Is Europe’s problem not enough government spending? (EU fact of the day)

Here is an update from Leonid Bershidsky:

Among the 28 EU members, public spending reached 49 percent of gross domestic product in 2013, 3.5 percentage points more than in 2007.

There is more detail at the link, via Garett Jones, Humanist by way of Walt Whitman, Civilizationist by way of Jane Jacobs.

Comments

An article that is seemingly pretty much focussed on Italy, with a graphic that excludes Germany, says that austerity is a myth. Well, Italian austerity, at least.

As if anyone in Germany is surprised in the least. Which just might be why the EZB is headquartered in Frankfurt, and not Rome.

Say WHAT? The first graph shows Germany's spending (which was higher as a % of GDP in 2013 than 2007, incidentally). And of course, the EU-28 includes Germany, so there is no challenging the overall results on this basis.

If you think austerity exists, it is up to you to provide evidence--just as with flying saucers and Bigfoot.

Austerity is policies that reduce the deficit typically during a recession. It nots "decreasing the percent of GDP that government has". So when you don't even know the basic definition of the words on the topic and the words your using how can we expect you to even have a clue? (Hint we shouldn't). Economics and the data support the no proven fact that austerity during periods of weak demand hurt the economy. But go on denying reality like all good conservatives

Dan's comment mentioned spending, with an aside comment on GDP. Read more carefully, Oakchair, er, I mean "have a clue".

Austerity should reduce spending, which if any, we saw very little of. Hardly a test of anything. Increasing taxes, of course, hurts the economy.

@Oakchair, I know all about this basic definition, and all of the goalpost-moving attempted by changing the definition mid-discussion, which your comment typifies.

Austerity has been consistently discussed by the left in terms of draconian cuts in government spending, with scaremongering about essential services no longer being provided and people being left out on the street. When this patently untrue narrative is challenged, they take refuge in a completely different definition of the word, such as any "policies that reduce the deficit".

Taxes went up even more than spending. "Austerity" is commonly understood as the first derivative of government deficits, but it should probably be measured by the deficit itself. In which case, Europe is merely slowing down stimulus, outside countries like Germany. Spending is higher today than in 2007 because unemployment is higher. If you think it should be lower, justify cutting unemployment benefit rates instead.

"what on earth could be wrong with getting rid of them altogether and just using e-mail"

Well, what on earth could be wrong with the NSA's seeing everything your country does?

Your title- this is a rhetorical device, no?

I think I could be fairly characterized as pro austerity and what not. But I would never use government spending as a percentage of GDP to argue with the pro stimulus crowed that the government is already spending to much money. As the article itself admits, higher government spending in GDP terms has more to do with the poor performance of the private sector then it does with increased government spending.

Seriously? First, is the government spending and/or implicit cost of regulation not having some effect on private sector results? Second, should the government not also respond to the economy? If GDP were to halve overnight in a country with 50% GDP as G, is it not relevant that G is now 100% of GDP?

higher government spending in GDP terms has more to do with the poor performance of the private sector then it does with increased government spending.

No, it has to do with clear policy choices, sustained over many decades. (And at this level, does not improve economic dynamism. At all.)

You don't understand the point he's making.

To be fair, I used an awful lot of words to say "The EU did not spend more, the economy tanked." But I was afraid that if that is all I said that, it would be thought that I was advocating for Europe to spend more. But apparently adding more words did not spare me from that fate.

Spending is relevant in absolute and relative terms. Your point may be correct (I don't closely follow foreign GDP), but would government play a different role in that economy if that 49% had been established simultaneous to private sector gains?

There no question that spending is relevant in absolute and relative terms. All information is relevant to something. The question is what is it relevant to. Few serious economic thinkers think that Europe needs to raise its long term level of Government spending as a percentage of GDP. There are serious thinkers who believe in "stimulus." Rightly or wrongly, I took title of this post as Cowen taking a shot at those people. I don't think it was very productive shot given that the retort practically writes itself (stimulus is not hold the spending constant while the economy falls).

I personally don't think "stimulus" is the answer. I would go so far as to as to say that I am skeptical that it is ever the right answer. I think it is a particularly bad idea given Europe's current situation. But Cowen's rather ironical title is not accomplishing anything other the preaching to the choir.

You're referring to maintenance of aggregate demand within business cycles, not to the trajectory of economic improvement which in time transcends those cycles. You do not have a ratio of public spending to domestic product of 49% because you're zealous about attacking shortfalls in aggregate demand. Such assiduousness would be reflected in the change in the ratio of public spending to domestic product registered during economic troughs. Your ratio has a high basis because that has been the trajectory derived from policy over a generation: 1) you have a propensity to spend and 2) such spending induces a certain amount of dead-weight loss and diminishes economic dynamism.

You can manage an adequate welfare state and a military and police force of ordinary dimensions spending about one-third of your domestic product on the sum public agency, collective consumption schemes, and income transfers.

"You’re referring to maintenance of aggregate demand within business cycles, not to the trajectory of economic improvement which in time transcends those cycles." Yep. I was talking about the 3.5% rise over the course of the recession. Not the high base rate.

A) Some of the largest recent deficits (Ireland, Greece) were created by governments recapitalizing banks.

B) Here you will find data about the low investment rate of non-financial companies http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-29072014-BP/EN/2-29072014-BP-EN.PDF

C) Here you will find data about consumer saving http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-29072014-AP/EN/2-29072014-AP-EN.PDF

Note that the high government deficits of 2009 coincided with high private savings ratio's. Which is of course consistent with basic macro.

>A) Some of the largest recent deficits (Ireland, Greece) were created by governments recapitalizing banks.

What a peculiar way of looking at things. Why did Greece have to recapitalize its banks? Because it defaulted on its debt! An event that had nothing whatsoever to do with the solvency of Greek banks.

So of every dollar of production, 49 cents goes to overhead.

That's a weird conclusion to make based on this post.

What is the US number? 42-43%

If you have to compete, which you do, the one with lower costs will win out. Unless you have a natural advantage such as natural resources or the like. That isn't the case with Europe.

This is pretty basic.

Of by overhead you include education, health care etc etc, but then you'd either be trying to redefined the word or butcher the English language

Europe's government share of GDP is quite high but don't expect that to deter the single-payer crowd in the US, who think we should catch up to the more enlightened folks across the Atlantic.

Yes because single payer systems that pay half of what the US pays and yet still insure every person and have better health outcomes is so horrid because it means federal government spending is higher as a percent of GDP. No matter that the single-payer system is more efficient and we have to follow your blind stupid ideology.

Yeah, command and control systems for basic industry have worked real well.

Not enough government spending on investment but too much on red tape !

You laugh, but Europe's vast inventory of holes that have been dug and filled in again will soon prove to be a decisive asset.

Wait until you see increased aggregate demand created from all of those broken windows!

Bershidsky does great contrarian work, but one could also ask whether he knows what austerity is. Maybe that's because there's no consensus definition.

I would say austerity refers to a reduction of real fiscal outlays, especially when done in response to a shrinkage of GDP. By that definition, a major recession and weak recovery accompanied by mild austerity would produce an increase in fiscal spending relative to GDP, as we've seen in Europe since 2007. In other words Europe has carried out mild austerity, but not enough to stop fiscal outlays from growing relative to GDP.

Another thing to keep in mind is these are gross outlays of all levels of government. That is they include transfers. So not comparable to the public share of GDP reported in spend-side GDP (which excludes transfers) or to the ratio of the federal budget to GDP (which excludes local governments' outlays and nets out some federal spending against federal so-called "applicable receipts" income).

The Heritage Foundation estimates an apparently closely comparable number for the US at 41.7%. My quick take: the only reason the US number is lower than the EU average is the lower publicly funded share of healthcare.

http://www.heritage.org/index/explore?view=by-variables

What about defense spending?

Of course that's one area where we're higher.

The heritage foundation ROTLF. Might as well source inforwars or Stalin.

I'm no fan of their views, but this number is at least close to right.

Here's another source with very similar numbers. http://www.usgovernmentspending.com/year2014_r

However this source misses that part of federal spending is covered by departments' dedicated income aka "applicable receipts" and is not included even in the consolidated budget results data. EG in FY13 the consolidated budget was $3.54t while total outlays were $4.06t. (See here pages 2 and 19: http://fms.treas.gov/mts/mts0913.pdf )

So using this source's data but correcting that mistake yields $7.2t total public spending in FY13 or $6.6t excluding transfers between branches of government. That's 43.4% of GDP total public spending or 39.8% after excluding transfers.

I'm sure there are all sorts of nitty gritty comparability issues, but I stand by statement that the only reason US public spending per GDP is lower than Europe's is that we privately fund half our health care. The other differences eg our higher defense their higher welfare roughly even out.

The European welfare state devours the future of the continent (well, including the UK):
http://www.devilsdictionaries.com/blog/welfare-state-is-not-dead

So nobody wants to take on that the US public spending relative to GDP, at 41.7%, is only lower than the EU average because we fund a much larger portion of our health care privately? Everyone here prefers to rant about how the European welfare state is killing growth while pretending there's no such thing as northern Europe?

If you go by the public consumption and investment share of GDP, which excludes transfers, the numbers are US 18.8%, EU 23.8%.

Here the difference is not only the public share of funding of healthcare, but also different accounting of public funding of healthcare. The US counts publicly funded healthcare as public transfers to households and personal consumption, whereas at least some EU countries count publicly funded healthcare as public consumption.

In short, people who believe there are big differences in the sizes of the US and European public sectors are misinformed.

Let's be fair, 49% of GDP is 51% less than most leftists think government should be spending (the rest, like Krugman, think the government should spend some amount > 100% of GDP). Look at all that wasted money spent on things that aren't government programs!

Leaving aside your imaginary suggestion that most leftists think government spending should be >=100% of GDP, which I assume you just made up out of nowhere, roughly where do YOU think the right balance should be?
Not 49%, maybe 10% or so? Any reasoning to back this up (or whatever number you pull out of your ass)?

No, Tarrou's characterization is completely fair. The mainstream progressive believes the government should spend more than it already does on housing, education, medical services, food subsidies, transfers/makework to "combat inequality", "the environment," abortions, birth control, bicycles, trains... How much more? However much they can get away with. No progressive ever says, "Hey, maybe we've gone far enough along one or more of these lines," because this is what progress is: more power and cash for progressives. There's no limiting principle in mind and promises of moderation or humilty are never kept. Only paranoid nuts and evil reactionaries cry 'slippery slope,' and the nuts are proved right every time. These people wouldn't mind in the least if all (i.e. 100%) resources were allocated by various government departments staffed by university-trained progressives. We have had a lot of progress already and sadly there is yet more to come.

@ladderff

Superb.

Notice how all those spending categorizes that progressives want to increase are to fix a problem, such as homelessness, people dying from lack of health care, cleaning the environment etc. Just because your end goal is "less government regardless of the effects" doesn't mean your opponents end goal is the opposite. Stop projecting and start thinking if that's not to hard for you.

Homelessness is a very circumscribed problem which is of a dimension that it can be handled readily by philanthropy. Also, maintaining order in and among vagrant populations is a challenge, so the discretion an unencumbered private agency can call on is desirable.

Very few people are 'dying for lack of health care', and the number whose lifespans would be appreciably extended by mucking about with financing methods is few.

I think that Bradford deLong when queried about five or six years ago said that marginal tax rates in excess of 70% are self-defeating, so there is an implicit limit in his thinking in the conveyance of allocation decisions to the public sector. However, the ordinary advocacy group bilgemeisters, working politicians, and cretins like Barbara Ehrenreich do not articulate any limit. Whatever it is is never enough (unless it's going to an apparat you despise on principle, like the military or the police).

These numbers are mostly nonsense if interpreted to mean that government consumes 49% of the economy. Most of the money is transfer payments, direct and indirect, and a result of the governments running a really big insurance company. Most of the transfers are inter-generational, to the young and the old.

That looks like a serious rise in government spending only if you ignore the declien in the size of the economy (which makes spending seem larger in per cent terms) and the massive collapse in private sector spending. That is a huge hole that the government has only half filled.

Also this is my first time commenting here and to be honest I'm not hugelky impressed with the standard. Will someone tell about half the commenters that Keynesianism is not the same as socialism, progressives do not want 100% government spending and the welfare state played no role in causing the recession.

You can tell us, but we know better! Perhaps you'd like to articulate the limiting principle of Progressivism when it comes to government spending? The deep train of thought down through the ages on the left that says "this much government is good, but any more is too much"? Perhaps you'd like to name one single arena of public life outside the military that progressives would like to spend less money on? Or would you prefer to name one nonmilitary issue anywhere in the world where the progressive solution was NOT more government spending?

-----name one single arena of public life outside the military that progressives would like to spend less money on? - See more at:

Police typically spending related to the drug war and immigration. You see progressive are against spending that doesn't provide any increase in living standards or any public goods. That is why they are against spending more on bombs or locking people in prison for smoking pot.
You need to stop assuming that because you're an ideological clown everyone else is one as well.

Military spending, spending on the drug war, spending on helping the poor, and spending fixing environmental problems all have one things in common. You can always fined more reasons to increase spending on them. If a certain level of spending on the military will increase the public good by increasing security, who is to say that even more money will not get you even more security. If helping the poor is good idea, where do you stop? There are always problems that need to be fixed. But that does not stop "what is the maximum amount of burden the state should/can impose on the rest of the economy with out causing real harm" from being a valid question.

In other words, I get that liberals would spend money on different things than conservatives. But I still wish liberals would address the question of limits more often. What is the max of GDP do you think the state should take doing the things you think the state should be doing? Saying "Notice how all those spending categorizes that progressives want to increase are to fix a problem, such as homelessness, people dying from lack of health care, cleaning the environment etc" does not address the question of limits. We all know there is an endless supply of problems.

You need to stop assuming that because you’re an ideological clown everyone else is one as well.

You know Oakchair, we often don't see ourselves as others do.

Oakchair, if you want to persuade people you're knowledgeable about something, don't trade in social fantasies, e.g. "locking people up for smoking pot".

The US used to have a much smaller government as a share of GDP than continental Europe. In 1990, Swedish government spending was almost 68% of GDP. Now it's down to 47%. Canada's government was spending 52% of GDP, now it's in the 45%. During that same time period, America started spending increasingly more money on government.

Sweden is becoming less socialist. America is becoming more socialist. That's bound to have some impacts of terms of relative economic performance.

http://www.economics21.org/commentary/us-and-europe-governments-equal-size

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Are not the advocates for more gov. spending talking about the delta. For example wouldn't Keynes call for low spending in low unemployment times and high spending high unemployment times.
Could an argument be made that Europe had way too much Gov. spending before the slump and that made increasing spending difficult?

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