The size of the state is not holding back growth

Jon Moulton was on Newsnight to talk about the economy last night.

His bottom line (35 minutes in) was that the state is too big and that in order to restore growth, we need to cut back the size of the state:

 ”The state is too large. The state – the size it is – means we have low growth baked in”.

The share of government expenditure in GDP is a rough gauge of the size of the state. Here, using IMF data, I’ve plotted the UK versus Germany, France  and Sweden between 2007 and 2011.

What you see is that the UK comes bottom, ie we have the smallest state.

And now let’s look at growth over the same period.

>

Again the UK comes bottom for performance since the global recession.

What this shows is that a relatively large state is not, in itself, a bar to growth.

The idea promoted by Moulton and others that the size of the UK state is holding back the wider economy is constructed on a foundation of ideology, not evidence.

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• charles

  Conclusion: All four nations profiled have very large states of near identical size. And all four have similarly terrible long term growth trends.

  Looking at the UK regions, the larger the state the poorer the region, as the public sector squeezes out the private sector (which is, after all, the only sector which can grow economically. Police, nurses, teachers etc, don’t send out invoices or export). The South East, where the state is smallest, is the richest.

  In Hong Kong, where the state is 15% of GDP, anything under 6 per cent growth is shocking.

• BenM_Kent

  What a daft comment.

  Stick in the US, and the result of the graph would be the same.

  As for the tosh on regions – ever heard of internal transfers? What is cause and what is effect here? Should we ask whether the poorer regions have higher state spending because they happen to be poorer?

  Lastly, the Right likes to compare a large complex economy like the UK to tiny, autocratic city states like Hong Kong.

  Which is why they get their economics so badly wrong.

• BenM_Kent

  Didn’t Jon Moulton get slapped all over the Newsnight studio by Paul Krugman?

• HJ777

  Moulton made Krugman look rather foolish – not a particularly difficult task, admittedly.

• uanime5

  Good to see people standing up to right wing nonsense.

• omasta

  ”The state is too large. The state – the size it is – means we have low growth baked in”. Another talker who states something without establishing the truth and validity of it by presentation of argument or evidence.

• Pacificweather

  The graph shows that we would benefit from spending whatever Sweden’s state spending is spent on but not what France’s state spending is spent on. It also shows that if you make stuff like Germany you do better than if you run a casino as in Britain.

• http://www.facebook.com/profile.php?id=1029543253 Benjamin Thomas

  I think you may need to look up “cause and effect confusion” and then rethink your post.