Last year, I came up with a saying that “Bad Government Policy Begets More Bad Government Policy” and labeled it “Mitchell’s Law” during a bout of narcissism.

There are lots of examples of this phenomenon, such as the misguided War on Drugs being a precursor to intrusive, costly, and ineffective money laundering policies.

Or how about government healthcare subsidies driving up the price of healthcare, which then leads politicians to decide that there should be even more subsidies because healthcare has become more expensive.

But if you want a really stark example of Mitchell’s Law, the internal revenue code is littered with examples.

The politicians created a nightmarishly complex tax system, for instance, and then decided that enforcing the wretched system required the erosion of civil liberties and constitutional freedoms.

The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.

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Elizabeth Warren, the Democratic candidate for the U.S. Senate in Massachusetts, recently created a media flap when she said:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there—good for you!

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea—God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Conservatives and libertarians took offense at Warren’s claim that the government has a superior claim to “a hunk” of people’s earnings merely because every individual lives in and benefits from a society to whose creation many other people have contributed.

The critics might well have been grateful for small blessings, however. Warren was prepared, rhetorically at least, to let people keep “a big hunk” of their earnings.

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One hopes that the dictator of North Korea suffered greatly before he died. After all, his totalitarian and communist (pardon the redundancy) policies caused untold death and misery.

But let’s try to learn an economics lesson. In a previous post, I compared  long-term growth in Hong Kong and Argentina to show the difference between capitalism and cronyism.

But for a much more dramatic comparison, look at the difference between North Korea and South Korea.

Hmmm…, I wonder if we can conclude that markets are better than statism? I bet even Harry Reid can guess the answer.

And if you like these types of comparisons, here’s a post showing how Singapore has caught up with the United States. And here’s another comparing what’s happened in the past 30 years in Chile, Argentina, and Venezuela.

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We have some good news and bad news on jobs.

The good news is that an AFP news story says the unemployment rate has dropped to 3.2 percent.

The bad news (from the U.S. perspective) is that the article was about Hong Kong, which continues to enjoy strong economic growth while America stagnates.

One reason for the divergence is found in the just-released 2011 edition of Economic Freedom of the World, published by Canada’s Fraser Institute in cooperation with groups like the Cato Institute.

Covering data through 2009, the new edition of EFW shows that Hong Kong retains its status as the world’s freest economy. On the other hand, the same report provides damning evidence of the negative impact of the Bush-Obama policies of bigger government and more intervention.

Here’s a relevant passage from the Executive Summary.

The world’s largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components. Over the longer term, the summary chain-linked ratings of Venezuela, Zimbabwe, United States, and Malaysia fell by eight-tenths of a point or more between 1990 and 2009, causing their rankings to slip.

This chart (click to enlarge), taken directly from the book, shows how the United States has been of the world’s five-worst performers over the past decade, putting America in a very unfortunate category.

And here’s a chart I created (click to enlarge) showing how the United States has declined relative to other nations. Simply stated, America is on the verge of falling out of the top 10, after being the 3rd-freest economy in the world at the end of the Clinton Administration.

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In a perverse way, I’m glad that there are places such as Greece and Illinois. These profligate jurisdictions are useful examples of the dangers of bloated government and reckless statism.

There also are some cities that serve as reverse role models. Detroit is a miserable case study of big government run amok, so I enjoyed a moment or two of guilty pleasure as I read this CNBC story about the ongoing decay of the Motor City. Here are some excerpts.

Detroit neighborhoods with more people and a better chance of survival will receive different levels of city services than more blighted areas under a plan unveiled Wednesday that some residents fear may pit them against each other for scarce resources. …the boundaries of the 139-square-mile city aren’t receding. The plan also backs away from forcing the redistribution of what’s left of the population into areas where people still live and where the houses aren’t on the verge of caving in. …Detroit’s population of about 713,000 is down about 200,000 from 10 years ago, according to U.S. Census figures, and has fallen more than 1 million since 1950. Some areas have fewer occupied homes than vacant ones. …A 2010 survey found Detroit had 33,000 vacant houses and scores of empty, weed-filled and trash-cluttered lots.

How predictable, I thought. This is what happens when vote-hungry politicians adopt policies that reward people for riding in the wagon and punish the folks who are pulling the wagon.

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It’s hard to imagine how we would get through life without necessities like bacon and duct tape. But have you ever thought about how the free market gives you so much for so little?

Here’s a video that should be mandatory viewing in Washington. Too bad politicians didn’t watch it before imposing government-run healthcare.

And since we’re contemplating the big-picture issue of whether markets are better than statism, here’s some very sobering polling data from EurActiv.

A recent survey has found deep pessimism among European Commission staff on a wide range of issues, including the course of European integration over the past decade and the likelihood of success of the EU’s strategy for economic growth. Some 63% partially or totally agreed that “the European model has entered into a lasting crisis”.

This is remarkable.

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I’ve explained before that one of the most damning pieces of evidence against Obamanomics is that the economy is suffering from sub-par growth, something that is particularly damning since normally one expects to see faster-than-average growth following an economic downturn.

In a recent presentation, Robert Lucas of the University of Chicago included a couple of graphs that illustrate this phenomenon. This first chart shows the history of U.S. economic growth over the past 140 years. As you can see, the growth rate was remarkably constant over time, and there were always periods of rapid growth following economic downturns.

Lucas, who won the Nobel Prize in economics in 1995, then looks at the data for the recent downturn and recovery. As you can see, we have been struggling to get back to average growth rates and we have not enjoyed any of the above-average growth that normally follows a recession.

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It’s fascinating to read Progressives as they think through a difficult policy problem. Kevin Drum writes (at Mother Jones!) that we can’t improve education or mitigate poverty:

“I continue to think that the biggest problem here is simply that no one has any really compelling answers. . . You can go down the list of every ed reform ever touted, and they either can’t scale up, turn out to have ambiguous results when proper studies are done, or simply wash out over time. . .

So is the answer to address concentrated poverty? Sure. Except that, if anything, attempts to address poverty have a worse track record than attempts to improve education.

I would really, really like someone to tell me I’m wrong. So far, though, no one has. At least, not to my satisfaction. But I’m willing to be schooled if anyone thinks I’m missing the big picture here.”

Wow, Progressives really are depressed this year. Ezra Klein mostly agrees, Matt Yglesias and Kevin Carey seem more optimistic. But I doubt any of them have compelling answers to Drum’s concerns.

So Kevin, Ezra, I’m here to tell you . . . you’re wrong. Let me rephrase that. You are right that all your Progressive solutions to these problems are perpetual and necessary failures. But there is a solution.

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I pose this question seriously, not as a physiologist, but as an economic historian. I am provoked to raise the question by an advertisement that Amazon sent me recently, calling my attention a book titled Can Capitalism Survive? Creative Destruction and the Future of the Global Economy. Seeing this sales pitch, my immediate reaction was my usual sadly amused reply to such a question: Can capitalism survive? What an odd question! Assuming that capitalism ever existed at all, it has been dead for at least a century.

At first glance, I did not recognize that the book being advertised is one for which, in a sense, I am responsible. It turns out that the “new” book is only an old (portion of a) book, now adorned by a new subtitle and two new introductory paragraphs by the Newsweek columnist Robert J. Samuelson. If I reveal that the book’s author is Joseph A. Schumpeter, many readers will recognize it immediately as Part II of that famous economist’s best-known work Capitalism, Socialism and Democracy, first published in 1942, with subsequent editions in 1947 and 1950.

The new book’s front cover has a blurb from Fortune that declares Schumpeter to have been “the most influential economist of the twentieth century . . . a major prophet.” The back cover has an embarrassingly superficial blurb by publisher Steve Forbes that, among other things, describes Schumpeter as “the twentieth century’s foremost economist.”

I do not consider Schumpeter entitled to be called the most influential economist of the past century―that distinction unfortunately belongs to John Maynard Keynes, and Milton Friedman surely deserves the second place. As for Schumpeter’s rank as a prophet or as the intellectually foremost economist, I would place him below Ludwig von Mises and F. A. Hayek.

Nevertheless, Schumpeter was unquestionably one of the most important economists of his day, and his work has continued for good reason to attract readers ever since his death in 1950.

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Angelo M. Codevilla, professor emeritus of international relations at Boston University, has written an extraordinary essay for the July/August issue of The American Spectator. It’s called “America’s Ruling Class – And the Perils of Revolution,” but it deals much more extensively with the anatomy and functioning of the class system in the United States today than with the prospect of revolution.

Codevilla cuts immediately to the core: the United States today is divided into (a) a ruling class, which dominates the government at every level, the schools and universities, the mainstream media, Hollywood, and a great deal else, and (b) all of the rest of us, a heterogeneous agglomeration that Codevilla dubs the country class. The ruling class holds the lion’s share of the institutional power, but the country class encompasses perhaps two-thirds of the people.

Members of the two classes do not like one another. In particular, the ruling class views the rest of the population as composed of ignoramuses who are vicious, violent, racist, religious, irrational, unscientific, backward, generally ill-behaved, and incapable of living well without constant, detailed direction by our betters; and it views itself as perfectly qualified and entitled to pound us into better shape by the generous application of laws, taxes, subsidies, regulations, and unceasing declarations of its dedication to bringing the country—and indeed the entire world—out of its present darkness and into the light of the Brave New World it is busily engineering.

This class divide has little to do with rich versus poor or Democrat versus Republican. At its core, it has to do with the division between, on the one hand, those whose attitudes are attuned to the views endorsed by the ruling class (especially “political correctness”) and whose fortunes are linked directly or indirectly with government programs and, on the other hand, those whose outlooks and interests derive from and focus on private affairs, especially the traditional family, religion, and genuine private enterprise. Above all, as Codevilla makes plain, “for our ruling class, identity always trumps.” These people know they are superior in every way, and they are not shy about letting us know that they are. Arrogance might as well be their middle name.

The ruling class, not surprisingly, is also the statist party:

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Liberals, progressives, socialists, statists, communists — all enemies of civilization argue all issues on the basis of moral relativism, one odious derivation of which is multiculturalism.  There are many arguments for why such principles are wrong.  But perhaps the most obvious problem with moral relativism and its counterparts is that from which moral relativism springs: the idea that there is no objective truth.

If there is no objective truth as the Sophists argue, then how can the statement that there is no objective truth be true?  If nothing is true, then how can the assumption be made that it is true that there is no such thing that is truly inherently good or inherently bad, or that it is true that there is no culture that is truly better than any other culture?  To argue in favor of moral relativism or multiculturalism requires a belief that there is objective truth; this is a conundrum that Leftists cannot argue away.

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Far-left ideologues and self-styled intellectual illuminati have, for years, labored overtime to highjack the notion of American Exceptionalism by equating it with their own notion of American arrogance.  Let us put an end to this calumny. Let us recall and, indeed, praise the American Exceptionalism at which Alexis de Tocqueville marveled when, during his travels through the young country in 1831, he coined the term in his treatise, “Democracy in America.”

De Tocqueville was writing for the European reader, especially for his fellow Frenchmen far more than he was writing for the new and vibrant American marketplace.  Whereas revolution had produced chaos and anarchy and hatred of almost anything that smacked of religion in France, de Tocqueville was quick to observe that something quite the contrary had emerged in America.  Here he saw the budding fruits of freedom, individual liberty, equality of opportunity and a people absolutely free to practice religion however they chose or not to practice any religion at all.   What he saw, first hand, was the world’s first functioning meritocracy, and what he described so eloquently was the fantastic differentiation of America from Europe.  He called it American Exceptionalism. It was, and has been, that exceptionalism that produced the most industrious nation the world has ever known.

That is something we should celebrate each and every day…that which made us different, that which made us great, and that which, thankfully, a rapidly growing number of Americans are determined to reestablish as the great American paradigm.  And while American Exceptionalism shouldn’t merely be about what was, but rather about what is, it is worth remembering that twenty-five thousand Americans died during the War of Independence to establish the great American experiment.  Relative to population that first American war was the second costliest in human treasure, exceeded only by the Civil War.   During the course of the 235 years since the shot at Concord that was heard around the world, more than 1.3 million Americans have died defending freedom and liberty.

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If we are to stop the march of this nation towards socialism, it is imperative that we understand and educate our fellow citizens as to what socialism is like.  This need not be limited to distant readings of history books about the gulags in Russia.  Indeed we get a very gripping modern-day reminder of the horrors of socialism from a recent article in the New York Times on North Korea.

The piece begins:

YANJI, China — Like many North Koreans, the construction worker lived in penury. His state employer had not paid him for so long that he had forgotten his salary. Indeed, he paid his boss to be listed as a dummy worker so that he could leave his work site. Then he and his wife could scrape out a living selling small bags of detergent on the black market.

It hardly seemed that life could get worse. And then, one Saturday afternoon last November, his sister burst into his apartment in Chongjin with shocking news: the North Korean government had decided to drastically devalue the nation’s currency. The family’s life savings, about $1,560, had been reduced to about $30.

Last month the construction worker sat in a safe house in this bustling northern Chinese city, lamenting years of useless sacrifice. Vegetables for his parents, his wife’s asthma medicine, the navy track suit his 15-year-old daughter craved — all were forsworn on the theory that, even in North Korea, the future was worth saving for.

“Ai!” he exclaimed, cursing between sobs. “How we worked to save that money! Thinking about it makes me go crazy.”

Such is the horrifically arbitrary nature of communist regimes.  With the swift stroke of a pen the fruits of one’s labors can be reduced to nothing overnight.

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The media in the backdrop of Barack Obama’s now infamous “whose ass to kick” comment has argued that this President’s critics are angry at him for not showing more emotion.  That conservative bastion CNN features an article entitled ‘Why Obama doesn’t dare become the ‘angry black man’ that reads:

Who would have ever expected some white Americans to demand that an African-American man show more rage?

If you’ve followed the Gulf of Mexico oil disaster, you’ve heard the complaints that Obama isn’t showing enough emotion.

But scholars say Obama’s critics ignore a lesson from American history: Many white Americans don’t like angry black men.

[…]

“Folks are waiting for a Samuel Jackson ‘Snakes on the Plane’ moment from this president as in: ‘We gotta’ get this $#@!!* oil back in the $#!!* rig!’ But that’s just not who Obama is,” says Saladin Ambar, a political science professor at Lehigh University in Bethlehem, Pennsylvania.

A few observations here.  First, notice how it is only leftists like Bill Maher, Spike Lee and the elites in academia and the media coming out and making this a race issue.  Second, how unintelligible is this argument?  People are upset because the President is not getting upset, but they are wrong to be upset because they don’t like President’s that play into stereotypes?  What exactly does this have to do with an oil spill that is crippling the nation?  And who is perpetuating such a stereotype?  Third, which Americans are demanding that Barack Obama show rage?  People of all stripes and colors are looking for a President to stand up and show calm but confident and steadfast leadership, irrespective of the President’s race.  If Barack Obama happened to be purple it wouldn’t make a damn difference.

The race issue is simply devised as a smokescreen by which the left seeks to distract us.  Since the President has done a poor job leading the nation in the wake of the ongoing BP spill, the media pulls the race card to shift the focus away from Obama and towards his critics who after all are all clansmen.  Yet notice again that throughout this Presidency, the only people talking about race are the leftists themselves.

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The health care legislation recently bulldozed through Congress is only the tip of the iceberg. With some 2,400 pages of dense legalese—with thousands of additional pages of regulations implementing the legislation still to be written—this huge statute puts government in effective control of some of life’s most intimate, personal, and important decisions: who will receive medical care, and when, where, and how it will be received.

A popular slogan of the Italian Fascists under Mussolini was, “Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato”—meaning, “Everything for the state, nothing outside the state, nothing against the state.”

I recall this expression frequently as I observe the government’s growing reach in American society. Washington’s medical-care power grab is only the latest example.

What of any consequence remains beyond the state’s reach in the United States today? Not wages, working conditions, or labor management relations; not health care; not money, banking, or financial services; not personal privacy; not transportation or communication; not education or scientific research; not farming or food supply; not nutrition or food quality; not marriage or divorce; not child care; not provision for retirement; not recreation; not insurance of any kind; not smoking or drinking; not gambling; not political campaign funding or publicity; not real-estate development, home construction, or housing finance; not international travel, trade, or finance; not 1,000 other areas and aspects of economic and social life.

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You and I have a rendezvous with destiny.  We’ll preserve for our children this, the last best hope of man on earth, or we’ll sentence them to take the last step into a thousand years of darkness.

Ronald Reagan spoke these words some forty-six years ago in his famous “A Time for Choosing” speech.  Tragically, today in America it appears the time for choosing is fast passing. As each day goes by our debt grows more untenable; our security more imperiled; our economy more shackled; our government more tyrannical.

These are symptoms of an America that has chosen the wrong path.  We lost our way on the road to civilization, veering onto the road to serfdom. Our plight is the result of a hundred-plus year campaign by the socialist sophists to slowly but surely undermine the bedrock principles on which we had built our strength.

While the ends of a nation are peace, prosperity and culture, from our founding there was a dichotomy of opinion as to how best to achieve these ends.  It was not merely a matter of state versus federal or small versus big government.  Rather, at its core the split rested and continues to rest upon embracing liberty or embracing tyranny.

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We’ve learned that Keynesianism does not make sense and that Obama’s so-called stimulus was misguided. In the final installment of this three-part series, let’s discuss the policies that actually would improve economic performance. As this video explains, both Economic Freedom of the World and the Index of Economic Freedom identify sound money, rule of law, property rights, small government, low tax rates, open markets, and laissez faire as the key conditions for prosperity.

The simple summary of the video is that economic liberalization and small government boost economic performance, not “jobs programs” or “stimulus packages.” But things are never as simple as they seem. Many Republicans, for instance, act as if any economic problem can be solved by cutting taxes. That’s a laundable instinct, to be sure, but fiscal policy only accounts for 20 percent of a nation’s economic performance and it is unreasonable to assume good tax policy can solve the problems caused by bad monetary policy or foolish regulatory interventions. Moreover, there is a big difference between good (supply-side) tax cuts that increase incentives for productive behavior and useless gimmicks such as tax credits and tax holidays. If Republicans want to rebuild their credibility on economic issues, they need to apologize for the reckless statism of the Bush years and rededicate themselves to shrinking the size and scope of the federal government.

Steve Moore of the Wall Street Journal has an excellent column today discussing new poll data showing that Americans think, on average, that 50 percent of the federal budget is wasted. As Steve explains, these numbers are very encouraging since they suggest that “Americans are in the mood for a radical shrinking of government in order to reduce debt and waste.” The bad news is that the 50 percent figure almost certainly is too high. Yes, government programs are riddled with waste, fraud, and abuse, but most of the money actually winds up in the hands of intended beneficiaries. The good news, though, is that this does not undermine the argument for dramatic reductions in the size and scope of the federal government. As this video explains, there are eight big reasons why government spending undermines economic growth.