Thumb​tack​.com is a young web start-up that people can use to find service professionals in their area. The company recently utilized its nationwide network to survey small businesses on their state’s business climate (select cities were included too).

The survey, which can be found here, contained a couple of interesting findings. First, although taxes are an important consideration, licensing and regulatory concerns were even more important:

Although taxes are a dominant topic in many discussions of a location’s attractiveness to business, our analysis indicates that small businesses tend to care more deeply about the friendliness of a region’s licensing regime by a factor of nearly two. Similarly, being subject to special regulatory requirements had a negative effect on overall small business friendliness, and among those small businesses subject to special regulations, the ease of complying with these requirements was by far the most important factor.

Second, I was initially disturbed to read that “An important predictor of small business friendliness was whether the respondent was aware of the state or local government offering training programs for small businesses.” Yikes. As a former state budget official, one of the more worthless agencies I encountered was the one that was supposed to assist small businesses. So I was relieved when I then read this:

Interestingly, while those aware of training programs gave overall small business friendliness scores approximately 10% higher than those who were not, respondents who had actually attended one of the trainings rated their states less than one-percent higher than those who were aware of the trainings but had never attended.

For a state by state break-down, see here. Texas, Oklahoma, Idaho, and Utah received the best marks from small businesses, while California, Vermont, and Rhode Island received the worst.

Let’s continue with a look at austerity policies in Europe. Yesterday I wrote that in Britain, austerity so far has meant only tax hikes, since government spending, both in nominal and real terms, continues to grow despite the announcement of deep cuts from 10 Downing Sreet. What about France? The country chose a socialist president on Sunday who, according to Paul Krugman and some media outlets, was elected precisely to fight against austerity.

My colleague Dan Mitchell already showed how there haven’t been any spending cuts in France in the last decade. I’d like to dwell on this issue with another graph:

Source: Source: European Commission, Economic and Financial Affairs.

Once again, it’s pretty evident that there hasn’t been any cut in spending in recent years, neither in nominal or real terms. If we look at total government spending as a share of the economy, it went up from 51.6% in 2000 to 56.8% in 2009, and then it came down a bit to 55.9% in 2011—still the highest in the European Union. I doubt that anyone, other than perhaps Paul Krugman, can seriously claim that a decline of 0.9 percentage points in government spending as a share of GDP represents savage austerity.

However, taxes have indeed gone up, and all the presidential candidates, from the far left to the far right, promised to increase them even further. That’s why The Economist reported that, regardless of who won the election, “big companies and rich families are looking at ways to leave France.”

There is more: France hasn’t had a balanced budget since 1973. Its public debt went up from 20.7% of GDP in 1980 to an expected 87% this year. Its budget deficit in 2011, at 5.8%, stands much closer to that of Spain (6.5%) than that of Germany (1%).

So, what austerity is François Hollande pledging to fight?

Yesterday evening I blogged on a pending vote in the House on an amendment introduced by Rep. Mike Pompeo (R‑KS) to eliminate funding for the Economic Development Administration. Unfortunately, the amendment failed today on a vote of 129–279. All 175 Democrats voting joined 104 Republicans in keeping the EDA alive.

A single Democrat voting to axe a government program would have been a shock. But congressional Republicans regularly extol the virtues of limited government and free markets. As Rep. Pompeo said in a statement, “If those who talk constantly about rolling back the unsustainable size and scope of the federal government are serious, then they will support my efforts to eliminate the EDA.” Well, 104 Republicans voted to continue spending taxpayer dollars on warmed-over subsidy program that’s been hanging around since the 1960s.

Rep. Kristi Noem (R‑SD), for example, voted against the Pompeo amendment. But in a column she penned in April, Noem said “Our debt crisis is a result of Washington spending money it doesn’t have and letting our children and grandchildren pick up the tab.” Noem favors a Balance Budget Amendment and says that “Our government must come together and make the tough decisions to secure our nation’s prosperous future.” Really? Noem says tough decisions need to be made but she can’t even get behind the elimination of the EDA. Talk about chutzpah.

Noem and 85 other Republicans also voted against Rep. Ben Quayle’s (R‑AZ) amendment that would have defunded a new corporate welfare program asked for by President Obama in his fiscal 2013 budget proposal. Thanks to the 86 Republicans in the House, instead of terminating programs, taxpayers will get a new one called the Advanced Manufacturing Technology Consortia program.

Negativity aside, Representatives Pompeo and Quayle deserve kudos for actually trying to kill a federal program. Even though their efforts failed this time, they could bear fruit in the future if more members decide that they’d rather not take another vote exposing them to be complete hypocrites.

I’m going to jump into the debate about austerity in Europe because it is being closely followed in Latin America, and many people are drawing the wrong conclusions about how austerity is strangling the European economies. But first, we have to be clear about what we mean by “austerity.”

As the debate between Veronique de Rugy of the Mercatus Center and Ryan Avent at The Economist shows, there are different definitions of austerity. The term could mean fiscal consolidation only by spending cuts. It could mean a mixture of spending cuts and tax increases (the so called “balanced approach”), and it could even be just tax increases. So when people blame “austerity” for Europe’s economic malaise, we could be talking about a very different set of policies in each country.

Let’s look at Britain, which just entered into a double dip recession because of, according to Paul Krugman, “the evident failure” of austerity policies. If we look at spending levels in the UK both in nominal and real terms, we can clearly see that despite the announcement of deep cuts, government spending continues to rise:

Source: European Commission, Economic and Financial Affairs.

It’s clear that, at least in nominal terms, the rate of growth of spending has declined, but that hardly constitutes brutal cuts as Krugman and others want us to believe. If we look at total government spending as a percentage of the economy, Britain reached a peak in 2009 at 51.5%, and that came down to 49.9% in 2011. Can anyone seriously argue that Britain is in a recession because of that tiny drop in spending as a share of the economy?

Now, let’s remember that the Conservative-Liberal Democrat coalition government that came to power in May 2010 adopted what The Economist hailed as a balanced approach of fiscal consolidation based on £1 of tax increases for £3 of spending cuts. To be fair, the British magazine also said that if economic recovery proved hard to achieve, the government should consider a reprieve in tax increases, but not on spending cuts. We all know that the tax increases already took place (the VAT rate went up from 17.5% to 20%, for example). But as we can see, spending cuts haven’t taken place at all. Thus, austerity in Britain consists only of tax increases.

It’s hard to estimate the impact of tax increases on the British economy. Certainly the economic turmoil in Continental Europe has played a role in taking the U.K. into a second recession. But those who claim that “austerity” is responsible for Britain’s economic malaise should be honest and acknowledge that by austerity they mean only tax increases, not spending cuts.

My new piece at Daily Caller looks at how the Democratic Party’s approach to tax policy has changed over the decades.

The piece was prompted by a recent article from Norm Ornstein and Tom Mann claiming that needed bipartisan reforms are being blocked by the new “ideologically extreme” Republican Party.

Baloney. It’s the Democrats who have changed. The party’s leaders have moved far to the left on economic issues.

As evidence, I point to this Cato Journal article from 1985 by Democrat Richard Gephardt, who was a leader on tax reform. As a free-market guy, I agree with the great majority of what Gephardt said, yet I agree with virtually nothing that modern Democratic leaders say about tax policy.

Regarding ridding the tax code of special breaks, Gephardt says, “I confess that I am not qualified to act as a central planner and I do not know anybody on either committee who is.” Amen!

And Gephardt says, “We in Congress take pride in the free market system.” When was the last time you heard a Democratic leader say something like that?

My colleague Sallie James reported this morning on the looming vote in the House to reauthorize the Export-Import Bank. There are two other votes, which could come as soon as this evening, that would provide a similar indication of how serious the Republican-controlled House is about limiting government and supporting free markets.

An amendment to the House’s fiscal 2013 Commerce, Justice, and Science appropriations bill (H.R. 5326) introduced by Rep. Mike Pompeo (R‑KS) would eliminate funding for the Economic Development Administration. An amendment introduced by Rep. Mike Michaud (D‑ME) would give the EDA an additional $38 million. The House bill appropriates $219 million for the EDA, which is the same amount that President Obama requested.

It’s bad enough that the House Appropriations Committee wants to continue funding this relic of the “Great Society” at any level. However, the appropriations committees are a lost cause regardless of which party is in control. Thus, how the entire Republican House caucus votes on these two amendments will be the more important—and telling—story.

See this Cato essay for background on the Economic Development Administration.

With both France and Greece deciding to jump out of the left-wing frying pan into the even-more-left-wing fire, European fiscal policy has become quite a controversial topic.

But I find this debate and discussion rather tedious and unrewarding, largely because it pits advocates of Keynesian spending (the so-called “growth” camp) against supporters of higher taxes (the “austerity” camp).

Since I’m a big fan of nations lowering taxes and reducing the burden of government spending, I would like to see the pro-tax hike and the pro-spending sides both lose (wasn’t that Kissinger’s attitude about the Iran-Iraq war?). Indeed, this is why I put together this matrix, to show that there is an alternative approach.

One of my many frustrations with this debate (Veronique de Rugy is similarly irritated) is that many observers make the absurd claim that Europe has implemented “spending cuts” and that this approach hasn’t worked.

Here is what Prof. Krugman just wrote about France.

The French are revolting. …Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. …What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.

And he’s made similar assertions about the United Kingdom, complaining that, “the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback.”

So let’s take a look at the actual data and see how much “slashing” has been implemented in France and the United Kingdom. Here’s a chart with the latest data from the European Union.

I’m not sure how Krugman defines austerity, but it certainly doesn’t look like there’s been a lot of “slashing” in these two nations.

To be fair, government spending in the United Kingdom has grown a bit slower than inflation in the past couple of years, so one could say that there’s been a very modest bit of trimming.

There’s been no fiscal restraint in France, however, even if one uses that more relaxed definition of a cut. The only accurate claim that can be made about France is that the burden of government spending hasn’t been growing quite as fast since the crisis began as it was growing in the preceding years.

This doesn’t mean there haven’t been any spending cuts in Europe. The Greek and Spanish governments actually cut spending in 2010 and 2011, and Portugal reduced outlays in 2011.

But you can see from this chart, which looks at all the PIIGS (Portugal, Italy, Ireland, Greece, and Spain), that the spending cuts have been very modest, and only came after years of profligacy. Indeed, Greece is the only nation to actually cut spending over the 3‑year period since the crisis began.

Krugman would argue, of course, that the PIIGS are suffering because of the spending cuts. And since there actually have been spending cuts in the last year or two in these nations, does that justify his claims?

Yes and no. I don’t agree with the Keynesian theory, but that doesn’t mean it is easy or painless to shrink the burden of government. As I wrote earlier this year, “…the economy does hit a short-run speed bump when the public sector is pruned. Simply stated, there will be transitional costs when the burden of public spending is reduced. Only in economics textbooks is it possible to seamlessly and immediately reallocate resources.”

What I would argue, though, is that these nations have no choice but to bite the bullet and reduce the burden of government. The only other alternative is to somehow convince taxpayers in other nations to make the debt bubble even bigger with more bailouts and transfers. But that just makes the eventual day of reckoning that much more painful.

Additionally, I think much of the economic pain in these nations is the result of the large tax increases that have been imposed, including higher income tax rates, higher value-added taxes, and various other levies that reduce the incentive to engage in productive behavior.

So what’s the best path going forward? The best approach is to implement deep and meaningful spending cuts, and I think the Baltic nations of Estonia, Lithuania, and Latvia are positive role models in this regard. Let’s look at what they’ve done in recent years.

As you can see from the chart, the burden of government spending was rising at a reckless rate before the crisis. But once the crisis hit, the Baltic nations hit the brakes and imposed genuine spending cuts.

The Baltic nations went through a rough patch when this happened, particularly since they also had their versions of a real estate bubble. But, as I’ve already argued, I think the “cold turkey” or “take the band-aid off quickly” approach has paid dividends.

The key question is whether nations can maintain spending restraint, particularly when (if?) the economy begins to grow again.

Even a basket case like Greece can put itself on a good path if it follows Mitchell’s Golden Rule and simply makes sure that government spending, in the long run, grows slower than the private economy.

The way to make that happen is to implement something similar to the Swiss Debt Brake, which effectively acts as an annual cap on the growth of government.

In the long run, of course, the goal should be to shrink the overall burden of government to its growth-maximizing level.