Reconceptualizing the Size of our Government (Nordic Countries Edition)

I’m a couple of months behind Tyler Cowen, but I want to call attention to Price V. Fishback’s “Social Expenditures in the United States and the Nordic Countries: 1900-2003.” Noting that official measurements of government expenditure as a percentage of GDP miss the subtlety of a country’s institutional and cultural fabric, Fishback tries to look at net social expenditure, a figure which incorporates forced private spending, charitable giving, &c.  This insight, namely that “government” spending is at a normal level for advanced democracies, is a point overlooked on all sides of the isle.  The subtlety of the point makes it unappetizing for cable television, but the truth is that our budget debates would serve more constructive ends if they focus not on How much? but on To where?.

Here is Fishback explaining how his calculations improve on official ones:

During the modern era, the most commonly cited OECD statistics on public gross social
expenditures as a share of GDP show large differences between the Nordic countries and the
U.S. However, the commonly reported statistics are misleading in several ways. First, they do
not take into account the striking differences in taxation of public benefits and tax breaks and tax
subsidies for low-income people. Adjustments for tax structure lower the social welfare share of
GDP in the Nordic countries and raise it in the United States. Second, the share of GDP only
tells part of the story because per capita GDP in the United States is higher than in the Nordic
countries. Comparisons of publicly mandated social welfare spending adjusted for purchasing
power parity in both 1995 and 2003 show that the amount the U.S. spends ranks in the midst of
the Nordic countries. Third, the U.S. system relies much more heavily on private provision of
health and disability insurance, retirement pensions, and charitable distributions to the poor than
do the Nordic countries. After accounting for this voluntary private social expenditure, the U.S.
in 2003 had higher net social expenditures as a share of GDP than all of the Nordic countries
except Sweden. Since the U.S. GDP per capita is higher, U.S. net social expenditures per capita
in 2003 were more than $1000 higher than Sweden, which was the highest among the Nordic
countries.
Finally, the U.S. aggregate social spending disguises a great deal of variation across the
states within the U.S. The U.S. is a federal system and many of the public benefits in the social
welfare programs are determined at the state level. To truly understand developments in the
U.S., therefore, you must examine the variation across the states.

From the abstract:

The extent of social expenditures in the U.S. and the Nordic Countries is compared in the
early 1900s and again in the early 2000s. The common view that America spends much less on
social welfare than the Nordic countries does not survive closer inspection when we consider the
differences in the structures of social expenditures. The standard comparison examines gross
social expenditures. After adjustments for direct and indirect taxes paid, the net social
expenditures in the Nordic countries are much closer to American levels. Inclusion of
mandatory and private social expenditures raises the American share of GDP devoted to social
expenditures to rank among the middle of the Nordic countries. Per capita net public social
expenditures in the U.S. rank behind only Sweden. Add in the private spending, and per capita
spending in the U.S. is higher than in all of the Nordic countries. Finally, I document the
enormous diversity across time and place in public social expenditures in the U.S. in the early
1900s and circa 1990.

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• Who Spends More on Social Welfare: the United States or Sweden? (freakonomics.blogs.nytimes.com)
• Social welfare spending on both sides of the Atlantic (investoralist.com)