Top Economist Warns of the Welfare State, the Biggest Threat to Prosperity

Posted: Sep 06, 2014 12:01 AM
Top Economist Warns of the Welfare State, the Biggest Threat to Prosperity

HONG KONG — The opening Mont Pelerin Society (MPS) address by Allan Meltzer, of Carnegie-Mellon University, warned attendees that the welfare system in America is getting out of control and could result in slow economic growth for years to come.

“The greatest threat today is the welfare state,” Meltzer said. “Lowering taxes does not appeal to the average voter because they don’t pay income taxes anymore.”

Meltzer added that “the welfare system can’t exist without a vibrant capitalistic economy.”

Another important topic of discussion at the society’s annual meeting here focused on China. Three Chinese experts who live there mentioned that the Chinese Communist Congress called last November for the “market to play a decisive role” in the future. But there was no evidence of political reform. In fact, while here in Hong Kong, government leaders in Beijing announced that there would be no real free elections in Hong Kong next year. All candidates must be approved, and then residents can vote. The Chinese experts also warned that the good ol’ days of high growth and strong leadership were gone; expect growth to slow under weak leadership.

Deepak Lal, a UCLA economist who is an expert on India, told attendees that the jury is still out on the country’s new President Modi, and whether he can turn the Indian economy around. I’m more optimistic. The India Fund (IFN, $26.81), a holding in my Forecasts & Strategies newsletter, continues to show strength in response to new supply-side policies favorable toward business at the federal and state level. My subscribers are approaching a double-digit percentage gain.

The Mont Pelerin Society is an international group of political and economic thinkers who come from around the world to exchange ideas and find out what’s going on around the globe. I attend almost all of the society’s meetings, since it is a great way to find out what’s going on around the world at a single conference. The society was established in 1947, and I’ve been a member since 2002, after my nomination by Milton Friedman, one of its founders. This year, I am a moderator of a group discussion on the growing threat of inflation.

You Blew It! The IRS is Anything But Customer Service

Like most Americans, I have an intense dislike of the IRS — misnamed the Internal Revenue Service. Talk about Newspeak. The IRS is not “internal” — it taxes Americans around the globe… “revenue” is just a nice word for “taxes”… nor is it a “service” to us as taxpayers. It’s a taxing authority, damn it. Let’s call a spade a spade. “Federal Tax Authority” (FTA) should be its proper name.

What is really annoying are the IRS’ failed efforts to improve “customer service.” Last year, I got a bill related to my publishing business where they claimed my company owed them an additional $553.10. Of course, it was impossible to figure out how they came up with this additional tax, plus penalties and interest (always).

So, I needed to call them on their handy 800 number. But guess what? Everytime you call them, you are put on hold with the announcement, “the waiting time will be more than 30 minutes.” I’ve called several times, and it’s always “more than 30 minutes.” Who has time to sit around waiting for the IRS to respond? The IRS budget has been increased dramatically over the years, but will they increase customer service? No way.

Then I see that the notice I received gave me just two weeks before I was supposed to send the IRS a check. Otherwise, more penalties and interest would accrue.

No wonder everyone calls the IRS the “infernal” revenue service. Well deserved.

In case you missed it, I encourage you to read my e-letter column from last week about a simple investing test that only 34% of people pass.