Thursday, August 23, 2012

Euro-envy, the welfare state, and economic growth

Many Democrats wish the U.S. was more like Western and Northern Europe. Good idea?
Asia is set to have the world's wealthiest residents, with city-state Singapore heading the rich list.

Hong Kong, Taiwan and South Korea will do well, too, according to by a new survey that predicts which countries will be home to the wealthiest citizens by 2050. ...

By 2050, the Wealth Report estimates the world's wealthy citizens will be dominated by Asia: Singapore ($137,710), Hong Kong ($116,639), Taiwan ($114,093) and South Korea ($107,752). The only western economy projected to remain in the top five is the U.S., with an estimated per capita income of $100,802. ...

Old World economies will have the worst growth performance in the next 40 years, the report predicts: Spain, France, Sweden, Belgium, Switzerland, Austria, the Netherlands, Italy and Germany are at the bottom of the list. But Japan and its aging population will have the weakest projected growth of all economies, Knight Frank estimates.
In general, the size of a country's welfare state and it's rate of economic growth are inversely proportional, because a cushy welfare state (and correspondingly high tax burden) reduces the incentive to work, invest, and start new businesses.

That said, government spending isn't always harmful. Government capital investment increases economic growth. Governments should favor spending on intellectual capital (education and scientific R&D) and physical capital (transportation and communications).

The late Milton Friedman has a little to say about #2 on the list, Hong Kong:

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