Thursday, February 08, 2007

More Economic Reporting By GOPAC

It's very funny to see the people like John Kerry and other liberals trying to state that an economy with high taxes and intrusive government is a good thing. They use Europe as a model of excellence saying that it is the way to go. But do we really want to do that? The Swedish company Timbro did a study that compared the United states to the entire European Union, and the results are not what Euro loving economists would like you to see.

Big point #1 - The lowest 25% of income earners in United States are FAR wealthier than the average European.
The study shows that 73% of Americans who made below $25,000 in 1999 owned their own car. 97% owned a color TV, with 55% owning more than one. Take for example housing; 46% owned their own home. You might say that the house is probably pretty small, but the average house for those 46% of people making $25,000 or less is 1,200 square feet. Compare that to the entire European average of 975 square feet. There is actually only one country that can beat the average "poor American's" home, Luxembourg. Their average home size is about 1,350 square feet. However that is still a far cry from the 1,800 square foot average for the overall average American home.

Big point #2 - European Countries will likely NEVER catch the United States unless something dramatic is done.
The study shows that even if the United States economy remained absolutely stagnant, it would take most European countries over 10 years to catch up to the United States if their growth remained the same. There was only one country that would have caught up to the United States in less than 8 years, but more on that later.
Unfortunately, over the past 30 years, the United States has nearly doubled their economy per person in the past 30 years. Only Germany has kept a reasonable pace, but they are still about 5% below the United States per person GDP.

Big Point #3 - A person in the United States buy more than a person in Europe.
In fact the average American spends about 77% more than the average European. The only country who comes close is again Luxembourg However this is misleading since it takes into affect per person GDP. Luxembourg has a very high GDP per person since most of their work force comes from people who live outside the country. Even with the skewed scale, Americans are able to spend almost $5,000 more per year than them, and almost $10,000 more than in any other European country.

Why is this? - The United states has a more free market than the European Markets.
European countries have policies which have high taxation, and strict laws preventing companies from firing unproductive workers. This makes companies more reluctant to hire people, as well as make it difficult for people to become entrepreneurs. Companies are very difficult to start up, and no one wants to deal with it.
Not only that but taxes for the American income earner are the lowest of all people surveyed. Americans have much more money left after the government takes it away in taxes. This allowed for more consumption spending, which helps the businesses that sell the products.

Big Point #4 - There is one exception to the European Mire
There is one country who is defying the European lackluster performance, and I'm betting you would have never thought of it if you didn't know: Ireland. Yes, the Irish have taken notes from America and discovered the key to long term economic gains; Economic Freedom. Ireland was listed in 2004 as being the 4th most free market in the world, and their economic growth has shown. In 1987 Ireland had the lowest per capita GDP of all the EU countries. However in the following years Ireland's government sliced taxes, and opened up the market to more freedoms. Growth flowed from the economy at a fire hydrant rate. From 1990 to 1995 the economy grew at a rate of over 5% per year, and from 1995 to 2000, the economy averaged over 9% growth per year! The key to this is exponential growth. It's calculated the same way as interest in an account. You start off with 100, the next year you have 109, the next you have 119, the next 130, then 141, and so on. From the year 1990 to 2000 the economy grew 96%.

Lower taxes, and less government intrusion left the people more options, and made it easier to succeed. People were starting new businesses everyday, and the economy skyrocketed from being worst to first.

Ireland's recent economic storywould be one which emphasises the role of low taxation in promoting economic activity. Low corperate taxes are vital if a region is to encourage foreign direct investment. Aside from the 10% corperation tax rate there have been substantial reductions in tax rates between 1985 and 1998. The top rate of income tax has come down from 65% to 46%, capital gains tax has been reduced from 60% to 20% and capital aquisitions tax from 55% to 40%. Well targeted tax breaks can generate worthwhile employment generating activity. - European University Institute
Recently Ireland's growth has declined, reason; the government has decided that they want more regulation. This has begun to peak the "Celtic Tiger."

Need further proof that big government is bad for the economy? Compare this map of the 2007 Index of Economic Freedom, to the rank of world economies. Note that every one of the most free economies are among the top per capita economies (5th, 8th, 13th and 17th, again, note Luxembourg's $80k/C is heavily skewed). Of the countries who are 70-80% free, they hold 12 of the remaining 16 spots in the top 20. Only Qatar, France, Germany, and Italy were among the 60-70% free class to break the top 20, and they ranked 7th, 18th 19th and 20th. Qatar was the 7th, but like Luxembourg, their numbers may have been skewed to the high range due to workers living outside the country.
As far as I could see, the highest ranked 50-60% country is Poland at $7,946/C. Compare that to the United State's $42,000/C, and it only goes downhill from there.

They make it seem like Europe is such a great model, but in actuality,
"It is better being poor in a rich country than in a poor one."

Economic Freedom: The key to economic success.

Cross Posted At: GOP and College

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