A Welfare State or a Start-Up Nation?

Great article by ALLAN H. MELTZER in today's WSJ. Excertps:

"Neglecting the benefits of using resources more productively misses one of the main economic lessons of the past half century. Transfers, grants and redistribution did little to raise living standards in Asia, Latin America and Africa. Capitalist development and open economies lifted vastly more people out of poverty in a decade than welfare state policies had achieved in 50 years. Japan in the 1950s began to force its producers to compete in world markets. That forced its firms to use resources more productively. Korea, Taiwan, Hong Kong, Singapore and eventually China and India followed the Japanese growth model. Chile was an early successful convert; now we have Brazil and parts of Africa.

The lesson applies here in the U.S as well. The welfare of the citizens—poor, middle-class and wealthy—is best improved by using resources more productively. Of course, increased productivity isn't an instant cure for what ails us; there is no instant cure. Administration and Federal Reserve policies have tried mightily, and wastefully, to get quick gains—with few results to show. Despite near-zero interest rates and almost a trillion dollars in "stimulus" spending, unemployment remains stuck at 9% and a true recovery is elusive.

The Obama administration argues that the economy would have been much worse without its actions. But progress would have been far greater by now if the administration had simply copied the successful Kennedy and Reagan policies and permanently cut marginal income tax rates while eliminating burdensome regulations."

"Mr. Obama and his followers claim they want a solution that is "fair." Why is it fair to distribute more welfare to today's voters at the expense of their children and grandchildren who will pay for this less productive use of resources? This is the same "fair" approach that Europeans chose decades ago, and which led to chronic low growth and high unemployment.

After 1990, France, Germany and Italy gave up the goal of bringing their per capita incomes to equality with the U.S. Germany spread its welfare state to the east. Italy and France pushed redistribution and fairness. From 1990 to the start of the crisis in 2006, the U.S. economy grew on average 1% a year faster than France, Germany or Italy, according to the Organization for Economic Cooperation and Development. After one generation, a one percentage point difference in growth rate becomes a 25% difference in per-capita income. Low growth significantly lowers real wages and living standards for everyone, which in turn lessens tax receipts and resources for redistribution."