What is it about Mitt Romney? The United States desperately needs smaller government, lower taxes, and less intervention, yet his comments and track record on issues such as the value-added tax, healthcare, Social Security reform, budget savings, ethanol subsidies, and the minimum wage leave a lot to be desired.
We can now add something else to the list. The former Massachusetts governor has come out of the closet as a Keynesian.
This is worrisome, particularly since he is speaking extemporaneously and thus more likely to be letting us see his real views.
To be fair, Romney’s statement doesn’t automatically make him a big-spending Keynesian. Even I have written that, in the short run, “there will be transitional costs when the burden of public spending is reduced.”
But when I say something like that, it is also in the context of explaining the myriad ways that the economy benefits when a bloated public sector is pared back.
And I like to think that I’m second to none in disseminating the medium-term and long-term advantages of less government.
Mitt Romney, needless to say, doesn’t seem to fully share those views.
For more information on this issue, here’s my take on Keynesianism.
I made a snarky comment in a previous post that, “If the answer is bigger government, you’ve asked a very strange question.” I’m worried, though, that Romney doesn’t think that’s a joke.
What is the best way improve economic performance and boost living standards?
If you listen to politicians, they would like us to think that adopting Policy A or repealing Policy B is a magic elixir. And if that means adopting a flat tax or repealing Obamacare, I’ll certainly be happy.
But this video, based on analysis and data from the Economic Freedom of the World Index, shows that there is no silver bullet. Prosperity depends on several factors.
I mention this because I’m currently in the Dominican Republic for a conference on how best to improve competitiveness and growth .My speech this morning was about tax reform, and I explained why a flat tax is the best way of collecting revenue in a way that minimizes economic damage and reduces opportunities for corruption.
But even though I’m a big advocate for better tax policy, the lesson from the Economic Freedom of the World Index, and as explained in the video, is that adopting a flat tax won’t solve a nation’s economic problems if politicians are doing the wrong thing in other areas.
There are five major policy areas, each of which counts for 20 percent of a nation’s grade.
- Size of government
- Monetary Policy
- Rule of Law/Property Rights
Now let’s pick Ukraine as an example. As a proponent of tax reform, I like that lawmakers have implemented a 15 percent flat tax.
But that doesn’t mean Ukraine is a role model. When looking at the mix of all policies, the country gets a very poor score from Economic Freedom of the World Index, ranking 125 out of 141 nations.
Conversely, Denmark has a very bad tax system, but it has very free market policies in other areas, so it ranks 15 out of 141 countries.
The moral of the story is simple. A country should have a small public sector and a pro-growth tax system, but that’s only 20 percent of the answer. Prosperity requires good policy in many areas.