The argument runs that welfare spending has for many years been extravagant, it was and is unsupportable, and has been a (if not the) primary cause of the economic recession. Austerity is given as the self-evident remedy for this situation.
If this argument were sound, you’d expect to find that countries with higher welfare spending would generally have suffered worse recessions than those with smaller welfare spending. However, if you compare the welfare spending of countries in the year before the recession (2007) with the change in GDP those countries suffered as a consequence of the recession (2009 vs 2008), you find that there is no such association.
Well, no, you wouldn’t. In fact, you’d expect those countries with larger welfare states to have smaller drops in GDP.
This is straight Keynes, of course, not a drop of neoliberalism in sight here. The standard response to a recession is that there should be fiscal stimulus. We’d like the gap between what the government spends and what it collects in taxes to rise. With a larger welfare state this happens on its own. More people out of work leads to less tax being collected and more being spent on welfare. This is so obvious that we even have a name for it: automatic stabilisers. And given that the thinking about fiscal stimulus is that it reduces the severity and timespan of the recession, those places with more automatic stabilisers in the form of a larger welfare state will have shallower and shorter recessions.
And this is the thing about Ritchie. The above is a comment he’s received from someone else. And Ritchie simply doesn’t get economics well enough to understand that the original set up is garbled.