Feeds:
Posts
Comments

Posts Tagged ‘government spending’

In my last two posts, I showed that the U.S. has a large social welfare state by cross-national standards, maybe even the second-largest in the OECD. However, the U.S. welfare state is much less redistributive from rich to poor than most other welfare states.

In this post, I tackle spending on infrastructure (“gross fixed capital formation”) and subsidies. According to the punditocracy, the U.S. always needs to spend more on infrastructure. Conversely, the populist mood in this country stands firmly against subsidies to business, and perhaps rightly so — very few subsidies seem rationally designed to compensate for positive externalities.

But it turns out the U.S. spends more than almost every other OECD country on public investment in fixed capital, and less than every other OECD country on subsidies. Take a look:

u.s. spends a lot on infrastructure

u.s. spends little on subsidies

The first plot shows public investment by country, divided by GDP, in 2012. It includes spending by all levels of government. The U.S. places near the top of the international standings in that year, but this is no fluke: throughout the last three decades, the U.S. has been near the top of international tables in this measure. Maybe everybody needs to spend more on infrastructure, but this certainly doesn’t seem like a uniquely American problem. And maybe you think that a less densely populated country has a higher optimal level of public infrastructure spending, but I’m not so sure: higher infrastructure spending in such a country could subsidize an inefficient distribution of population.

The second plot shows public subsidies by country, divided by GDP, in 2012, again summing up the figures for all levels of government. The U.S. stands right at the bottom, with less than half a percentage point of GDP going to subsidies. Further, state and local governments spend only about 0.1% of GDP on subsidies, so the federal government is the main sinner here. Now, these figures don’t seem to be picking up tax advantages like “tax increment financing” districts popular at the local level. Still, businesses can typically be exempted only from taxes that they otherwise would have paid; expenditure-side subsidies are potentially unlimited.

I should note that federalism doesn’t seem to be the key to U.S. spending patterns here: federal Austria and Switzerland are among the highest subsidy spenders, and are not very high on infrastructure spending.

Bottom line: it’s not clear that, at the margin, the U.S. needs a lot more infrastructure spending, and the subsidy picture certainly complicates any plausible “libertarian populist” movement aimed at big business privileges.

Read Full Post »

The United States has long had a larger welfare state than most other Western democracies. Surprised? You may not be aware of the new research on “net social spending.”

Net social spending includes not just government expenditures on social programs, but also tax credits for social purposes and, as a debit, government taxation of social benefits. It turns out that many of the so-called “generous” European welfare states tax social benefits at a high rate. Meanwhile, the United States uses the tax code to help the poor, through the Earned Income Tax Credit. We should also include mandatory private social payments, which are not directly paid by the government.

Using the OECD data, I have plotted total net social expenditure over time for 26 rich countries (click the image to zoom in).

the united states has a bigger welfare state than most other democracies

As of 2009, the United States had the second largest welfare state in the world, at 28.8% of GDP. Only France, at 32.1%, had a bigger one. Moreover, while all advanced industrial societies show a growth in the welfare state from 2005 to 2009, due to economic conditions, the U.S. also had a big runup in welfare spending between 1999 and 2007. In 1995, U.S. net social spending stood at just 22.7% of GDP, although even that figure was higher than those for Denmark, Canada, Italy, Norway, Australia, Ireland, and South Korea. So far as we have data, the U.S. has always had a larger-than-average welfare state.

Read Full Post »

Polisphiliac David Brooks:

Here’s a way to make money off of other people’s misery. Short house prices in Northern Virginia. Starting with sequestration and then continuing over the next several years, the Defense Department is going to be hammered. All the big defense contractors in Northern Virginia are going to be hit. It’s already happening. I don’t know if you were thinking of buying a McMansion in McLean or not, but I’d hold off for five years.

Would any of you bet your hard-earned money that the government is going to shrink enough in the DC area to significantly impact Northern Virginia housing prices?  I’m skeptical to say the least.  Betting on the long-term (budgetary) health of the state is usually – unfortunately – a winner.

Read Full Post »

General government final consumption expenditures for the 27 member countries of the European Union, from 2002 to 2011 (fiscal years):

Read Full Post »

In the past few months, we have had a number of lively posts by Pileus contributors and readers over the question of fiscal responsibility. Some of the posts were focused on the problem of long-term unfunded entitlements. Some revolved around the question of whether a revivified GOP would embrace fiscal responsibility. Most recently, there have been postings about the National Commission on Fiscal Responsibility and Reform.

Most students of public policy know that creating a bipartisan commission is a key indicator that no one is prepared to deal seriously with an issue (e.g., remember the Financial Crisis Commission? Its report—mandated by Congress as a means of informing the legislative debate is due December 15th).  But the rapidity with which the President and Congress threw the  National Commission on Fiscal Responsibility and Reform under the bus is somewhat stunning.

Within a week of the Commission’s report, the President and the GOP have struck a deal that would add another $900 billion to the national debt. The individual components are significant of course:

  • A two-year extension of the Bush tax cuts
  • A thirteen month extension of unemployment compensation
  • A temporary 2 percent cut in the payroll tax
  • The reintroduction of the estate tax (at 35%), albeit with an exemption for estates below $5 million.

The events of the past few days have led to a number of insights. First, it seems clear that President Obama—unlike his predecessor—does not mind negotiating with himself. Second, one may conclude there is now clear recognition that Obama has capitulated on a major point: whether tax cuts or spending are better means of stimulating a moribund economy.

The chief lesson: Regardless of partisan stripe, there is no concern whatsoever with long-term fiscal responsibility. Not only are members of both parties happy to add another $900 billion to the national debt, they are willing to do so by further endangering the financial footings of Social Security and Medicare via the payroll tax cuts.

Do we need another indicator of how seriously our legislator take the issue of fiscal responsibility? As Kenneth Vogel and Manu Raju report in Politico

Senate Majority Leader Harry Reid is trying to use the tax cut package President Barack Obama brokered with Republicans to legalize online poker…Already, the online poker proposal has exposed the Nevada Democrat to charges of flip-flopping on a controversial issue, as well as using his Senate leadership position to repay big casino interests that helped him win reelection in a hard-fought campaign against Republican Sharron Angle last month.

My prediction: the debate on fiscal responsibility and the long-term problem of unfunded entitlements—at least on Pileus—is not approaching closure.

Any thoughts on the Obama-GOP tax agreement and its fiscal implications?

 

Read Full Post »

Taking up commenter Bill Bachofner’s challenge, I’m posting my personal solution to the federal deficit using that nifty tool at the NY Times. I ended all short- and long-term deficits with no tax increases (except reducing employers’ health insurance tax deduction) and without raising the Social Security retirement age. Here’s the link. Of course, much of this is politically infeasible right now.

Read Full Post »

Peter Beinart argues that

Over the last half-century, the Republican Party has been, at times, a genuinely anti-government party and, at times, a politically successful party. But it’s never been both at the same time. Once this fall’s elections are over, I suspect the Tea Partiers will begin learning that, the hard way.

If a post-election GOP House starts trying to cut spending, will voters punish them? Of course, as documented on this blog and others, there’s very little evidence that Republicans will want to take on federal spending in any serious way. Nevertheless, it’s difficult for libertarians to berate them for this failing if it’s essential to their political preservation. However, I think there’s a much stronger case that fiscal profligacy has undermined the Republicans in the medium term. A failed, expensive war and the image of hypocritical budget-busting & earmarking in the GOP Congresses of 2001-2006 helped doom the party to voter wrath. Now, in my view, reforming entitlements isn’t going to happen without a grand, bipartisan deal, so that neither party can take the lion’s share of the blame. But at the very least, a Republican majority should end earmarking and make serious efforts to defund unpopular programs, like the government takeover of health insurance, and programs that only benefit people who vote for them anyway, like ag subsidies.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 1,024 other followers

%d bloggers like this: