Characteristically sensible Greg Mankiw column in the New York Times about the downsides of President Biden's "build back better" spending extravaganza:
Providing a social safety net is like using a leaky bucket to redistribute water among people with different amounts. While bringing water to the thirstiest may be noble, it is also costly as some water is lost in transit.
In the real world, this leakage occurs because higher taxes distort incentives and impede economic growth. And those taxes aren't just the explicit ones that finance benefits such as public education or health care. They also include implicit taxes baked into the benefits themselves. If these benefits decline when your income rises, people are discouraged from working. This implicit tax distorts incentives just as explicit taxes do. That doesn't mean there is no point in trying to help those in need, but it does require being mindful of the downsides of doing so.
Which brings us back to Western Europe. Compared with the United States, G.D.P. per person in 2019 was 14 percent lower in Germany, 24 percent lower in France and 26 percent lower in the United Kingdom.
Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.
In other words, most European nations use that leaky bucket more than the United States does and experience greater leakage, resulting in lower incomes. By aiming for more compassionate economies, they have created less prosperous ones. Americans should be careful to avoid that fate.
Compassion is a virtue, but so is respect for those who are talented, hardworking and successful. Most Americans descended from immigrants, who left their homelands to find freedom and forge their own destinies. Because of this history, we are more individualistic than Europeans, and our policies rightly reflect that cultural difference.
Mankiw is a more open to a carbon tax or value-added tax than I am, so this is not an unqualified endorsement of his opinion article. But for a clearly stated, intelligent, non-crazy statement of the downside of the Biden tax-and-spend plan, the six paragraphs quoted above are pretty good. The left-leaning retort is that some of those who'd be taxed to pay for universal preschool or tuition-free community college aren't necessarily "talented, hardworking and successful," but merely lucky grandchildren of rich people, or that some of the people who'd benefit from the spending are also hardworking, they just happen to be in professions that are less lucrative than the people who'd be taxed. For example, a hardworking Amazon warehouse worker versus a hardworking investment banker. Another response might be that the difference in per-capita U.S. versus Europe GDP is less the result of tax or redistribution policy and more the result of other factors, such as cultural differences or monetary policy. If the tax and redistribution policies were the main drivers you'd expect Britain to be doing better relative to France or Germany, since Britain's policies are more like America's.
