Retro #1 - Two Examples Of Government Spendiing/Taxes/Control - What Happens When They Go Up or Down?

Due to massive family obligations in the short term, time will be at a premium for the next week or so. Thus, rather than rush through new posts, I am taking the opportunity to do a "best of" series of past posts. These "retro posts" have been the most popular posts in this blog from the past year or so. All of them have been viewed hundreds of times and seem to have made a connection to our readers vs. other posts and topics. Please enjoy them again or for the first time.

Two contrasting examples of government spending, control, and taxes have presented themselves in the past week or so. They both address the question: when government spending, control. and the resulting taxes go up or down, what happens?

First, consider the example that was presented in the most recent edition of Business Week magazine. This article described what happened when France dropped its value added tax on restaurant dining in the wake of soaring restaurants bankruptcies. Details of the tax reduction include the following:


- Last July, the French government dropped the value added tax to 5.5% from 19.6%.


- Since then, the industry has added 5.300 jobs even as the national unemployment rate rose.


- Salaries by those employed in the industry went up 5% on average despite a very weak economy.


- The industry also invested in job training for its workers, as promised to the French government in exchange for the tax relief.


While average prices went down only 1.2%, less than the 3% hoped hoped for, the question that needs to be asked is what would have been the prices without the tax decrease since more restaurants would have gone out of business, reducing competition and probably increasing prices. The good news is that prices did go down and if more restaurants stay in business, the free market and competition will help keep prices down.


Wow, drop taxes and government control and the market seems to take care of itself, at least with restaurant dining in France. Prices go down, jobs are created, salaries go up, and competition should intensify with fewer restaurants going out of business.


Now consider the opposite phenomenon, this one where government funding (i.e. taxes go up) and the government takes over and increases its control and management of part of a market. This story comes from the July, 2010 issue of Reason magazine and was described in an article written by Michael C. Moynihan. In December, 1998, Britain Mavis Skeet was scheduled for cancer surgery but the National Health Service postponed the surgery this time and four subsequent times. The last postponement was actually a cancellation in January, 2000 when the National Health Service declared her cancer was now inoperable.


As a result of this major screw up, the British government, led by Prime Minister Tony Blair, decided that spending for national health care was too low and "requested a new infusion of cash to shore up the faltering system by adding doctors, nurses, and beds."

According to the reporting of the Daily Mail newspaper in March, ten years later, after increased government spending, and theoretically the increased taxes to pay for the spending, it turns out that the volume and quality of health care in Britain did not change for the better. However, the infusion of more government control and taxpayer money did result in the number of bureaucrats in the organization growing six times faster than the number of nurses and the number of management employees doubling.


So lets review. Less taxes, less government control results in positive outcomes. More taxes, more government control results in negative outcomes. Seems pretty simple, except to someone in the political class who continually needs to prove their self worth by taking more of the Tony Blair approach and less of the French tax reduction approach. When will we learn that like the British example above, government and the politicians who run it rarely improve our lives, our pocketbooks, or our safety:


- while BP and others in he industry have to shoulder the majority of the blame for the current Gulf oil slick debacle, it was government regulatory employees who were lax, lazy, or completely derelict in their duty to make sure those drilling platforms were safe.


- while the economic crisis and financial collapse were occurring, at least dozens of SEC employees were busy patrolling the Internet for pornography and downloading the smut they located to their government computers or to discs.


- while Americans were dying due to faulty Toyota products, the government safety watchdogs started and prematurely stopped a series of safety investigations, not able or not wanting to find anything amiss with Toyota products even though we now are told 89 Americans died as a result of their lax investigations.


- several years ago, the government watchdogs for children's toys were lax in their vigilance in allowing imported toys into the country that had been manufactured with lead based components, endangering the health of American children who may have ingested the lead when the put the products in their mouths.

Eventually, the government watchdogs finally woke up and got the lead based products off of the market. However, their lax of vigilance continued when the foreign manufacturers just replaced lead with cadmium, an equally dangerous heavy metal in the latest wave of imported products.


We are so screwed if we continue down this path. We pay higher and higher taxes for less and less service when the reality of the French tax cut shows that reducing taxes and government control can be a very good thing. We have to get over this myth that just because the government says it is doing something we cannot assume that they are doing it right or, in fact, doing it at all. We need a complete government overall as outlined in Step 1 of "Love My Country, Loathe My Government" in order to find ways to make government leaner and cheaper while increasing its effectiveness and accountability. No one in Washington seems to think this is worth doing or they would have done it already.


Second, and we keep coming back to this step, Step 34 needs to be implemented which would remove existing members from Congressional committees who screw up in their oversight. Thus, in the above examples, those committee politicians overseeing the inspectors who did not do their job on the oil platform inspections, overseeing the pornography searchers in the SEC, and overseeing the auto safety and toy safety failures wold be booted off of their committees for dereliction of duty. Less government, less taxes, more effectiveness, more accountability.






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