A message for Paul Ryan: Europe has lower deficits than America
Feb 20th 2012, 19:45 by M.S.
IN THE video clip my colleague posted of Paul Ryan arguing with Tim Geithner, Mr Ryan points to the inexorable rise in US government debt starting in 2023 projected by the administration's proposed budget and warns incredulously, "That's Europe." I'm having trouble thinking of another statement that is so wrong in so many different ways.
The European Union has lower government debt levels than America. Gross government debt in the 27 nations of the EU was 80% of the region's GDP at the end of 2010; in America gross federal debt at the end of 2010 was 94% of GDP. Furthermore, government debt is growing more slowly as a percentage of GDP in the EU than in America, because pretty much every nation in the EU is implementing austerity measures. The general government deficit in the EU-27 in 2010 was 6.6% of GDP. In America the federal deficit in 2010 was 9% of GDP.
Mr Ryan clearly thinks Europe is an economic basket case. Obviously, there is a grave economic crisis underway in the euro zone, and many European countries' economies contracted in the fourth quarter of 2011 while America's grew solidly. But it makes no sense to attribute the EU's poor relative economic performance to higher debt levels or higher deficits, because the EU has lower debt levels and lower deficits. The euro-zone crisis is in fact largely due to persistent current-account imbalances between member economies caused by differences in competitiveness, and the unwillingness of the more competitive countries to subsidise the less competitive countries, as would happen between states in America. But regardless of what you think the cause of the euro-zone crisis is, it doesn't make sense to attribute it to phenomena that don't exist, or to warn that America is in danger of becoming Europe if it keeps running such high deficits when in fact the way for America to become Europe would be to immediately and drastically cut its deficits.
Moreover, as my colleague explains, the reason the Obama administration's budget shows projected debt levels curving inexorably upwards after 2023 is pretty much entirely because of health-care expenses on Medicare and Medicaid. Medicare and Medicaid expenses will start to blow out the US government's budget from 2023 due to the impact of baby-boom retirees and the explosive growth in medical costs in America. Will this make America more like Europe? No. European countries do not spend more on government-provided health care than America does. They spend less. In 2009,according to OECD data, the US government spent $3,800 per citizen on health care. The German government spent $3,242. The French government spent $3,100. The British government spent $2,935. America is richer and should be able to afford more, but even as a percentage of GDP, US government spending on health care is comparable: 8.3% in America to 8.9% in Germany, 9.2% in France and 8.2% in Britain. And what of those wastrel Italians? They spent...7.2% of GDP. (In America, unlike Europe, government spending amounts to less than half of total spending on health care; when you add in private spending, America spent 17.2% of GDP on health care in 2009, while rich European countries were in the 11-12% range. And unlike rich European countries, we don't cover anywhere near all of our citizens. But that's a different subject.)
Not only that, US government health-care spending is rising faster than European government health-care spending. It's rising faster even measured as a percentage of GDP. From 2001-2009, US government health-care spending went from 6.3% to 8.3%. In Germany it went from 8.3% to 8.9%, in France 8.1% to 9.2%, in Italy 6.1% to 7.2%. Only in Britain, where New Labour launched a deliberate campaign to grow the National Health Service to levels more comparable to other wealthy economies, did spending rise faster than in America, from 5.8% to 8.2%. Again, because America's long-term debt problems are driven by government health-care spending, we would be in better shape if we looked more like Europe, not less.
I don't expect Paul Ryan to conclude from all this that the reason why Europe is in a recession is that they're not doing enough deficit spending and loose monetary policy to stimulate their economy, and that it's a good thing America has run massive deficits for the past three years or we might not be seeing the cautious recovery we're seeing. It would be nice if he did conclude this, because it's true, but I don't expect him to. But I do think he ought to stop waving at a fantastic vision of a Europe that doesn't exist when he needs a bogeyman for whatever point he's trying to score in an argument.