Perhaps Some American Exceptionalism is in Order

In the ongoing polarized debates about the size and scope of government, many American politicians and talking heads are turning to European examples to make their case.

When discussions of increased government spending arise, some conservatives screech “We are turning into profligate overspenders like those irresponsible Greeks!”

When discussions of cutting government spending arise, some liberals lecture “We are turning into heartless penny pinchers like those cruel Brits!”

OECD data on fiscal benefits and public indebtedness (link here) tell a different story.

At the time the 2010 financial crisis began in Greece, its “profligate” government’s spending as a share of GDP was 49.5%.

Today, under its “heartless” austerity drive, UK government spending as a share of GDP is….48.8%.

The current figure for the U.S. government is 40.4%. The putatively profligate Greeks are a lot more like the supposedly austere Brits than either of them is like us.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

17 thoughts on “Perhaps Some American Exceptionalism is in Order”

  1. You cannot consider spending in isolation but have to look at revenue also. Greece had low taxes and a high level of tax evasion prior to the crisis (and still have problems with at least the tax evasion part).

    If the Bush tax cuts continue indefinitely, then America may be more like Greece sooner than we would be like.

  2. Complicating this, an awful lot of healthcare spending that is done by the government in the UK (or Greece) is not done by the government here. Non-healthcare government spending per GDP might be more informative. I’m not saying the government shouldn’t be spending on healthcare (my preferences are for single-payer), just that when you compare the sizes of government you should exclude or otherwise adjust for things they do fundamentally differently. An argument could be made for similarly excluding military spending, and perhaps debt service.

    1. I believe the United States government still pays more per capita (yes, just the government) than the UK government does for health care. (I will try source this)

      Ahh, here we go.

      http://www.kff.org/insurance/snapshot/OECD042111.cfm

      From the Kaiser Family Foundation (using OECD data)

      Government expenditures on health care as a % of GDP:

      U.S. — 7.4%
      U.K. — 7.2%

      Private expenditures on health care as a % of GDP:

      U.S. — 8.5%
      U.K. — 1.5%

      I don’t think that government expenditures on health care explain the difference in governmental spending between these two countries.

      1. After posting my comment, I had some vague recollection that might be the case. Honestly, the fact that we’re paying nearly twice as much for health care (16% of GDP, as versus 9%), for no better outcomes, is a complete indictment.

        1. It is interesting how perceptions vary. The cost effectiveness which we have been discussing is a consequence of very tight (some might say under-funded) NHS budgets. Many of the people I went to school with ended up working in health policy. Whether as a compliment or criticism, they often describe the British system as KH has suggested, penny-pinching. Excluding these people, most of my acquaintances only know that the British system is universal (and perhaps socialized) and so assume it is very generous. In some sense, both perceptions are valid.

          Saying that, I would be curious where the remainder of the UK budget goes. If the government spends ~ 8% more of GDP in the UK than in the US and the difference is not health care (or education, or defense as far as I know)what would a comparison look like?

          Anyone?

          1. According to the Stockholm International Peace Research Institute (SIPRI) the US spends ~ 4.7% of GDP per year on ‘defense’ while in the UK the number is ~ 2.7%.

            http://milexdata.sipri.org/

            I have no idea who SIPRI or what they have included in these figures. I would be especially curious to know whether (and how) current war funding has been included.

          2. I’ve spent a lot of time in both worlds, and fundamentally I would say that the NHS and the US healthcare system reflect different underlying value systems. At its best, the US is by far the best in the world. If you you are rich and can pay anything, you come to the US. Arab Sheikhs don’t come to London to get on an NHS waiting list, they fly to get an immediate consult in New York or Baltimore or Stanford. But for most lower income people (I say most because the VA gives excellent, NHS style health care to many low income veterans), the NHS is better, it’s more accessible and equitable than the US system in which it doesn’t seem to bother us too much that people die for lack of health insurance.

            One country has decided that we are all in this together, the other has not.

        2. It’s even worse, since the United States have higher GDP/capita than the UK. There really isn’t much reason why healthcare costs should rise proportionally with GDP, especially when the higher costs do not actually buy us better healthcare. While that may not matter much for the specific issue of comparing revenues with outlays, it’s still a strong indicator of inefficiency.

          1. It makes sense for a wealthy country to offer higher pay to doctors and nurses and hospital janitors than a poor country, so to the extent that health care costs reflect the cost of labor, we should expect the wealthy countries to spend a higher nominal amount even if the extra money does not get better care.

          2. Obviously, higher income for doctors accounts for part of the difference (though, sorry, US nurses do not get paid more than nurses in the average developed country). But it does not make healthcare costs rise proportionately with GDP — healthcare cost is a function of many factors, not just GDP.

            Also, if cost of living in general were strictly a proportional function of GDP/capita, then GDP/capita would be a largely meaningless statistic. In practice, average income for many middle class professions (e.g., teachers) is not particularly high by OECD standards. And US cost of living is not particularly high compared to other countries, either. Healthcare costs in general and what Americans pay doctors are outliers and not really justified by the results.

  3. “The current figure for the U.S. government is 40.4%. The putatively profligate Greeks are a lot more like the supposedly austere Brits than either of them is like us.”

    But, unless you don’t want to act until it’s too late, you can’t look at those numbers, you have to look at the trends. You know, so you can act before you’re beyond the point of no return?

    So, the question isn’t our altitude. The question is whether you’re laboriously climbing back up the cliff you just went over, or in free fall, gaining speed down. I’d say we’re the latter.

  4. You also need to adjust for our federal/state system. Are you really accounting for all the spending? Our states fund a lot of things other countries spend at the national level. I don’t think the raw numbers as you provide them tell you much with any accuracy.

    1. Redwave, the numbers account for all public spending, at the government, state, and local levels. A simple check will tell you that it can’t just be federal spending: The 2010 federal budget had $3.5 trillion in expenditures, while the US GDP for 2010 was $14.5 trillion. In short, in 2010, federal government spending made up around 24% of the GDP, not anywhere close to 40%.

  5. Brett and Redwave:
    I refer you to Katja’s excellent deflation of Keith’s post. It’s not hard to find; it is the first comment on this thread.

    The amount of spending called “government” is irrelevant to first order, if it is supported by taxation. The second-order concern is whether the government’s spending is in the public interest. To the extent it is, the level is irrelevant. You wouldn’t begrudge the ultra-high defense spending of WWII, would you? Even Bastiat conceded this point: taxes are like any other payment, and are justified if the services are worth the taxes. I suppose you could argue with Bastiat on ultra-libertarian grounds: nasty, brutish, and short is a price worth paying for liberty. Go ahead, if you want. The rest of us mostly care only if the services are worth the taxes.

    I’m sure we disagree on this issue. You probably think that most government spending isn’t worth it, or is even counterproductive. I don’t. And let’s agree to disagree on this point in this thread. But unless you take the ultra-libertarian route, this is the true nature of our disagreement, not the absolute level of spending. The absolute level of spending is only an issue if it is inadequately financed.

  6. Here’s The Guardian reporting this morning:

    The median salary for a full-time worker in the UK rose 1.4% in 2011 to £26,244, against a headline CPI inflation rate of 5% or higher, according to the Annual Survey of Hours and Earnings from the Office for National Statistics.

    Overall earnings growth was even lower, with the average UK salary increasing just 0.5% on 2010 levels once part-time workers are included.

    This was driven by a shift to part-time work as a result of high unemployment and low economic growth: the indicative figures for 2011 included 380,000 fewer full-time workers than a year before, with 72,000 more part-time employees.

    . . .
    The headline figures also masked sizeable falls in pay for some of the UK’s lowest-earning professions – and sizeable salary boosts for senior managers and directors.

    Workers in “elementary occupations”, a classification including labourers, farm workers, postal workers and others, saw their typical pay fall 0.9% against its 2010 level, while professional pay rose 1% and managerial salaries rose 0.5%.

    Directors and chief executives of leading organisations enjoyed the most sizeable pay rises, with median earnings up 15% to £112,157, in part a result of trends shifting earnings to basic pay and away from bonuses.

    Salaries of senior corporate managers also increased substantially – up 7.1% year-on-year to £77,679.

    By contrast, the annual pay of waiters and waitresses (mostly part-time workers) fell 11.2% year-on-year to £5,660 – the most substantial drop of any group of workers. Cleaning staff earnings fell 3.4%.

    Otherwise pointless, abstract references to the “size of government” and the “deficit” mask the major offensive being undertaken in class warfare in the UK and the US. A policy of “saving the financial sector” means that very wealthy people do not have to take a well-deserved hit for their role in severely damaging the world economy. Instead of to a billionaire, the task of risk-absorption is assigned to the waitress at the local bistro. And, of course, in the U.S., “entitlement” programs must be “cut” to fund the subsidies that keep Bank of America alive, but that’s another story. Except it is the same story.

  7. The ¨government spending as a share of GDP¨ ratio is not an economically intelligent number. It is arrived at by adding transfer payments (which can sum to 100% of national income under war communism) to government purchases of goods and services (which can amount to 100% of national production also under war communism). So its 40 or 49 or whatever out of 200, not 100.

    BTW ¨Arab Sheikhs don’t come to London to get on an NHS waiting list¨. Indeed not; they are required by UK law to pay. But plenty do in fact come to London for private medical treatment at places like the private London Clinic, which offers Arabic bedside interpreters. I dare say London´s a lot more welcoming to foreign Muslims; visas, food, religious support.

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