The latest index of world food prices was released by the UN’s Food and Agriculture Organization (FAO) on April 8th. The FAO’s Food Price Index climbed to 159.3 in March, which in real terms is roughly double its level in 2000, about 80% above its 2019 level, and the highest since records began in 1961.
Rich Western governments have historically been associated with high levels of social stability and low levels of violence. Are they willing and able to use their riches to contain the consequences of the post-covid famines? Or are they going to be too preoccupied with their own financial problems, wrought by their ailing tax systems and two years of throwing money at misguided covid containment efforts?
The answer is disconcerting, to say the least.
The graph below tracks government spending in five major European countries up to and including 2020. The dashed lines after 2020 show what governments said they expected to happen, while the solid lines approximate what has actually happened, through the end of 2021.
During this period, government revenue has hardly moved, so the extra spending came from more government debt. Debt-to-GDP ratios are rising by about 10 GDP percentage points annually in the EU and the US, more quickly in some places (France, Anglo countries) than others (Scandinavia).
Instead of the predicted decline in government spending after the 2020 rise, the continued escalation of spending in 2021 was spectacular in some countries, such as the UK, France, and Spain. These increases were partly driven by spending on defense and social programs (pork barrelling in advance of important elections in France and Spain), but more particularly by the ongoing covid circus that has led to unproductive spending on all the usual paraphernalia (vaccines, masks, tests) and on the bloated control apparatus that is hanging on to its budget for dear life.
Government spending is higher now than ever before for most of these countries. It is at levels long deemed unsustainable. If you doubt this, consider that the Reagan/Thatcher privatisation reforms of the 1980s and 1990s were preceded by government spending peaks of “only” 50% of GDP.
The tax base problem
Governments have been spending more than they are able to tax. Economists would say that we are now on the right-hand side of the Laffer curve, meaning that attempts to tax more will induce so much tax avoidance that tax revenue will fall. The logic is easy to see in the extreme case: if you tax an activity at 100%, then that activity stops and you get $0 in tax take.
When he was once asked why he robbed banks, Willie Sutton said “because that’s where the money is.” The problem for government tax collectors today is that, unlike Sutton, they can’t get near enough to where the money is.
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The World Catastrophe Wrought by Covid Lockdowns ⋆ Brownstone Institute https://t.co/JvqRFopthz— Te toroa ???? (@tetoroa) April 21, 2022