Thursday, December 01, 2005

The Ownership Society 2001-2005

I've defended here the basic point that W's Ownership Society goes back to Aristotle: private property is an essential foundation for a successful society, and the erosion of this principle by government action is counter-production to what Aristotle called human flourishing.

An excellent blog, Willisms, provides a very cool graph on exactly this point:

The Brussels Journal has a great piece titled "The Myth of the Scandinavian Model," in which the correlation between government spending and economic growth is noted.

Indeed, in OECD countries over the latter half of the 20th century, the correlation was very significant:

This data is not terribly shocking, but it's worth saying, because the stakes are so high:

The higher the level of taxation, the lower the growth rate. The explanation for this phenomenon is as logical as it is simple. The higher the tax level, the lower the incentive for people to make a productive contribution to society. The higher the fiscal burden, the more resources flow from the productive sector to the ever more inefficient government apparatus.

Unfortunately, the Bush administration, while lowering tax rates, has been reluctant to confront the need to keep down government. The following chart, from the Brussels Journal, helps to clarify:

This chart neatly reverses the conventional wisdom of much of American politics over the last fifteen years. President Clinton, boxed in by Newt Gingrich's Congress, saw government spending as a percentage of GNP fall sharply. W, seeking to cut into traditional Democratic constituencies, sharply raised government spending as a percentage of GNP. It can't be said that W has had much success with spending money like LBJ.

The hero in the chart above is...Ireland.

Once the #22 ranked economy in the OECD, Ireland surged to #4 after a deliberate policy of slashing taxes and spending. Ireland now has the most dynamic economy in Western Europe.

The lessons of this are pretty clear: the Ownership Society works--if we act on it.


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