Matthew O’Brien over at Atlantic.com decided to test the conservative orthodoxy that high levels of social spending (or a big “welfare state”) are the ruination of the economic health of the nations that try to sustain it.
So he arrayed European nations on a graphic according to how high their social spending and the growth rate of their GDP. On the graphic below, the higher a country’s social spending, the higher they are on the graph. The faster a country’s economy is growing, the further to the right they appear.
I don’t mean to oversimplify the particular tenet of conservative orthodoxy that this graphic tests, and I’m sure I’m doing so. But the orthodox view would predict that the countries would be aligned roughly on a diagonal from the top left to the bottom right, meaning that countries with less social spending would have more economic growth and vice versa.
Here’s how the graphic turned out.
Those darn Swedes seem to have the second highest level of social spending, but the very highest economic growth rate. Portugal has the worst economic growth rate (in fact, it’s a negative rate) but is near the middle of the pack in social spending. You can squint at it all you like, and it doesn’t prove the opposite of the orthodoxy, it seems to show no pattern at all in the relationship between the two measures.
(I should alert you that there’s some kind of adjustment that O’Brien discloses and discusses that takes into account the fact that poor countries are expected to grow faster than rich countries.)
OBrien titled his post: “The Myth That Entitlements Destroy a Nation’s Growth, Busted in 1 Chart.”
The pattern is a flat line; one with a slope of zero.
Of course, if you really want to tweak things, you might note the bifurcation of the data and say that we have one subset of countries with an increasing trend, and one with a decreasing trend (less social spending correlated with a higher growth rate).
Even more interesting, all of the English speaking countries are in this group.
Maybe we should all learn German.
1.4%
I’m struck by how very little divergence this chart really shows. Sweden has the top growth rate at about 1.4%, while most everyone else is clustered very near. I wonder what a twenty, thirty or fifty year period would look like. One of the big conservative complaints with the welfare state is the future impact of so much promised spending. The author mentions upcoming demographic effects but doesn’t really explore them much. In other words, we can afford to spend what we do today but the charts are all moving in the wrong direction for the long term. I wonder if that’s true of Sweden too.
The problem of orthodoxy
Hmmm. My family heritage is German. Maybe Paul is on to something.
Peder’s point is also well-taken. Long term expense – a common conservative complaint – may well look very different from a focus on just the past year or three.
My particular $0.02 is that the important point here might well be that it’s a mistake for policy makers of ALL the usual political persuasions to rely on economic and social “orthodoxy.”
It’s taken as a matter of faith on the right that social spending is akin to fiscal and moral cancer, and in the meantime, it’s taken as an article of faith on the left that any sort of restraint on social spending is immoral strangulation of the poor and defenseless.
As O’Brien says rather clearly in the article: THERE IS NO PATTERN. Maybe the hysteria on both sides (I tend to lean left, but hysteria is hysteria, no matter its directional slant) would diminish to some degree if/when policy makers came to realize that neither side (for simplicity’s sake, I’ll assume only two sides, though there are in fact multiples) has somehow been illuminated by divine truth in economic and social policy terms.
As O’Brien suggested, perhaps the entrepreneurial is sometimes actually encouraged by social spending of particular types. Perhaps a certain degree of fiscal caution is a good thing. Maybe business works better when employees get more time off, or are happier, or whatever, and perhaps social spending is easier to control and target when the economy of a particular nation-state is functioning well.
It’s the concept of, and belief in, a kind of social and economic orthodoxy that may well be the root of at least some of our problems. I know some people to my left who are quite capable of being shrill and uncompromising, and there are a host of public examples of that sort of behavior and language from the right wing.
It stems from certainty.
I think a little bit of doubt is often, maybe even usually, useful.
Right!
It’s the Republicans who are claiming a link;
it’s up to them to support that claim.
No One True Path
Ray, I think you’re probably right that there is no set prescription for every country. Even more, certain policies make sense at certain times but not at others. For instance, we probably need a much more flexible policy on immigration in our country. At times we need to open the flood gates and at other times only pick the absolute cream of the crop.