Growth Matters

Sweden, a nation of about 10.5M, was a darling of the Democratic Socialist crowd for a good part of the past couple decades. Often touted as a paragon by Bernie Sanders, Sweden has a massive welfare state. And heavy taxation that, contrary to Sanders' desired policies, burdens everyone and is actually much flatter than America's highly progressive tax code. Once people started actually learning about how Sweden works, our domestic socialists stopped mentioning that land of the ice and snow and the midnight sun.

Sweden didn't always operate as it does today. For decades in the 20th century, up until the 1970s, Sweden had a small government and an open economy, and grew by leaps and bounds into one of the richest countries in the world. All that prosperity gave socialists some ideas, and Sweden expanded government and increased taxes. What ensued was twenty years of stagnation and an eventual financial crisis. Sweden started unraveling its socialistic state, re-embracing market forces, reducing regulation, reforming social security, and so on.

Growth resumed. The lost decades remain lost, but at least they are on a good arc again.

Sweden has not returned to its small government roots, and has way too much government for my tastes, but it's not the redistributive nightmare that our domestic socialists want to impose on America. Everyone there pays heavy taxes, for one thing. Click here to see what else.

I was reminded of this by an article at The Free Press that debunks the long-held notion that Europeans live better than Americans do. Regulation, taxation, and other market distortions/impediments have held European GDP growth below that of America for decades.

Albert Einstein is (probably apocryphally) cited as having said, "the most powerful force in the Universe is compound interest." A one percent disparity in economic growth between Europe and America (it's actually a bit more like 1.1% across the past few decades) may not seem like much, but compounded across just the past quarter century, it means America outperformed Europe by over 30%. Stretch it across half a century and the outperformance exceeds 70%.

Economic growth may seem like a dry subject, but it serves as a proxy for living standards. Improving living standards is a fundamental human instinct, and people have come together to form tribes and nations across thousands of years of civilization specifically in order to improve their living standards. For most of human history, the advancement of living standards was ploddingly slow. It was the advent of capitalism and free markets, of Adam Smith's vision, that greatly accelerated growth and lifted the bulk of humanity out of subsistence living.

Today, we see that America's poorest state has a per-capita GDP exceeding that of all but five European nations, and is on a par with Europe's biggest economy (Germany). Once again, I refer to the power of compound interest and the long-term effect of growth.

Alas, today we have people arguing that it's OK to forego some growth if it means that "society" can better take care of its poorest. And by "society" they mean themselves or their proxies and with someone else's money. This ignores what worked so well in favor of a nirvana fallacy that never turns out as intended. We saw that failure in Sweden, we saw it in Venezuela's collapse, and we saw it in all the communist and socialist countries of the 20th century.

Many of these socialists can be excused as simply ignorant, as victims of an educational system and propaganda campaign that rejects reality in favor of an endlessly disproved fantasy. These aren't the real villains.

That label is better applied to the "degrowth" advocates, to people who believe that humanity needs to live poorer and less comfortable lives, that those still at subsistence living levels should not be allowed to elevate, because blah blah save blah blah the planet. News flash - the planet doesn't care, and the planet doesn't matter other than as a habitat for the human race.

These same villains will often decry overpopulation, ignoring the 250 years of debunking that Thomas Malthus's theories have received, and insisting that the world population needs to drop by 2/3. Or 90%. Themselves and theirs excluded, of course, no matter that they are likely to have carbon footprints an order of magnitude greater than the third worlders they'd prefer disappear.

Growth matters. Growth is also our only hope for escaping fiscal disaster caused by endless borrowing. Hauser's Law, which observes that post WWII tax revenue holds steady at about 19% of GDP, tells us that fiddling with income taxes will not produce additional revenue, because Americans adjust their behaviors. So, if we are to tame the debt, we need the economy to grow, and grow faster than spending does.

How do we encourage growth? As I recently blogged, we have been provided the answer by both Argentina's President Javier Milei and our President of a century ago, Calvin Coolidge. Cut regulations, cut red tape, cut spending, and cut tax rates. Tax revenues as a percentage of GDOP will continue to follow Hauser's Law, but as GDP grows, total dollar tax revenue will grow with it.

Trump's gotten some of this right so far. We see deregulation, we see pro-growth tax legislation, and we see an undoing of the worst anti-growth policies (especially in energy) of the Biden era. Unfortunately, we also see growth-harming tariffs, a sheaf of market-distorting behaviors (repatriating jobs doesn't do good if it drives prices up), and way too little cost cutting. So far. A mixed bag, as I predicted and continue to expect.

It's only been seven months, so I abide re Trump. The core of today's message is about growth and its enemies. Those enemies pretend to care about others, but their actions belie their words. An enemy of growth is an enemy of humanity.