To spend is to owe?

A high level of government spending doesn’t necessarily produce heavy government debt. Nor does low spending guarantee low debt. Debt levels are a function of government expenditures and revenues and economic growth.

12 thoughts on “To spend is to owe?

  1. is it really govenrment expenditures and not public expenditures?Same thing for govenment debt
    Serge d’Agostino

  2. Debt is always the result of too much spending.

    Big governments are risking more debt than small government. If revenue and growth does not meet expectations, big government is in more trouble than small ones.

    I think you are twisting words and not content.

  3. You get into debt if you spend more than you collect. If a government has high expenditures *and* high tax revenues, it won’t run a deficit; ditto for a country with low expenditures and low tax revenues (though it might not be such a pleasant place to live, with no police, paved roads, sewers, etc.).

    Of course, it’s really way more complicated than that, despite the pathetic attempts at over-simplification from the shouty types on the Left and Right. First, fluctuations in interest rates have a huge impact on governments with a large debt – if the US suddenly had to pay 8%/year to service its debt, you’d be facing an economic catastrophe. Some types of spending (e.g. basic infrastructure) may stimulate the economy, while other types of spending (e.g. industrial and agricultural subsidies) may stifle it. Likewise, raising some tax rates (e.g. consumption taxes) may bring in more revenue up to a point, while raising others (e.g. corporate and top-marginal taxes) may bring in less, because — however unfair it may be — the wealthy can shuffle their money to other countries very easily, as the UK discovered in the 1970s.

  4. Nice graph showing the international positions over this 20 year period, but I wonder if somehow the changes within this period could also be shown…short little segments maybe…maybe there is no direction?

    Can we have a view of those Euro countries now in financial trouble and the time lines for that?

  5. Leclerc: Debt is always the result of too little taxing.

    Big governments are risking more debt than small government. If revenue and growth does not meet expectations, big government is in more trouble than small ones.

    I am twisting words and not content.

  6. geaugailluminati, that is not true. Nobody can control their income, not even governments. High taxation does not equal high revenue. However you can decide very accurately how much you spend. In principle governments can do this also but it seems big governments have more trouble doing this than small governments – that may be the reason some governments became big in the first place.

  7. Yes, high taxes may not equal “high” revenue. But higher taxes do equal higher revenue (holding all else constant). The idea that this is not apart of the solution (along with cuts) is absurd.

    I also find it ironic that the comments have focused on “big government” for a blog posts that illustrates the US is the third lowest spending government on the list.

  8. I wonder whether the negative relationship would hold if you held tax revenue (%GDP) constant.

  9. Jonathan and Lane: it still sounds to me that you’re bravely fighting a straw man that you’ve set up. I’ve never heard anyone serious claim that the level of government spending alone determines the size of the deficit, and more than taxation alone determines the size of the deficit.

  10. Maybe nobody serious claims this, but a lot of influential people do. Starting with the leadership of the British Conservative party, whose election campaign never once accused Labour of not taxing enough.

  11. Although I agree with the thrust of the post, I question whether it uses “debt” correctly. It appears to only count funded debt. I can’t tell if it counts debt of governments below the national level. It also seems to omit the off balance sheet debt – funded debt guaranteed by a government, and the present value of unfunded promises – entitlements. Does it back out intragovernmental debt (e.g., debt held by Social Security Trust fund).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s