Dodgy number but informative

Between 2000 and 2010, public spending as a share of output rose by a whopping 14 per cent (to more than 50 per cent of gross domestic product) – most of it before the 2008 recession. And that doesn’t include the bank bail-outs.

There are two ways that this can happen: spending rises or GDP falls. We\’ve had both of course which is what makes it a slightly dodgy number.

But it is still informative.

We could, for example, point to all those lefties who insist that the previous growth was somehow \”unreal\” as it was built on finance and borrowing, not making \”real\” things in manufacturing. We could even agree with them and then explain that the fall in GDP is just that unreal growth being exposed. So we\’re poorer than we all thought we were and thus have to spend less.

But that would be mere political quibbling which isn\’t something we do here, preferring instead the deeper truths.

One of which is where I think we come to Brown\’s great mistake. And somthing that is going to be the basis of my next project (to which you will be able to contribute! Yay! Sharpen those credit cards now!).

While I don\’t think that the Nordic model is the desirable society it\’s obvious that many do. OK, that\’s a difference of opinion, of underlying prejudices and nothing to do with economics. I think it\’s also obvious that what Brown was trying to do was to take us closer to that model: that explains his maniacal increases in public spending. But what he, Polly, most of the \”social democrats\” in the UK miss is that there are two pieces to what makes those societies work.

If you strip out the high tax high public spending part of the Nordic model you find that underneath they\’re actually much closer to a classically liberal economy than we are. Sure, there\’s a whacking great social saftey net and so on: but there\’s at least one paper out there (by Scott Sumner) insisting that by every other measure Denmark is the most economically free nation of all (well, OK, advanced/industrialised).

Both Obama and Tony Crossland have at times made the point that we can allow the market, capitalism, to produce the wealth which we then use to build that better, high tax high spend, society. But what they\’ve missed is, Crossland more than Obama, is that depsite there being a great deal of ruin in a nation you do have to be very careful about how you weigh upon that market/capitalism if it is to produce the growth to pay for your schemes.

Brown (and Blair) rather missed this point.

There are other ways of approching the same point: take the \”European\” method of dealing with labour rights/employment. There isn\’t one: there are at least four models. Anglo Saxon, Southern, Nordic and Germanic. Different mixtures of training, employee rights, social support etc etc. That southern one, that emphasises the rights of the current employee to keep that employment near no matter what, seems the worst of them. The Nordic, which like the Anglo Saxon has very few such rights seems better: the Nordic also offering high unemployment pay, lots of retraining etc also seeming better.

The point really being that there\’s more than one part to the model that makes these various societies work or not work. And just taking one part (high taxes! Lots of government spending!) and ignoring the others does not for a great polity make.

Which is, as I say, I think the mistake Brown made. It\’s also I think the mistake various of the more unthinking Tories (a reasonably large group) also make. Slashing welfare might be useful, even necessary, but it\’s not sufficient. There\’s more to a low tax small state viable solution than just that. Just as there\’s a lot more to a viable high tax large state solution than just tax and spend.

8 comments on “Dodgy number but informative

  1. Raab has carefully picked his years to compare, starting at a low point when Blair and Brown were restraining themselves, and ending at the height of the spending peak caused by the recession. (I don’t know where he gets his “more than 50% of GDP” from, there’s a chart here.

    Another comparison: public spending as a percentage of GDP was lower in 2007 than in 1993.

    Tim adds: Well, yes, it should be. Deep recession as against end of largest boom ever? I would rather hope so really….

  2. You could also include PFI liabilities & unfounded and almost incalculable Public Sector Pension liabilities which would put Govt expenditure well over 100% of GDP.

    A superb post, although you omit one consideration. All of Norway, Denmark, Finland and even Sweden have a far lower rate of immigration and greater ethnic homogeneity – a crucial consideration of any programme that posits even greater increases in Government expenditure!

  3. To add to what Van Patten said, the main reason the Nordic countries work well is because they are inhabited by Nordic people. Pretending Brits have the same attitude to life and work as Swedes is like thinking Greeks shared the same values as Germans. And we all know how well that turned out.

  4. Perhaps I wasn’t emphatic enough in pointing out the extent to which Raab’s numbers are dodgy.

    Government spending was 37.97% of GDP in 1993 (when the recession had officially ended), 34.63% in 2000, 38.69% in 2007, and 45.31% in 2010. Raab’s claim that there was an increase of “most of” 14% between 2000 and 2007 is wrong.

  5. I don’t think it is remotely meaningful to include future pension and other liabilities in the government spending you are comparing with current GDP. You aren’t paying them now, you are paying current liabilities. Yes, GDP may need to rise in the future to be able to afford them, but that’s a different matter from including them in the measure alongside current spending and then saying “oh looky here, we’re completely broke!”

  6. As for the nordic ethnicity argument:

    Wikipedia says that Sweden has 14.3% of its population foreign born and the 4th largest number of asylum seekers in Europe in 2009 and the third highest per capita. Norway has 12.2% of its population.

  7. Brown did not make any mistakes and he didn’t give a flying fornicate for the plight of the poor. He raised taxes to stop the wrong people getting rich.

  8. Never much liked Wiki’s dodgy figures, so went to the good old CIA for some numbers.
    It only has demographic figures for Norway, which give the population as 94.4% Norwegian. Only 2% are Muslim There’s no figure for Denmark but the 95% Evangelical Lutherans reported should substitute. Again Muslim at 2%. Sweden’s statisticians have been even more opaque, but again, 87% Lutheran gives a clue.
    The net migration rates per 1000 population are as follows:
    N = 1.7 (numbered 40 in the world by comparison)
    D = 2.47 (28)
    S = 1.65 (41)

    For a benchmark:
    UK = 2.15 (36)
    Although how much credibility should be given to that figure, bearing in mind the Government doesn’t seem to know the immigration rates, is up to you.

    Wiki would seem to over-egging the omelette, but then Wiki contributors often have an agenda.

    And I thought it might be worth having a glance at Finland but, with apparently no non-European immigrants whatsoever although attractive to the 5.6% Swedes, it doesn’t really figure.

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