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Trivia Tidbit Of The Day: Part 229 -- Government Spending & GDP.

Bigger Government, Weaker Economy-

The Brussels Journal has a great piece titled "The Myth of the Scandinavian Model," in which the correlation between government spending and economic growth is noted.

Indeed, in OECD countries over the latter half of the 20th century, the correlation was very significant:

This data is not terribly shocking, but it's worth saying, because the stakes are so high:

The higher the level of taxation, the lower the growth rate. The explanation for this phenomenon is as logical as it is simple. The higher the tax level, the lower the incentive for people to make a productive contribution to society. The higher the fiscal burden, the more resources flow from the productive sector to the ever more inefficient government apparatus.

Now, let's look at the rates of public spending in specific countries:

How interesting that 2004 GDP growth rates followed the graph rather well. Ireland grew the fastest, followed closely by the United States. European countries, with their large rates of public spending, meanwhile, grew much slower.

Now, let's take the United Kingdom and break it into separate economic pieces. One could argue that the UK is divided into "Wealth Creating Britain" and "Dependency Britain," all within the same country. The divide takes us back to the "health care, not wealth care" scenario.

Take a look at these important numbers:

Total government spending in Wealth-Creating Britain comes to only 32% of GDP, below even low tax-and-spend countries such as Ireland (34%), America (36%), Switzerland (36%) and Australia (35.5%), despite the fact that those are all usually considered to be low tax-and-spend economies. Indeed, according to a new report from London brokers Williams de Broë, if it were an independent country, the South-East of England would boast the ­second-lowest public expenditure burden in the OECD (after South Korea, where government spending is a mere 27.7% of GDP), while Dependency Britain Wales approaches Swedish levels of state spending (57% of GDP), as does the North-East of England (56%), which means these parts of Britain are essentially socialist economies. But über-Dependency Britain Northern Ireland exceeds them all: public spending has now reached a fantastical 64% of GDP in Northern Ireland, the kind of number associated with a miserable People’s Republic of the 1970s. By contrast the size of the state in Scotland (50% of GDP) and the North-West of England (47%) is more in the European social democratic mainstream – though there are pockets in both where the size of the state approaches Soviet proportions, such as Ayrshire, where government accounts for over 70% of GDP.

Not surprisingly, Wealth Creating Britain is carrying the load of the more socialist regions of the country:

Wealth-Creating Britain, which takes up only 16% of the British landmass, nevertheless generates 42% of Britain’s economic annual output with 35% of the population.

Meanwhile Dependency Britain threatens to drag the rest of the country down with it:

Scotland is a pretty good case study in how not to run a country, which probably explains why the rest of the world ignores the socialist excesses of its recently devolved parliament in Edinburgh. Last year the state employed 28.4% of the Scottish workforce, according to unpublished ONS Labour Force Survey data; on top of that 17% of Scots were either unemployed or claiming incapacity benefit – in other words almost 50% of the potential Scottish labour force depends on the state for its income. Glasgow, Scotland’s largest city and once such an industrial powerhouse it was known as “Second City of the Empire”, is now the undisputed capital of Dependency Britain. More than 50% of Glaswegian households have no earned income, the highest ratio in Britain and a new high watermark for the dependency culture. According to some estimates, state-financed health spending per head in Glasgow is now higher than any other city in the world.

Conservatives who seek smaller government aren't doing it arbitrarily. They understand that a smaller government will lead to prosperity. Want greater wealth and higher standards of living for everyone? Every day, we're seeing perpetually more proof that a socialist welfare state is not the answer. Shame on most Democrats and some Republicans for actively working to take us down the self-contradictory, untenable fiscal road of Old Europe.

Policies matter. Ideas matter. The United States no longer has the luxury of competing against a gargantuan Marxist dystopia, which masked the deficiencies our own big government tendencies. We now compete-- mostly amicably, of course-- against Ireland, China, India, Korea, Taiwan, Australia, Wealth Creating Britain, Singapore, and the rest of the emerging world. Even Russia could get right back in the game with the right policies, compounded over another ten years or so.

The bottom line is that the American economy must maintain its comparative advantage over the world. To maintain market share in the global economy, you've got to stay better, relatively, than the other countries. That means lower taxes and lower spending. That means Social Security reform. That means Medicare and Medicaid reform. America's future depends on it.

Previous Trivia Tidbit: Wasting Food.

Posted by Will Franklin · 28 November 2005 01:21 PM

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