Spendthrift Nations

September 26, 2013

America and the West lead the way to the bottom of the list of spendthrift nations. The good news is that there are more countries managing their economies in a fiscally responsible way than there were two years ago. Fiscally responsible means keeping average annual deficits less than average annual economic growth rates, keeping net debt from exceeding one-third of gross domestic product, and maintaining a relatively small government. The bad news is that most of the world's biggest economies, including that of the United States, are getting deeper and deeper in debt as a result of excessive spending and will ultimately have to pay the price, says Richard Rahn, a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

  • Switzerland wins the award for having the overall best-managed and well-balanced economy, despite the fact that government spending is higher than the optimum.
  • Switzerland has had prudent and responsible economic policies for decades, resulting in a higher per-capita income than that of the United States.
  • Number two is Chile, which now has the highest per capita income in Latin America after more than three decades of pro-growth, small-government policies. It has no debt and is running a surplus.
  • The major countries that are in the worst fiscal shape are the United States, the United Kingdom, Spain, Italy, France and Japan.
  • All of these countries suffer from too much government, excessive taxation and regulation, and economic growth rates far below their annual deficits.

All of the large-debt countries illustrate the curse of democracy, in that a very high portion of their electorates receive more benefits from governments than they pay for, so they vote for politicians who promise even more, though the cookie jar is empty. The result will be increasing economic stagnation and likely political instability.

The additional tragedy for the world is that the big, poorly managed countries, rather than reforming their own economies, are putting pressure on the well-managed countries to raise taxes and increase harmful spending and regulations. The Obama administration has been very aggressive in trying to extend the very destructive U.S. tax laws to the rest of the world. The Obama Justice Department has gone so far as to harass and threaten Swiss financial institutions and others because they do not enforce U.S. tax law in Switzerland. A wiser U.S. government would be trying to emulate the responsible Swiss policies and those of other smaller government, low-debt countries, rather than trying to bully and punish the successful.

Source: Richard Rahn, "Surprise Among the Spendthrift Nations," Washington Times, September 17, 2013.

 

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