tended to set off another wave of reforms. The common thought that it takes an economic crisis to get a mandate to reform has been proven wrong; many countries reformed in good times - particularly in the labour market.

Several ideas that underpin the fear of reform are myths. For example, free-market reforms do not have socially adverse consequences. On the contrary, unemployed and people with low incomes have often been the ones to see the greatest benefits, in terms of rising incomes and new jobs. Another myth is that reforms may be economically advantageous but politically dangerous. But in fact, almost all reform governments have been re-elected - at least once.

The successful reforms in other countries could encourage US politicians. To a large extent, success is a matter of leadership and strategy. To reform successfully, there is a need to have a mandate from voters and well-prepared, comprehensive proposals. It is important to launch reforms early after the election - and to communicate consistently. Special interests have to be ignored, implementation secured and afterwards, the story of the reforms has to be won.

Johnny Munkhammar is author of "The Guide to Reform" (Timbro/Institute of Economic Affairs) and is Associate Scholar at the Centre for European Policy Studies, Washington DC.



US Politicians
US Presidential candidates want quite the opposite. Hillary wants to radically raise taxes including corporate rates and classifying dividends as ordinary income.

The rest of the world is becoming more market oriented while we are pondering cutting our throats.

Couple this with the US left's total blindness to radical Islam and it's obsession with class envy are a formula for the further decline of the US.

As Bill Clinton said, "We must slow down the US Economy to save the planet".

The sheep are sure to follow.

"what they know to be right"
To a politician, what is right is whatever it takes to be elected.

Yes, we are headed in the wrong direction
We are headed for more regulation, taxes, and a deliberate plan to slow the economy in a futile attempt to alter long-term global temperatures.

Wake Up Call
If we REALLY want reforms that will help us, NOT make everything worse, WE THE PEOPLE need to actually study the situation AND demand. We have to quit being on auto pilot with regard to our nation and its affairs. THIS IS A DEMOCRACY GANG! And for reform to work, it takes time and patience, which we need to regain. If we continue to wallow in mediocrity and moved toward LESS economic freedom, it will be our own fault.

Idealism vs. Reality
>"WE THE PEOPLE need to actually study the situation AND demand. We have to quit being on auto pilot with regard to our nation and its affairs."

Not all of us are on "auto pilot" so be careful about such broadstroke critical pronouncements about WE THE PEOPLE as a whole -- I wouldn't consider myself amongst those autopiloted ranks, so your emotional platitude has little intellectual heft.

As for your expressed concerns, unfortunately it's an ongoing fact of life that a great percentage of WE THE PEOPLE are simply not as interested (nor want to invest the time to be) in such affairs to pay attention to the details and take the kind of informed action you submit they "need" to. Believe it or not, a great percentage of THE PEOPLE aren't civic-minded enough (and, sadly, educated enough) to devote the kind of knowledge-gathering it takes to sort through such issues -- some actually have much more immediate familial and/or work-related concerns making demands on their time, while some others, frankly, just don't give a s**t. That's one of the downside consequences of a free and prosperous society: people are free not to give a s**t, and relatively prosperous enough to feel like they shouldn't have to, and can turn their direct attentions elsewhere, to matters they believe are more pressing in their lives directly. As much as I may regret that fact I'm resigned to it because I don't have a remedy for it -- do you? You may be right about the populace on the whole benefitting from a deeper understanding of issues -- but while I may be sympathetic to your frustration, simply railing about what WE THE PEOPLE need to do on an online forum filled with other individuals who most likely aren't the type of PEOPLE with whom you're frustrated in no way provides any practical antidote, other than perhaps making you feel a bit better for having vented your grievance.


As a smaller point of fact, we are not governed by a direct democracy -- rather, we live in a Constitutional Republic with democratic institutions.

Back to requiring principled leaders.
The last one to fit that bill was GW (George Washington).

He was the greatest president ever because he quit after two terms.

How many politicians today would quit if they knew they would win re-election?

Bill Clinton
He would still be running for President. Wait, he is already!

In many legal instances, a married couple is considered one 'person'.
Shouldn't that prevent Hillary from running?

Hillary was very vocal that there's was a co-presidency.
Doesn't that mean that she's already served her two terms?

To Stinkhammer
I apologize if I sounded like I was using too many "broad strokes" in my post about "WE THE PEOPLE" and "THIS IS A DEMOCRACY". I realized HOW the republic is set up and that I have to do more then just vent. But as long as we can do something, we should do that, rather than wake up one day and find the nation we love wrong. I also should say that while govermental reform is necessary, we should not forget another necessary task. We also need to take greater responsibility for ourselves, our families, our communities. I know that it another "broadstrokes" cliche, but isn't that also reality? (AND PLEASE don't let the Clintons back in the White House.)

As I stated above, I'm sympathetic to your frustration at the lack of civic-mindedness in the populace-at-large. I too wish that more people were issues-oriented and educated in economics, civics, history, etc. I also agree with your larger point that people "need to take greater responsibility for ourselves, our families, our communities." My rather condemnatory post was simply pointing out that such frustrations, while regrettable, are unfortunately eternal, and other than voting for those whom I believe have an agenda which would serve the ends I prefer, I have no pragmatic remedy for bringing about a surge in civic-mindedness which would compel society into taking the greater responsibility in which you and I might engage. Humans being what they are (and with their lives as busy as they typically are), they are simply more prone to the emotional than to the intellectual, and right now it seems (sadly) that the emotional pull of populist gov't intrusiveness is on the upswing.

Also, keep in mind that even were a larger percentage of the populace actually attentive to such civic- and political-oriented issues, not all would employ their knowledge of such in directions either you or I might prefer -- some, upon studying issues and societal shortcomings, might opt for more socialistic/big-gov't answers for redress. (I point to Roy on these boards as a prime example of that scenario; I have no personal animus towards Roy in the least, and don't believe he's an abjectly stupid person -- he and I simply have fundamental disagreements on the components which substantiate our respective positions.) So any "gov't reform" which might result from a larger level of civic scrutiny by the Masses wouldn't necessarily be such that you or I would approve.

As for keeping the Clintons out of the White House, I couldn't agree more. Unfortunately, I fear the political cycle is circling back to a Democratic administration being in power, and Hillary looks to be (IMHO) the one who will head it. On a practical level, all I can personally do to thwart that possibility is vote against her (and by extension, her party) and hope others do the same. However, I'm not confident that she'll be defeated in the end.

I don't know how bad the Netherlands was before their health care "reform", but "providing citizens with private health care insurance" is self-contradictory. Any such system is tightly controlled, and hence only nominally private. You provide evidence of this in your statement about price ceilings.

Sweden introduced school vouchers
"Sweden introduced school vouchers. Pupils and their parents get a voucher from the state representing 85 per cent of the public education cost, which can be used to pay for education in any school. The share of pupils in primary school that attend private schools increased from zero to eight per cent and for high school from almost zero to fifteen per cent in little more than a decade. Studies have shown that choice and competition lead to increases in quality in both public and private schools."

Read that last sentence, Roy?

Americans are children
I hate to say it, but my countrymen know a lot about meaningless stuff and very little about stuff that means a lot. The culture is entertainment, pleasure and vanity driven. Elections are won and lost based on how candidates make voters feel, not their ideas. How else to explain Obama, whose ideas are even closer to Castro's and Chavez's than John McCain's. Just about every American voter is a superficial, emotional reactionary against bad hair days and five o'clock shadows.

Looking on from abroad, I see the fate of the greatest nation of all time being determined every four years by trivialities, swoons and wet dreams. Nail-biting stuff.

On The Downswing?
I believe it was Revel in his excellent "Without Marx or Jesus" who proffered the theory that a society benefitting from high levels of freedom and prosperity (resulting in what Victor Davis Hanson describes as a "leisure society") runs the dichotomous risk of suffering cultural and intellectual demise via those very benefits; that a society unconstrained from abject poverty and permitted the petty indulgences of leisure such affluence and liberty promote may possibly lose collective sight of (and interest in) the very philosophical bedrock which ushered in that society. Revel was definitely no left-winger and repeatedly expressed his admiration for the US -- he wasn't advocating limits on prosperity and freedom or some totalitarian remedy; his was merely a warning that, humans being what they are (that is, overall prone more to leisure than rigor), it's potentially culturally undermining that, as Jay Leno has shown, more people can identify Britney Spears than **** Cheney. Perhaps we're seeing his theory playing out before our eyes....

What the . . . ?
You mean TCS won't allow me to post the name D**k? You've gotta be KIDDING me.

So why is it so hard...
to implement tax reform in the form of a consumption tax. Practically every economist will tell you that a consumption tax favors saving which causes investment, which increases capital stock, which causes GDP growth and an improvement in the standard of living. Yet, here we are stuck with this inane income tax. It's time for a 21st century modern tax system.

No politician will EVER volunteer to give up power.

What comes round goes round
I fully agree with Revel. As life's conditions improve, the perfect becomes the enemy of the good, for no one remembers how bad things once were while they can vividly imagine how good things could get, if only. Further, a people preoccupied by its own crapulent lusts for all things meaningless will become inclined to learn nothing and believe anything.

When these conditions prevail among a people, it will fall upon itself in a grisly cannibal feast and diminish. We saw this happen in the 60s and 70's, resulting in the national malaise Jimmy Carter so accurately diagnosed. Reagan applied a cure, but not a permanent one; he is now a distant memory as is the recipe of his medicine. The national table is now re-set for another cannibal feast, and this may endure far longer than two decades.

A free market reform we could really use...
...the elimination of farm price support subsidies.

So why are we paying sixty or seventy billion a year to support the largest farmers? Doesn't this program have the express intent of distorting market prices on farm commodities, with the effect of destroying the ability of small farmers worldwide to support their families on earnings from commodities like cotton, wheat and corn?

And don't these farmers-- the Mexican ones at least-- then have to emigrate to the nearest first-world country in order to seek work? Aren't they here just l9ooking for the jobs our farm program took away from them?

What makes this something we should support with public dollars?

i agree with roy
i agree with you roy,

we should look to minimizing the give-aways to both individuals and corporations.

it distorts the markets.

Too bad you don't agree with CATO about anything else.

Hopelessly partisan
I'm far less partisan than you. Fairly routinely I'll agree with something Cato publishes. I'm very firmly in their camp, for instance, on ethanol subsidies.

There does seem to be a certain jack-booted rigidity to your positions. I.e, everything Cato or Reason says is good. Everything any Democrat does is bad. Everything that serves a public purpose is socialism. Things like that.

I'm just your usual garden variety kind of liberal, who agrees with quite a lot of what Ron Paul and even that Huckabee fellow says.

Roy, we agree!
In fact, I oppose any subsidies for business except tax breaks for R&D and Capital investments. Business should stand or fall on it's own merits.

Read about the milk industry and the controls placed in the 1930's on bottling and how they were used to destroy competition. It will make your blood boil and the industry is guilty as sin. Were all paying high milk prices because of the lack of free markets.

I despise market intervention. It is unclean and unhealthy for the market.

Sen Reid from Nevada is as corrupt as they get and there is a lot of corruption these days on all sides.

Rb is a true progressive, meaning that progress is whatever direction the herd runs, whether that be back the way it came or heedlessly forward over the nearest cliff.

Say what you like about the Swedes, but they are no strangers to social experimentation. While this most often leads to moral atrocities, odds are they'll do something right every once in a while, particularly when faced with a cliff. Not so American progressives. Too bad they're inclined to drag the rest of us down with them.

hopeless or partisan?
What other entitlements would you advocate giving up in addition to ethanol and the military? It seems like there's never been one you didn't like, like food stamps, FEMA, US post office, DEA, AFDC, etc. But then again I think you said you liked it that the dept of education served the 'public purpose' of indoctination, inculcating sheepishness, etc.

reform in the US
It could be that it's so hard to have any meaningful reform in the US because the whole place is basically not open to innovations. All the vested interests have an interest in trying really hard to keep the country going downhill, for their own benefit. It's also because the most of the institutions have been inclucating a nanny state mentality in the population; it's hard for sheep to be anything else, but the government loves it that way.

Less money for your income redistribution.
You don't oppose income redistribution, just income redistribution to wealthy farmers like Sam Donaldson (ABC TV).

I oppose income redistribution period.

You are a garden variety socialist.

We can't eliminate the subsidies...
...because Iowa is one of the 'pivotal' early-caucus states in the American primary process, that's why.

The only way that will change is when Americans get enough brains to wrap around 'complex' matters such as "burning corn in the gas tank raises your food prices" that they heretofore have shown a total lack in ability to do so. Instead, demagogues will blame it on the Chinese or the oil companies or global warming or some nonsense and the public will buy that instead.

Total agreement
We're in total agreement here. Not only Iowa but all the corn states enjoy unreasonable and disproportionate clout in Congress. As a result we have to pay extra to have our fuel diluted with corn mash, while food prices are pushed upward and we pay triply to subsidise these farmers with price supports and other federal assistance.

Plus, over time the problem grows greater. Compare ag programs under Bush II with all previous history. Note that in 1996 the Gov pledged to end ag subsidies-- and proceeded then to expand the program!

On another note: I came across this very interesting web site this morning, and it reminded me of what you've been telling us in recent weeks:

What's your take on their info? On the money? Or off the wall? RSVP

Many things I believe in
I'd be happy to provide some detail. I think that our government was established to serve its people-- and that therefore it should be subordinate to the wishes of the people. A true, one person one vote democracy would be the best way to achieve that-- NOT our current, more easily manipulated, electoral system.

However our people are very easily gamed, by principles established by Mr Edward Bernays almost a century ago, in his book Propaganda (the manufacture of consent). You should look for a copy of this valuable document (start with Google). It's an area where your philosophy and mine coincide.

But if we were actually in control of government, the first thing we would do would be to rein in military spending. While it is certainly legitimate to have an able military in a world that at times can be aggressive, our position today is out of all proportion to actual risk. We have, for instance, somehow transformed the existence of several thousand active terrorists (at the time of 9/11) into the need to deploy a half trillion dollars worth of death machinery toward the task of destroying one society (Iraq) and threatening a number of others.

This, to me, is counterproductive to any actual defensive purpose. And the effect is to require even more expenditures on weaponry. The obvious purpose is to sell more weapons... and lo and behold, the guy behind it is a kingpin in the weapons and war services supply industry! Talk about being gamed! You have fallen victim to the con.

So I would save a lot of money and grief by just transforming the military back into a service organization whose purpose is to defend our borders.

2. Welfare. I do not support welfare for the rich. They're already rich and don't need it. A good example is that oil companies get depletion allowances for their wells. My only working capital was my labor (before I retired). And I don't recall being able to get any depletion allowance for my life.

I do, however, support relief payments for people in distress through no fault of their own. The working poor should get some form of reverse income tax, like an augmented EITC. I like this idea better than raising the minimum wage-- which puts the onus on their employers. It should be a burden graciously borne by the entire public. Those who are more fortunate, in my view, should be made to give a tithe to those less fortunate. Or, they should get off the gravy boat and find another place to live. (As you apparently have.)

Likewise unemployment insurance, food stamps to destitute families with children, temporary assistance, help for the injured such as SSI-- all these programs are in my world legitimate uses of the government function.

3. Schools. No, I don't think we should have public schools so we can indoctrinate the young, or make them more tractable, or dumb them down, or raise obedient laborers and soldiers. To the degree that our school system does this, it needs to be changed.

I do, however, understand that in a world where everyone has to pay for their own children's basic education, the rich kids will get the best education, the average kids will have an average education and poor kids will get NO education-- because their parents can't afford it.

Therefore I support some form of public education. It's in our best interests as a nation to have the public be as well educated as is possible.

I will add that I support all these things with MY OWN tax money. In fact I'm just getting my return ready to mail this morning, and I don't resent money spent to good purpose one bit. However I, like you, do in fact resent expenditures for programs I don't like. That's a problem that will be hard to resolve other than through an informed electorate.

Does this address your questions? I can expand on this summary if you like.
A bit over the top on the conspiratorial side, but I can't blame them since a lot of the 'conspiracies' are true. They are just not as nefarious as people interpret them to be, as the bankers are no different than the realtors or the lawyers or the plumbers or the doctors in the rent-seeking activities they engage in.

"This self-perpetuating cycle of borrowing is made possible only by the ability of the government to guarantee repayment (of only the interest, never the principal) through future taxation on the earnings of every American citizen."

That is quite true! See, when the Fed 'creates' money by purchasing bonds, it doesn't create the money needed to pay the interest on those bonds at the time of purchase. We, the taxpayer, have to fork up from existing money supplies for that. The result is what I call it The Great Hustle (which I include ALL debt servicing we the Suckers pay for thanks to our credit addicted culture). This is why the bankers wanted centralized banking. It's why the Bank of England was formed even though King Henry pulled 'the first Lincoln' by instituting a debt-free currency called the tally stick. It's why Parliament banned colonial script after Franklin bragged about it to the wrong people in London. It's why they wanted the Bank Act of 1864 right when Lincoln's debt-free Greenbacks were threatening to set back their grand plan.

The web site's interpretation of how money creation actually happens is incorrect. That is standard for most Fed-critics. The main problem is the definitions of money and credit. The Fed & economists tend to lump them all together under the generic label of 'money' such as M1, M2, M3. But in reality, the banks create credit, not money. They still need actual money to lend out or redeem on demand when called for. That's why the money markets exist (so the banks can borrow from that) and why the Fed -- as a last resort -- can be tapped for a loan as well.

If banks could 'create' actual money, then why would either of those two institutions be necessary (let alone used every day)?

Oh and last, the context of all this is just bunch of 'justifications' to get people to default on their debts through their 'debt termination' process. This crap does not hold up in court. I went through a similar program and wish I had just done traditional debt settlement instead.

Well what do you know!
That's exactly my impression. When I started posting here lots of people said "Oh you're just one of those Great Conspiracy people." But I explained to them it's not exactly a conspiracy, it's all pretty much in the open... business as usual, conducted by a conference of fellows.

And I agree with you about the national debt. So long as our creditors don't all panic and start for the exits (tiptoeing quietly) we never have to pay it down, far less completely off. But those interest payments are getting to be burdensome.

In fact I question the depth of understanding many supposed libertarians here have of the situation-- since they never even refer to it, much less make a fuss about it. For our Social Security dollars we get countless millions of old folks who paid in faithfully all their lives, getting to enjoy a retirement income.

But for interest on the debt we get... to pay for money we've long since spent. And it's not cheap. FY 2005 we paid out $352 billion. FY 2006 it was $406 billion. And when interest rates go back up... watch out.

The other payment coming due after 2018 is all the money we've borrowed from the SS Trust Fund. It will start to come due as needed for outgoing payments-- first in a trickle, later in a flood. And this is one debt the US can't even think about welshing on. All those old folks marching on the Capital... it would be an ugly sight.

dividends are ordinary income
Why should market profit be defined as anything but profit?

"our government should be subordinate to the wishes of the people". Any wish?

Can you think of a better way?
There's only one way to look at it. Either government serves the people, or people serve the government.

If you don't have majority rule, you have rule by some minority over the others. I would be the first to say there should be checks and balances built into the system to protect the rights and preserve the voice of minorities. But I don't think anyone is served by the idea that direct democracy is a bad thing.

But let me guess. If everyone gets to decide how we are governed by common acclaim, you won't like the result. You would rather have the country run by some small elite who will confer on you an advantage over the others. Am I on the right track?

Thanks Roy, for confirming that what you want is undiluted MAJORITY rule and that
no principles should govern the GOVAGs save what they think the majority wants.

"All Politics are Local"?
How can all politics be local when we have centralized most of our government to the Federal and State level?

The Federal Government spends $10,000 per person
($3T Budget / 300 million people)
The States are all at about $5000 per person.
My Local government is representative at about $2500 per person.

The government is upside down and this is where the reform must be made. It is time to put the 10th and 14th Amendments of the U.S. Constitution to work for the people.

Transfer control of spending to the Congressmen for State and Federal Spending and equalize spending per capita. Take the power away from the appropriations committee chairmen and majority/minority leaders.

It's time to flip the government back to the people.



supposed libertarians?
Maybe you've just been ignoring them. Me and other guys have been saying for years around here that they shouldn't have got into debt in the first place, and that most of what they spend it on is wasteful, and it's immoral, and it's enslaving, etc. So we fuss about it all the time. But you, on the other hand have been always saying that you want the state to kill us if we don't contribute to that enslavement coercion.

because the taxes on that income have already been taken.

How does a majority protect the rights of a minority under mob rule?

Minority rights are essential
You play the buffoon very effectively. Wasn't my message in fact the exact opposite?

I quote: "If you don't have majority rule, you have rule by some minority over the others. I would be the first to say there should be checks and balances built into the system to protect the rights and preserve the voice of minorities. But I don't think anyone is served by the idea that direct democracy is a bad thing."

Not that I recall
"But you, on the other hand have been always saying that you want the state to kill us if we don't contribute to that enslavement coercion."

Funny, I don't recall ever saying anything like that. Why don't you refresh my memory, and tell me what you think I said. In your own words.

YOU play the evader and obfuscator very effectively
As marjon asked (and you haven't answered yet), How does a majority protect the rights of a minority under mob rule?

You don't know what a Right is. If you did, you woouldn't be talking about Majority Rights and Minority Rights but about Individual Rights.

Mob rule (direct democracy) is a bad thing.
How do you protect minority rights from the mob?

Scadinavian survival
In order to survive such a challenging environment, Scandinavians have learned to do what it takes.

They discovered raping, pillaging and burning was not as profitable as trade so established extensive trade routes throughout Europe. Even to Constantinople.

Like many people, when provided the liberty and opportunity, they will find the best way to succeed.

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