One claim you’re likely to hear during this year’s presidential election cycle is that the U.S. doesn’t spend enough on helping out the poor, compared to other countries. There are other economic tropes from fans of bigger government, that permeate campaign season. These include: regulations lead to better work conditions, and more government spending is needed to rein in higher education costs. But they’re all myths, according to Ryan McMaken.
Economic Myths Die Hard
In reality, the U.S. government spends about as much as other Western countries on benefits like Social Security; greater productivity is what improves working conditions; and rising college costs are the result of government student loan subsidies, not a lack of spending, McMaken said.
“Unfortunately it doesn’t look like those myths are going away anytime soon. They’re coming back full time now,” McMaken added. His comments came during a Saturday, May 21 forum of the Mises Circle held at Town Hall Seattle.
McMaken is the editor of Mises Daily and The Austrian, which are published through the Mises Institute. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014.
The Mises Circle event in Seattle was titled Contra Krugman: Demolishing The Economic Myths of the 2016 Election. Krugman is a reference to well-known economist, New York Times columnist, and former Enron advisor Paul Krugman. He advocates for more government spending and a larger government role in income distribution.
Krugman’s latest column, championing President Obama’s interventionist policy on overtime pay, was critiqued by historian Tom Woods and Austrian economist Bob Murphy at the Mises Circle during a live recording of their weekly podcast, Contra Krugman.
Savings, Investment, Prosperity Are Key
Named after Austrian economist Ludwig von Mises, the Mises Institute is an Alabama-based organization dedicated to promoting the Austrian School of economic thought. It teaches that savings and production create economic prosperity. Opposed to that is Keynesian economics, which sees savings as harmful to the economy and promotes government spending to counteract decreased demand in down cycles. The two different approaches remain central to public debate on the size and responsibilities of government in the U.S., Washington state, and globally.
McMaken said presidential candidates on the campaign trail will continue to espouse myths about U.S. needing to spend more on the poor and to offset growing higher education costs, but those assertions don’t pass the sniff test.
U.S. Isn’t Stingy On Entitlement Spending
The U.S. government spends relatively the same amount on social benefits as a percentage of gross domestic product (GDP) compared to other nations, said McMaken. It spends around 18 percent on social benefits, while Norway and New Zealand spend around 19 percent and 20 percent respectively.
While France spends more on social benefits, 22-23 percent, countries like Canada actually spend less on social benefits per GDP than the U.S, he said.
“We’ve all been told on multiple occasions that Canada is this paradise of equality to the north,” McMaken said. “Maybe that is, but they managed to do it by spending less government money.”
The U.S. should not be viewed as this “odd man out” when it comes to spending on social programs, said McMaken. Rather than view the U.S. as a “highly capitalistic, social Darwinistic country” it should “be looked at more as just like all these other social democratic countries,” he said.
The myth that the U.S. doesn’t provide any kind of safety net for the poor persists in spite of facts to the contrary, because of the “religious tinge” people bring to their concerns, said McMaken.
Workplace Policy Interventions Misguided
Related to the argument for greater government spending to lift lower income individuals and households, is the perception that government regulations create better working conditions and grow wealth. President Obama recently expanded the pool of U.S. workers who would get overtime pay. The administration claims the change will help middle class workers. Democratic presidential candidate Hillary Clinton has pushed for guaranteed paid family leave.
But “you can’t just declare that people must be wealthier,” said McMaken. “You have to increase worker productivity” and make it “possible for people to produce more value in less time.”
Free College For All. Not.
Rising college costs have also been at the forefront of the 2016 presidential election. Democratic Presidential candidate Bernie Sanders has vowed to make tuition free at U.S. public college and universities, citing Germany as an example.
However, Germany has very tight restrictions on who is allowed into college through its testing system. As a result, the country has a lower college graduation rate than the U.S. but more of their college-age youth participate in apprenticeship programs.
A 2014 brief by the Federal Reserve Bank of Richmond examining Germany and the U.S. apprenticeship programs found that unemployment for Germans age 24 and under was half that of Americans in the same age group.
Cuts to government spending in higher education aren’t the problem. Last year University of Colorado law professor Paul Campos noted that “public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s.”
McMaken blames the rising costs due to government subsidies such as student loans, which creates artificially high demand. Unless the government takes steps to ration the limited available resource as Germany does, the price naturally goes up, he added.
Meanwhile, the presumptive Republican nominee for President, Donald Trump, has come in for some knocks on economics as well. The Washington Post last month rebutted his claims that real unemployment hovers at about 20 percent, and that if elected he could erase $19 trillion in federal government debt in eight years.