Wednesday, March 23, 2011

Is The Leviathan Alive and Well?

The Economist publishes an interesting  special report  on the future of the state.


“By the 1990s many people thought that global capitalism would stop the state’s advance. (…) A special report in this newspaper, published in 1997, examined the then fashionable idea that the state was withering away. Its author, Clive crook, now at the Financial Times, argued that it was not.

He has been proved right several times over. In continental Europe, where the state’s share of the economy was already pretty big, it has not risen that much. However, in America a Republican, George Bush, pushed up spending more than any president since Lyndon Johnson.”

The data in the article, however, tell a slightly different story: the government spending as a share of GDP had in fact stopped growing during the 80s and 90s, only to resume its upward trend by the middle of the past decade, marked by the “great recession”. The average government spending as a percent of GDP for thirteen developed countries was thus   43.2 % in 2000 versus  43.8 % in 1980, but jumped to 47.7 % in 2009 (see the data in the article here).

 It is no surprise that government spending is less downwardly elastic than production, thus determining a rising ratio when GDP is stagnating or contracting. Moreover, one has to note that the current increase in state spending has been massively financed by debt, which means that increasing takings by taxes has become more and more difficult in open, competitive economies.

It follows that the idea of a withering away of the state may well become fashionable again when growth returns to sustained, pre-recession, levels.

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