As a former public servant I can assure you that public servants and politicians in the main will agree with you then do the exact opposite. It is against their interests to have small government so naturally, and perversely in light of Adam Smith’s ideas about the benefits of selfish behavior, they will strive for larger government.

Most TFP measurements contradict your statement. However, TFP is not the entire picture. The burden of taxation and supply side effects on labour supply and capital investment are probably mopre important as the investment is needed to raise TFP in most cases.

Have a read:

M Feldstein – National Tax Journal, 1997 – ntj.tax.org
Page 1. HOW BIG SHOULD GOVERNMENT BE?

http://ntj.tax.org/wwtax/ntjrec.nsf/36CFE3E5BCCB188C85256863004A5939/$FILE/v50n2197.pdf

also:

Journal of Policy Modeling
Volume 24, Issues 7-8, November 2002, Pages 679-692

Government size, factor accumulation, and economic growth: evidence from OECD countries

Atul A. DarCorresponding Author Contact Information, E-mail The Corresponding Author and Sal AmirKhalkhali

Department of Economics, Saint Mary’s University, Halifax, NS, Canada B3H 3C3

Revised 11 December 2001;
accepted 1 May 2002.
Available online 19 September 2002.

“Abstract

This study examines the role of government size in explaining the differences in economic growth rates of the 19 Organization for Economic Co-operation and Development (OECD) countries over the 1971–1999 period using a random coefficients model. Our results indicate that, on average, total factor productivity growth, as well as the productivity of capital, are weaker in countries where government size is larger. The advantage of a small government sector, in general, likely reflects the greater efficiencies resulting from fewer policy-induced distortions (such as the burden of taxation), the greater discipline of market forces which fosters efficiency of resource use, and the absence of crowding-out effects that weaken the incentives to create new capital which embodies new technologies. From a policy perspective, this does not mean that the optimal policy is one that minimizes the size of government. Rather, a small as opposed to a large government could potentially be as effective in providing the legal, administrative, and governance infrastructure critical for growth, as well as for offsetting market failures. At the same time, the country-specific results indicate that the nature of country-specific institutions as well as the mix of government activities are as important for growth performance as the aggregate size of government.”

So yes it is not entirely because of the size of Government, but a mix of the size and efficiency. The objective is then to design efficient, small Government policies.

None if these (proxy for well being, non counting of leusire or non traded goods) support your idea that “GDP is dangerous like being overweight”. As for the vegetables, then there are savings and income is generated elsewhere.

National debt is not and will never be a problem. Why is it a problem? It is no different to Australians owing Australians. 20% of Australian capital stock is due to foreign direct investment – as are about 25% of wages. Reducing the wage bill (employees and wages) by 25% doesn’t make anyone better off.

Growth is bad? How? Growth allows for technologies to emerge. Are you saying we sholdn’t have any technological progress?

It’s strange you support PBS while acknowledging the amount of subsidies which are required to keep pharmaceuticals selling and producing in Australia after the single purchaser prices are paid.

I’d imagine a libertarian perspective on this could be to consider the following question: What is the least burdensome way for a population to ensure the freedoms of speech and movement (as well as the ability to contribute and self-actualize) to the significant number of people with such freedoms constrained by [insert name of any disease - e.g. Parkinson's - that has massive and long-term impact]?

Mark -
You said “Real GDP is national income deflated by an inflation index. Ideally, you want to maximise GDP as you do real wages at the individual level.”
Actually, GDP is not necessarily a measure of human well-being. If people grow their own fruit’n'veg in their back yard, with any seasonal surplus given to friends and neighbors, the GDP is hit not only by the notional dollar value of that food, but by the dollar value of commercially-provided transport and storage – although the individuals concerned are probably better off. Another example might be the economic activity from legal actions to get freedom of speech in a litigious society compared to the lack of such economic activity in a society where people don’t try and constrain the speech of others – even if the laws are exactly the same.

I’d also comment that Australia’s growth in GDP with explosion of the national debt is like having a pie that gets wider while decreasing in volume. IMHO, economic health, not just human well-being, is not highly correlated with “growth” as measured by GDP.

On your comment about big-pharma being subsidized in Oz, it’s worth noting that US big-pharma gets a lot of for-free research (often with commercial-in-confidence results) done in government-sponsored programs. Administration of patents, and separating research from manufacturing when considering these issues is worthwhile. The other problem is that too often big pharma gets big money from PBS schemes with a new drug that has benefit calculated against NO treatment rather than treatment with a much cheaper analog: i.e. a 2% increase in efficacy with a 200% increase in cost.

http://en.wikipedia.org/wiki/Geolibertarianism

Definitely an interesting philosophy and one that I tend to find quite persuasive…

I know all the hidebound objections to LVT. On a personal level, I have made a small fortune over the last ten years by buying at the bottom of the market and bailing out at the top (I now rent), so I (as an old and wealthy person) am against LVT on a purely personal level – I have every intention of making a large fortune in the next upturn from about 2010 to 2020, an upturn that will only happen provided politicians are too short-sighted to spot all the advantages of LVT.

But from an economist’s point of view, and being brutally honest about it, rather than pandering to land owners and home owners who want to bank all their unearned profits tax free (and to hell with the first time buyers and screw the economy – these booms and busts are largely fuelled by land price/credit bubbles as in now being played out across the world), LVT is by far the least-worst tax, and unlike most taxes, has a lot of beneficial effects.

I think we got our wires a little crossed. When I said “making existing owners pay higher taxes” I was not refering to higher overall taxes but land taxes that are higher after property prices have increased. Owners have no price setting role, price setting being done by buyers and sellers. So how does including existing owners in tax hikes driven by a shift in the market value of property work to slow the formation of speculative price bubbles. In terms of taxing properties based on purchase price as opposed to current value I don’t see that the latter offers much advantage in this regard.

Interest rates targeting is not a policy I advocate. I advocate floating interest rates not interest rates targeted by monetary policy. Interest rates should be determined by the supply of and demand for credit and we should not have a central bank in the business of supplying credit or using this power to manipulate interest rates. If your concern relates to controlling inflation then I don’t believe that taxation has any real role to play as a policy instrument. If anything the government should cut taxes on goods (including land) if there is a welfare issue associated with the price of that good rising. Promoting land taxes as an alternative means to raise revenue has a lot of merit, maybe even in terms of fairness, however promoting it as a tool of monetary policy is simply misguided.

Regards,
Terje.

And where does this ‘higher taxes’ come from? If LVT receipts increase, then use it to cut GST or Income Tax!

LVT is also a bit like rent. So people who own vacant properties (up to one million in the UK) and/or ‘overoccupy’ (pensioners in three bed family homes) will be much more likely to sell the vacant property or trade down into a smaller one, rather than pay for space they don’t need. So existing housing is used more efficiently rather than building loads more which NIMBYs have more or less prevented over here.

Pommy, yeah, yeah, the pensioners argument. Henry George and Winston Churchill referred to this as a ‘hoary old chestnut’ over a century ago. No exemption for pensioners – they can have a roll up. Or else the pensioner would bank the exemption and then let his family live there LVT-free, there’d be all sorts of fraud going on. Like with protected tenancies in the UK (long story) or with privately sub-let Council Housing.