|Last Updated: Mar 25th, 2013 - 16:46:15
Thought for the Day
I am concerned that Dr. Cullen regards the economy and the current financial surplus in much the same way as a kid regards his pocket money and his piggy bank. Unfortunately the economy does not work this way.
When Labour's policies finally start to strangle the golden goose of private enterprise over the next two years, will he have enough cash in the piggy bank to pay for all the unemployed that will be stashed in the sickness and other benefit systems?
Economies are like tropical rain forest eco-systems. They will run at their own pace and are only impeded by political tampering or external shocks. To save our rain forests we try to put in place incentives that will encourage people to do the right thing. Where are our economic incentives leading our country?
Our economy is greatly constrained by taxes and regulations - not to mention a rapidly increasing bureaucracy that is an ever growing millstone around the neck of the productive sector. (One bureaucrat for every hospital bed, for example). Incentives for private enterprise are few and far between and seem to consist of government handouts to a privileged few - like the $12,000,000 loan to a company if they stay in the country. How pathetic. Now everyone will expect the same treatment - and why not? Is this the most suitable incentive that Dr. Cullen can devise?
Things cannot keep going in this direction and at some stage they will stop. I hope the piggy bank is big enough.
Oct 13, 2006, 10:29
The Impact of Government Spending on Economic Growth
Sometimes people ask me for a full explanation for our contention that smaller governments make for higher economic growth and greater wealth for all.
This web site contains a very good dissertation on this subject which will be of interest to the serious student of economic growth.
We can learn a lot from other people's experiences.
For example this is what the article has to say about Ireland and New Zealand.
Ireland has dramatically changed its fiscal policy in the past 20 years. In the 1980s, government spending consumed more than 50 percent of economic output, and high tax rates penalized productive behavior. This led to economic stagnation, and Ireland became known as the “sick man of Europe.” However, the government decided to act. As one economist explained, “After a stagnant 13-year period with less than 2 percent growth, Ireland took a more radical course of slashing expenditures, abolishing agencies and toppling tax rates and regulations.”
The reductions in government were especially impressive. A Joint Economic Committee report explained: “This situation was reversed during the 1987–96 period. As a share of GDP, government expenditures declined from the 52.3 percent level of 1986 to 37.7 percent in 1996, a reduction of 14.6 percentage points.” As Chart 2 illustrates, Ireland has been able to keep government from creeping back in the wrong direction. Little wonder that a writer for the Financial Post wrote that “Ireland’s biggest export was people until the country adopted enlightened trade, tax and education policies. Now it is the Celtic Tiger.”
New Zealand has an equally impressive record of fiscal rejuvenation. Government spending has plunged from more than 50 percent of GDP to less than 40 percent of economic output. One former government minister justifiably bragged:
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.
It is especially amazing that New Zealand was able to accomplish so much is such a short period of time. In the first half of the 1990s, “Real spending per capita fell by 12 percent.” This fiscal reform, combined with other free-market policies, helped New Zealand recover from economic stagnation.
But the question we must ask is, "Where is New Zealand heading now?
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Oct 12, 2006, 17:17
Government Money Deserves a "Swift" Abolition
Here is a tale for the age. It shows how governments have always worked to defraud the public with money of "lessor value", and how it is possible to change government actions with the power of the pen.
A lesson from history. . .
Oct 11, 2006, 14:53