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January 31, 2011

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Rob

Of course, as you've said before, this does not necessarily rule out leftist approaches to redistribution.

The problem being reported here is with government *spending*, not government *taxing* (and your previous post casts doubt on the disincentive/Laffer effects of taxation at present levels). Therefore, if the government abstained from spending a large portion of tax revenue directly, and instead redistributed it according to progressive criteria, we would achieve many of the social benefits of a more egalitarian society without the costs of central government accounting for such a massive share of the economy.

Marcin

...Or it could suggest that the problem is a low-trust society. Perhaps the best way to foster that would be a big government with a lot of propaganda in favour of the kinds of values that have shaped Scandinavian societies.

Prateek Buch

Interested in this:Big government usually means that a lot of economic activity is concentrated in sectors where productivity grows slowly - such as education or healthcare. This drags down overall growth.
What is the evidence that if growth (as measured by GDP) is dragged down in this manner, that the quality of life that citizens enjoy is concomitantly dragged down?
strikes me that better healthcare and/or education (I know that neither are necessarily improved by more spending but can be...) could improve the quality of life that most people enjoy independent of their effects on GDP.

Or, put another way, could restricting growth in this way be a good thing?

Discuss

Matthew

You mean 39.8%, presuambly.

I read the paper briefly and wasn't sure if they tried to distinguish between types of spending - ie if you spend 40% of GDP through a CBI it would be rather different than if all 40% was govt consumption spending.

chris

@ Matthew - thanks: that typo's corrected.
You're right - they don't make that distinction.
@ Rob - I agree.
@ Prateek - there's certainly evidence that education has all sorts of good effects:
http://economics.uwo.ca/faculty/lochner/papers/nonproductionbenefits_dec10.pdf
But how well education is correlated with education spending is another matter.

Ralph Musgrave

I agree with Prateek Buch, but would put the point another way, as follows. The utility or worth of public sector output is not measured by the market. It is measured by voters at election time.

If voters want, for example, the number of public sector employees to remain constant relative to the number of private sector employees (even given no productivity increases in the public sector) then voters are in effect saying they regard the worth of public sector employees as being equal to that of private sector employees, regardless of traditional views on productivity.

Put another way, voters are saying that when private sector employee productivity rises by X%, so does that of public sector employees, because we the voters say so.

There is a bit of a philosophical quagmire here, namely the question as to how far and when should democracy overrule private free market decisions. But certainly the view that economic growth is curtailed by poor productivity increases in the public sector is an extreme and over-simple take on this philosophical debate.


Paul Sagar

Its only bad for the "statist left" if you assume that marginally higher economic growth in the long-run 1. benefits the worse-off better than the "statist left" alternative and comnectedly 2. That more private sector growth is better than the slow growth via health and education you note. I don't see any particular reason to grant these assumptions, especially not I the touted benefit is a mere £40-80 per individual

Mercy

Yeah looking at the price of a private healthcare plan in the US, that sounds like a shockingly poor trade.

hans

just a small comment on the swedish situation: swedish labour law does not provide any extra employment security to public sector employees compared to private sector (the only exceptions are judges and tenured university professors). this has enabled public sector organisations to restructure and reduce their workforces irrespective of privatization.
hence, exit and change can happen more easily also in the public sector.

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