My main problem is not so much the argument, but that Klein is knowingly or not relying on a trick used by (who else) Paul Krugman, which is to define the welfare state as “Social Expenditure”.
Social Expenditure is a statistical category which sound as if it the welfare state, but in fact includes about half of non-defense spending. For instance education spending is generally not included in “Social Expenditure”. All spending causes deficits, not just the ones somewhat arbitrarily defined as social.
In the U.S, social expenditure is about 45% of total government spending. Even in Sweden, the country which spends most on social expenditure, the category nonetheless only includes 53% of total government spending.
Richer countries tend to have a higher share of Social Expenditure of total welfare state expenditure. It is therefore a trick to use “Social Expenditure” when you are talking about the welfare state. Instead of size of government, they use a sub-category of spending that tends to correlate with good outcomes more than overall government spending does.
But let’s stick with Kleins definition, for now. The last year for which the OECD reports “Social Expenditure” was 2007. Here is a correlation with the public debt that year. It is positive and weakly statistically significant (10% but not 5% level).
Countries that spend more have more debt. The same is true if total spending is used.
P.S
Another trick used by liberals is to use ”Government Purchases” (another sub-category) instead of spending. The left love spending, but apparently don’t like to use spending as a statistical variable.
Also, I like how Klein says "Germany is fine".
ReplyDeleteHardly. Germany is in slightly better shape than Greece, but it has 83% debt/GDP and a population that is imploding. If we actually included the present value of public pension obligations (as some do when including the U.S. debt "held" by Social Security) as part of the debt/GDP, the scale of this disaster would be even more apparent.
Of course the real question for pay-as-you public pension systems is about demographics, not present values of committed future spending.
Germany already has only 3 workers per retiree (versus 4.5 in the U.S.) and that number is dropping quickly. In addition the birth rate in Germany is an abysmal 1.36 children per woman. This slightly LOWER than even Greece and more ominously for Germany, looking at the curves, it dropped off much sooner than Greece, so the complete disaster starts in Germany when people born in the 1970's start to retire:
http://bit.ly/ttTYsN
Those curves make the retirement of the baby boomers seem trivial because the baby boomers in the U.S. at least had children at the replacement level.
ALL of the social welfare states were built on faulty assumptions and are suffering from a demographic implosion that will eventually destroy their social welfare systems as they currently exist, but in Germany the situation is especially dire.
Sure, a demographic implosion is a slow motion disaster, but it doesn't make it any less real and actually make the effects even more disastrous. By the time the situation comes to a head, there is no solution. It takes 20 to 25 years to raise a new crop of workers and there is no reason to expect that skilled immigrants will be incentivized to move to a bankrupt, imploded state to work off the debt.
-Mercy
Okay, My views on this are fairly transparent. Social Programs work so long as EVERYONE pays in equally to them, and the benefits reaped are NOT based on current revenue streams but then based on previous investments. I do not like Government as an investment vehicle. Why? It excuses deficit spending with a crisis to occur at a later date that forces the Government to increase taxes/austerity.
ReplyDeleteWhat about the social safety net? Well how big should it be? How long should it be? When does a safety net become a hammock? These are all questions that we still do not have a concrete answer on and if left to a certain group of people simply get larger and larger and larger in size while all the while becoming a much more cozy place to be.
Perhaps I am wrong to question the viability of programs like this however people like Paul Krugman and Ezra Klein tend to simply say, "It Just Works" and then dismiss any criticism of possible failures in the mechanism.