Journalists keep referring to the years of “austerity” that Greece has endured. Government spending has been cut so much that it is now only 58.5 percent of GDP (heritage.org). What does a country that hasn’t suffered austerity spend? Singapore’s government clocks in at 14.4 percent (same source). How about a command-and-control centrally planned Communist dictatorship? China is at 25 percent. A socialist cradle-to-grave welfare state? Sweden is at 52 percent.
Are the Heritage data wrong? If not, how is it possible that Greece continues to be cited as an example of a country where the government doesn’t spend enough?
Easy. The people citing it all think North Korea is the ideal example to follow.
According to the CIA Factbook Greek’s govt spending as a percent of GDP is 52% (up from 40% in 2009). Over that time period government spending was cut from 144B to 128B, but GDP crashed from 357B to 246B.
Either the American media are completely inept at reporting on the Greece crisis, or someone is being obtuse on purpose.
All official data is rather readily available on Eurostat. I don’t know where heritage.org gets its data.
The greek government spent, on average, about 110 billion euros per year in 2007.
In 2014 it spent 88 billion euros, which is a 20% reduction.
However, GDP fell from 230 billion euros in 2007 to 180 billion euros in 2014, which is a 22% reduction.
This is why the Greek government can be said to have been “austere”, even when spending as a percentage of GDP hasn’t changed much.
Both of these things are very noticeable to the Greeks. The economy is tanking, and the government has significantly reduced its spending to match.
If you’re fired as a surgeon, and you start working as a gardener, you can adjust your household budget all you want, but you’re never going to be able to pay off the credit card bill you accrued as a surgeon.
The Greek position is that they are a gardener now, and should be allowed to go bankrupt and stay poor. The position of the Troika (European institutions that hold Greece’s debt) is that Greece is just slacking off, and can be a surgeon again if they just apply themselves and implement some reforms.
The government spending actually looks fairly average for a European country to me; there are many countries with spending like Sweden’s. Greece is a European outlier not because its spending as %GDP is so comparatively high, but because its revenue collected in taxes as %GDP is so comparatively low.
michiel: Do you think that the Eurostat numbers include all local government spending? None of the figures that you cite support a 58.5 percent role for the government. I think that coming up with an accurate number for the U.S. is tough because there are so many thousands of governments, each with its own budget (e.g., town, country, state, federal). And then there is the question of whether or not to count healthcare now that Obamacare forces Americans to purchase health insurance (see https://philip.greenspun.com/blog/2015/02/21/health-insurance-premiums-should-be-counted-as-tax-revenue/ for how if you roll in health care the U.S. has roughly 50 percent of GDP as a tax burden (and therefore spending at roughly the same level as Sweden, which provides welfare much more consistently)).
Regardless of which numbers are correct, government budgeting everywhere is always based on last year’s budget plus an increase that is at or above the rate of inflation. So, even if you spend more than you did the year before, this is considered a “cut”. The comparison is always to what you were doing previously, not what is done in Singapore or Sweden.
And what Greece was doing previously was giving out retirement pensions to 52 year olds and running all sorts of incredibly inefficient bureaucracies and businesses while collecting minimal taxes and revenues to pay for same. Even before the current regime made the Athens subway free, it would have been cheaper to just buy taxi rides for all the commuters – the average salary of the workers is over $90,000, which is triple the local average.
The Greek government and people have shown that they really have no intention of cleaning up their act. The Germans have to accept that they have been suckered and are not going to get their money back, but they have to stop throwing good money after bad. Greece can continue spending money that they don’t have, but it will have to be phony money to go with the phony jobs. That was always their traditional arrangement and it should never have been changed.
phil: According to this explanation, it does include local governments. It is less clear to me if it might include state-owned utility companies, for example.