I’m in Vilnius, Lithuania, where I just finished speaking to a regional conference of the European Students for Liberty.
I subjected the kids to more than 90 minutes of pontificating and 73 PowerPoint slides, but I could have saved them a lot of time if I simply showed them this Rahn Curve video and then posted just one slide – the one showing that the burden of government spending in Europe used to be very small.
This slide shows that government spending used to consume only about 10 percent of European economic output in the 1800s and less than 15 percent of GDP as late as 1913.
I explained to the students that it was during this period of small government that Europe became a rich continent. It was back during this time that most European nations didn’t have income taxes, so there wasn’t big government to misallocate economic output, and there weren’t high tax rates to discourage economic output.
So no wonder Europe went from agricultural poverty to middle class prosperity (and here’s a post where I specifically discuss how Denmark became prosperous when government was small).
To be sure, fiscal policy is not the only variable that determines prosperity, and I gave some big caveats about the importance of good monetary policy, good trade policy, good regulatory policy, etc, etc.
In my conclusion, I offered the students a good news scenario and bad news scenario. The good news is that we know how Europe became rich and we know that a return to small government and free markets will enable Europe to again enjoy rapid growth.