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Laissez-Faire, eh?
U.S. government spending as a percentage of GDP is now equal to Canada's and rising, leading one Canadian op-ed writer to crow about Canada's low tax, free market economy. Damn that hurts.
Posted by Alex Tabarrok on May 1, 2009 at 07:10 AM in Data Source | Permalink
Comments
But unlike canada we can wipe out humanity whenever we want. And say we just want to kill a million people here and there we can do that too. Take that Canucks.
Posted by: Michael Foody at May 1, 2009 7:40:51 AM
I presume this includes military spending? How much does it change when you remove that?
Posted by: Enda at May 1, 2009 7:41:23 AM
Why would you remove that? Patronage is patronage, no?
Posted by: josh at May 1, 2009 8:12:35 AM
One of my biggest pet-peeves by far in recent months is that nonsensical argument is that our economic/financial woes are due to 'deregulation.'
Posted by: Speedmaster at May 1, 2009 8:23:31 AM
Deficit spending in Canada has come to be viewed in a very negative fashion, and the governments that have gone into deficit during the current recession are not seeing much support for their Keynesian spending programs. It is worth mentioning for American readers that Canada is far more decentralized than the U.S, and as such taxes for citizens and businesses alike have far greater variance from province to province than from state to state. Generally speaking, taxes are highest in the eastern Atlantic provinces and move steadily downward as you move westward.
Having lived in both countries (plus Quebec), my general observation is that poor to lower middle class Canadians enjoy a higher standard of living than do their American counterparts. At some point along the middle class income range, the situation reverses itself. Canada's various income tax brackets kick in far earlier than similar US ones, which account for a lot of the difference. Higher user fees and sales/service taxes do as well (note: the poor to lower middle class can qualify for rebates for these particular taxes). For businesses, income taxes are generally lower (and falling) in Canada, although there are some other taxes they have to pay here that are much lower or non-existent in the U.S.
Posted by: Shaun at May 1, 2009 8:33:51 AM
It's really easy to keep government spending low: make the state the only employer in fields that don't affect GDP so much in the long run (health care and early education) but are very expensive. In those fields reduce salaries and services as much as possible, up to the point that reducing it more would cause a mass exodus towards the US.
Posted by: Martin at May 1, 2009 8:46:00 AM
Josh: there are arguments for removing military spending from GDP statistics, primarily because blowing stuff up doesn't really add that much to economic welfare.
G over GDP is a measure often used to see how interventionist/left-wing/socially-concerned a government is. It's a weak measure, to be sure, but you can improve it by removing how much stuff the government blows up.
(Pre-empting your most-likely response: I agree that a certain amount of military expenditure is vital for economic well-being/protection of the state. However nobody could argue that the US military's budget is anywhere near the low level needed to just protect the liberty of the state. Thus if you want to use G/GDP as a measure of government intervention -- as Alex's post may be implicitly suggesting -- it's best to separate its guns from its butter.)
Posted by: Enda at May 1, 2009 9:02:25 AM
The real kicker: China's government expenditure is statistically 20% of GDP. Most economists estimate that it's closer to 40%, but still...
Posted by: Cindy6 at May 1, 2009 9:06:05 AM
Er, William Watson is actually an associate professor of Economics and chairman of the Dept. of Economics at McGill University, with a Ph.D. from Yale, not just an "op-ed" writer.
Unless, of course, the writers of this blog are just "bloggers," in which case I retract my correction.
Posted by: Garth Wood at May 1, 2009 9:15:53 AM
Enda,
What if the US' guns are butter? It's extrodinarilly unlikely that we'll ever use most of our weapons spending as actual weapons, so what if their purpose is to provide welfare for certain groups?
Posted by: nelsonal at May 1, 2009 9:34:10 AM
Where exactly on this op-ed does it mention he is an associate professor of Economics and chairman of the Dept. of Economics at McGill University with a Ph.D. from Yale and filled with delicious candy that makes you smarter if you promise to remember his name?
I mean, if it said I HAVE A DOCTORATE in big letters at the top, I could understand you getting your poutine in a bunch around it, but without that, the way the article is presented means he has to rely on his fame--worse yet, his *Canadian* fame--for us to realize that.
Posted by: Obs at May 1, 2009 9:35:53 AM
Nelsonal,
The idea is that even if the bombs are used, they improve human welfare less than butter does. Most people agree that Joe Citzen's economic welfare is enhanced more by that new highway than by the invasion of Iraq. If the govt made Lockheed build roads instead of bombs, the Lockheed guys still get paid AND the citizens commute faster. Beyond the "security of the state" levels of expenditure, there isn't much consumer welfare derived from an F-16. Of course one can argue that food stamps affect consumer welfare in a fundamentally different way to roads, but most reasonable people agree that blowing stuff up doesn't improve economic welfare. Things just explode. Consequently many economists, including Tyler afaik, don't really consider military expenditure as real economic activity at all.
Incidentally this isn't an argument against military expenditure/invading Iraq, it's go to do with whether to include these figures as a measure of welfare or not. Oftentimes the most interesting thing -- and this was my original question -- is the level of change that happens when one excludes military expenditure.
Posted by: Enda at May 1, 2009 10:21:21 AM
Notice how greatly government expanded during Reagan and Bush Sr. That was supposed to be the "neoliberal" era. Alex should not be blamed, blame Ronnie.
Posted by: ivan at May 1, 2009 10:23:55 AM
Thank god for the >1 multiplier. If the government was too much smaller, our GDP might go negative.
Posted by: Andrew at May 1, 2009 10:25:04 AM
That inflection point Canada has around the early 90s fills me with hope for the United States.
Posted by: Taeyoung at May 1, 2009 10:46:37 AM
Well, look at that - governments can become smaller, even when they have cradle to grave welfare nets.
Now, add to the US GDP health care spending, that'll knock your f-ing socks off.
Posted by: Chuck at May 1, 2009 10:51:27 AM
This doesn't really measure the size of the government though. A new law that has a small effect on the governments budget can has drastic consequences for people, both economically and socially.
I think people need to give up in their quest to turn something as complicated as the "size" of the government into a single number.
I think that it is worth noting that most (all?) Scandinavian countries have higher proportions of government spending than France. Yet this misses the fact that the French government has much more control over the labour market than say Denmark where the labour market is said to be relatively free.
Posted by: Robbie at May 1, 2009 11:40:59 AM
Chuck: Anything can become smaller if you can download responsibility onto another level of government (ie provinces).
Posted by: Vincent Clement at May 1, 2009 11:57:12 AM
Looks like both countries could use at least a 50% reduction.
Posted by: 8 at May 1, 2009 12:16:06 PM
Alex wrote: "Damn that hurts."
Given the difference in health care systems, you are better off to have whatever age-related health issue acting up on you here in the US of A and not under the Maple Leaf, eh?
Of course, Obama is working on emulating Canada in this regard.
Posted by: indiana jim at May 1, 2009 12:50:49 PM
Agreed about the military thing. If we had anything close to reasonable military expenditures, ours would be a relatively much smaller government than Canada's, or almost any other developed country for that matter.
Posted by: David C at May 1, 2009 2:13:30 PM
The issue of Military spending is also the issue of Canadian free-riding n'est-ce pas? Damn that hurts.
Posted by: indiana jim at May 1, 2009 2:27:32 PM
I just wanted to point out that this chart, or at least the labeling of this chart is misleading. What it is calling US Government spending is the total annual expenditures at all levels of government (Federal, State, and Local). From Defense Department buying to local school board expenditures. Federal government expenditures hover around 19%.
Posted by: Rachel at May 1, 2009 2:30:53 PM
Just some very quick figures:
Wikipedia claims the US GDP is $14,264bn. The graph above suggest govt spending is a little below 40% of that, or about $5.6tn. Wiki also states that US military spending is approximately $1tn, so non-military expenditure is about $4.6tn. So "non-military G" divided by "non-military GDP" = 4.6/13.264 = about 35%.
As for Canada, GDP = $1.3tn, 40% of that = $520bn, military = $19.5bn, so non-military G/non-military GDP = (500.5/1280) = about 39%.
The difference is about 4 percentage points. 4% over 35% is about 11.5%. So back of the envelope calculations suggest Canada is still 11.5% "more involved" than their southern neighbours. Of course Yanks still have to pay this ~$2000 per person in taxes, but it goes towards blowing stuff up.
Posted by: Enda at May 1, 2009 3:02:43 PM
Indiana Jim wrote: "The issue of Military spending is also the issue of Canadian free-riding n'est-ce pas? Damn that hurts."
Come on, the old canard that Canada free rides off of US defence expenditure does not really wash. Some countries do free-ride off the US defence budget (e.g., Western Germany in the Cold War, South Korea today), but Canada simply isn't one of them. Canada has no neighbours, aside from the US, and hasn't developed any enemies in the world (the same can't be said from France or the UK or any of other former colonial powers). Just because my neighbour spends lots on x, doesn't make me a free rider. In fact, US military spending may have a moderately negative impact on the welfare of the average Canadian taxpayer: living next to a superpower involves some negative externalities for Canadians. Amongst other things, in the event of the US getting itself into a nuclear war, the prevailing winds would bring radioactive dust into Canada.
Posted by: Andrew at May 1, 2009 8:09:48 PM
