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Advice to libertarians and progressives

Summary:
In this post I’ll offer a couple of suggestions to two groups that seem to be hurting their own cause. Let’s start with the progressives. The mainstream parties in much of Europe have recently presided over some very ineffective economic policies. Perhaps as a result, some right-wing, nativist, authoritarian parties have risen in the polls. One of the most successful is Italy’s Northern League, which is now proposing a “fiscal shock” including a 15% flat rate income tax, as a way to stimulate the economy: Italy’s deputy prime minister and leader of the anti-immigration League party said that Italy “must lower taxes”. “We need a Trump cure, an Orban cure, a positive fiscal shock to restart the country,” Mr Salvini said in a radio interview on Tuesday. “Not

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In this post I’ll offer a couple of suggestions to two groups that seem to be hurting their own cause. Let’s start with the progressives.

The mainstream parties in much of Europe have recently presided over some very ineffective economic policies. Perhaps as a result, some right-wing, nativist, authoritarian parties have risen in the polls. One of the most successful is Italy’s Northern League, which is now proposing a “fiscal shock” including a 15% flat rate income tax, as a way to stimulate the economy:

Italy’s deputy prime minister and leader of the anti-immigration League party said that Italy “must lower taxes”.

“We need a Trump cure, an Orban cure, a positive fiscal shock to restart the country,” Mr Salvini said in a radio interview on Tuesday. “Not everything all at once, but the goal is in the government contract.” . . .

Mr Salvini has been emboldened by his League party coming first in Italy in this weekend’s European elections. As a result, he is planning to push ahead with reducing Italian income taxes to a flat rate of 15 per cent. The measures would cost €30bn, he said, and would in part be funded by cutting other spending.

There are even rumors that Italy might leave the euro.

Here is the danger that I see for progressives.  In Europe, progressives have essentially forfeited the “growth” issue to the extremes, through a foolish set of anti-growth policies.  On the supply side, heavy taxes and regulations have slowed growth in countries such as Italy and Greece.  On the demand side, the ECB has been a disaster, allowing only anemic growth in eurozone NGDP.  This combination is especially problematic in places like Italy, where wages are quite inflexible and thus less able to adjust to slow NGDP growth than places such as Germany or Hong Kong.

Political parties that are in many respects quite unappealing can take advantage of this state of affairs by promising faster economic growth.  And importantly, if the progressives have failed to take advantage of options like a 15% flat tax, or more expansionary monetary policy, there is every likelihood that these populist parties will actually be able to deliver faster growth.  History of full of examples of nasty political movements (on both the left and the right) that gained credibility by delivering faster growth for 5 or 10 years, until it all fell apart in disaster.  (Venezuela is a recent example, but even more ominous precedents exist.)

In my view, the biggest weakness of the Obama administration was its complacency about the growth issue.  There was little effort to boost the supply side through tax reform and/or deregulation, and the administration also put little focus on the need to put advocates of monetary stimulus onto the Federal Reserve Board.  This left “low-hanging fruit” for the next administration.

I see libertarians facing almost the opposite problem, too much focus on growth at any cost.  Here is Reason magazine:

. . . Three years later, Bolsonaro is president. Ludwig von Mises scholars, free market think tankers, and even anarcho-capitalists now occupy top-level positions in his administration, where they hope to slash the government bureaucracy of the nation ranked as the absolute worst by the World Economic Forum in the category of “burden of government regulation”—a country that goes beyond regulating the number of hours that workers spend on the job to micromanaging the size and make of the punch clocks used to record their arrivals and departures. “I’m losing all my guys to government,” says Hélio Beltrão, founder and president of the Brazilian Mises Institute, with a grin.

But other prominent libertarians are outraged over their former comrades’ willingness to ally themselves with a politician The Intercept has called “the most extreme and repellent face of a resurgent, evangelical-driven right-wing attempt to drag the country backwards by decades.”

Bolsonaro is not a libertarian; in many ways he is sharply un-libertarian. He has been working to make it easier for police to kill civilians with impunity. He has repeatedly praised the military dictatorship that ruled Brazil from 1964 to 1985. He has flatly declared himself “in favor of torture.” And in 2002 he said, “If I see two men kissing in the street, I will hit them.”

I will concede that this sort of “deal with the devil” might work.  Perhaps in a few years Bolsonaro will be replaced by a more tolerant figure and the economy will be reformed.  One could argue that this is what happened in Chile (albeit at a brutal cost).

But there are far more examples of this sort of approach failing, and if it does fail then it threatens to discredit libertarianism in Brazil.  This would be especially unfortunate, as Brazilian libertarians had recently been gaining adherents among the young, who were tired of their long history of failed statist policies, instituted by both the left and the right.

Bolsonaro himself seems to have little commitment to libertarian ideas, and populist politicians in Brazil have a history of eventually failing.  If he does fail, will libertarianism also be discredited?  And do libertarians really want to give the impression that they care more about money than human rights?

In the long run, libertarians and progressives have more in common than they suppose, despite  significant differences on income redistribution.  Policies that reduce poverty via rapid economic growth, as well as the protection of human rights (especially for unpopular groups), are consistent with both libertarian and progressive ideals.  There are much worse options out there, and thus it’s important for these two groups to keep their eyes on the ball.

PS.  I do not mean to suggest that mainstream “conservative” European parties are not also at fault.  Here I’m defining European “progressives” fairly broadly for the primarily American audience of this blog.  In Europe, even center-right parties have basically progressive views on economic issues, by American standards.  But most mainstream European parties (left and right) have a blind spot on the need for a monetary policy that assures adequate NGDP growth.  Of course my comments on President Obama do not need this qualifier.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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