The American Middle Class

From the New York Times:

Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then.

For the Times and others, this is confirmation of the “income inequality” problem in the US, which can be remedied with higher taxes on upper-income earners and more spending on social programs.

But do higher taxes and increased spending explain Canada’s growth? Chris Edwards from the Cato Institute detailed the policy reforms Canada has undergone in recent years. These include:

-“Price stability” goals from Canada’s central bank.

-The privatization of two dozen “crown corporations.”

-The passage of NAFTA.

-Reduced federal spending as a share of GDP from 22% in 1995 to 15% in 2006.

-Cuts to capital gains, income, and corporate tax rates, while indexing income tax brackets to inflation.

The US pursued a number of pro-growth initiatives during the 1980s and ’90s. Activist government has defined American policy since the turn of the century, however:

-Monetary moderation was pushed aside as the Federal Reserve substantially lowered the federal funds rate and pursued quantitative easing.

President Bush increased high-cost regulations by 70% during his presidency (while budgets for regulatory activity went up 62%), while Obama has built upon the regulatory apparatus.

Under President Clinton, federal spending averaged 19.8% of GDP. Under President Bush, the average was 20.5%. For President Obama’s first 4 years in office, the average was 24%.

Keynesian economics and regulatory mission-creep have done more harm than good. Yet the solution to problems caused by activist government is more activist government?

For once, I agree with Michael Moore: it’s time we behaved more like the Canadians.


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