This Past Is No Path for the Future.
European economic growth rates have lagged those of the U.S. for decades. Since the crisis of 2008, for instance, the average pace for the EU has been 0.9% versus almost 2% for the U.S.—and that 2% is regarded as subpar. This EU sluggishness (along with deep concerns over uncontrolled immigration) has spurred the rise of nontraditional, “populist” political movements. And how are existing parties responding? By promoting policies that guarantee even more economic stagnation: more taxes on corporations and the “rich,” more spending for social programs and pensions and more regulations on businesses. As the Wall Street Journal headlined, “Europe’s Political Parties Promise a Return to 1970s—To fend off populists, struggling parties embrace bigger government.”
Yes, our continental friends did do some things right, thanks to the successes of Ronald Reagan and Margaret Thatcher, primarily selling off government-owned businesses and somewhat reducing their sky-high tax rates—especially in recent years—on corporations. However, compared with U.S. standards, the EU’s tax and regulatory burdens are still crushing.
Every one of these countries has fearsome value-added taxes, which are really super sales taxes. In Denmark the VAT is 25%, in beleaguered Greece 24%, in the U.K. 20% and in Germany 19%. The U.S. has no VAT; most states have levies, but none above 10%.
Far worse are European payroll taxes. The American version, dubbed FICA, is 15.3% on the first $132,900 of income and 2.9% on income above that. In contrast, the level in EU countries is, astonishingly, two to three times ours. In France, a sluggish economic performer since the 1970s, the payroll tax is 65%—45% paid by the employer, 20% by the employee.
Regulations, especially those regarding labor, have long been more onerous and severe than those in the U.S. Observers are only halfjoking when they say it’s easier to divorce a spouse than it is to shed a worker in most of Europe. These burdens have been eased only slightly since the 1970s.
Structural changes in pensions for government bureaucrats or in labor laws are fiercely resisted, as any French president can testify. Germany was able to make some reforms in the early 2000s that led to better growth. But they cost the chancellor his job and have been chipped away at since then.
Countries that have upped their economic game a bit in more recent times, such as Sweden, Denmark and Hungary, didn’t go in an anti-Reagan/Thatcher direction.
What we see unfolding in the EU is a form of insanity: Keep applying what doesn’t work, and when that fails, do it some more. It reminds one of medicine a few centuries ago, when doctors would bleed patients: The worse they got, the more they were bled.
This is all the more reason to clear away the trade/tariff uncertainties that are holding back corporate investment. Businesspeople need to know what the rules are before they will commit. Provide those, and the U.S. economy will really roar—and that big success may provide a teachable moment to our floundering friends overseas.
without immense, time-consuming procedures? Why have judges lost control of their courtrooms to extortionist litigants? Why have so many colleges and universities surrendered to antifree-speech extremists? When things are not done right in the government, why is it impossible to insist on responsibility? And the political consequences are serious, as people increasingly feel they’re losing control over their lives.
Howard says the crisis began in the late 1960s, when the notion grew in law schools that society would run better and more fairly if we were governed by precise rules that would minimize individual discretion, thereby preventing the exercise of arbitrary power. The situation was made worse by the rise of government unions that have made the removal of nonperforming personnel a virtual impossibility.
Howard’s short yet blood-pressureraising book makes the case that the current political parties—rhetoric to the contrary—are too vested in the status quo to make the radical changes that would allow America to again be the practical culture we once were.
True, the Trump administration is making a sustained effort to roll back provisions that have been crushing the economy, an effort that has been crucial to the economic resurgence since 2017. But these gains still pale beside the 150 million words (this is only a rough estimate, as no one really knows) of rules and regulations out of Washington that have stultified American life for a half century. How durable will the Trump gains be? Judging from attempts by several preceding administrations to curb excesses, the regulatory onslaught will resume as soon as there is a political change. Like kudzu, it seems unstoppable.
Congress, for example, struts about issuing statements, holding hearings and raising funds but defers real responsibility to others, particularly administrative agencies. Call it press-release politics.
Independent judgment by officials achieving real results and being individually accountable for performance have been smothered by a culture of operating by the rules. “Terrible officials, teachers and contractors keep their jobs because they fill out the forms correctly . . . . Washington is run by inertia. No one wants responsibility for actual results.”
The consequences of this tsunami of rules go beyond government. Businesses spend more and more brainpower and resources trying to comply with idiotic strictures. Howard cites the case of an upstate New York apple orchard that is subject to 5,000 rules from 17 different programs and agencies. One particularly nonsensical edict: When apples are removed from a tree, the cart in which they are put must be covered by a tarp lest birds poop on them. Remember, these apples have been on tarpless trees for five months before being harvested and will be rigorously washed when they get to the shed!
Undermining democracy with a blizzard of nitpicking, suffocating rules was a danger foreseen by Alexis de Tocqueville, author of the still highly pertinent book Democracy in America. He warned back in the 1830s of “a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate . . . . The nature of despotic power in democratic ages is not to be fierce or cruel, but minute and meddling.”
What’s to be done? Here are some remedies.
• Regulation by principles, not massive rule books. Among the examples cited by Howard is the case of Australian nursing homes. Thick rulebooks were replaced with 31 general principles. Result: “Within a short period, nursing homes were markedly better because . . . the operators, regulators, and family representatives started focusing on quality instead of compliance.”
• Remove most government agencies from Washington and relocate them around the country. This way officials would be living and working among real people instead of being ensconced in the Beltway bubble.
Performance would improve as well. The effective Centers for Disease Control & Prevention is located in Atlanta.
The Food & Drug Administration, for example, could move to a science-oriented locale, such as Boston. The Department of Housing & Urban Development could pull up stakes for the reviving city of Detroit.
Decentralizing the federal government would also make life infinitely harder for the hordes of lobbyists to ply their trade: Agencies would no longer be a cab ride away.
• File the lawsuit of the century. Thanks to unions and ill-conceived legislation, it’s virtually impossible to fire government workers. This dramatically hurts performance and has made it impossible to hold bureaucrats to any kind of accountability. This is demoralizing to people who are actually dedicated to their work. And it makes for bureaucratic bloat.
But such civil service invulnerability is unconstitutional. Article II of the Constitution gives the president the power to remove executive branch employees. James Madison, considered to be the intellectual father of the Constitution, said: “If any power whatsoever is in its nature executive, it is the power of appointing, overseeing and controlling those who execute the laws.” The whole civil service reform movement of the late 19th century was about stopping the hiring of political hacks and instead relying on exams to test for competency. It was not about the president’s power to dismiss government employees. A successful suit here would dramatically change the culture of modern governance.
Howard also discusses other actions. Kudzu may be unstoppable, but the poisonous plants of witless, asphyxiating, ever proliferating rules and unresponsive, unaccountable government bodies can be halted and rooted out—but as this book makes clear, only if we, the people, take action.