The debate between reviving the world’s economy via austerity ala the European Union or deficit spending ala the USA goes on.   A casual review of the relevant information offers no conclusive answer.  The table below offers some details on the USA and selected members of the EU and Japan (numbers are given in percentage of GDP except unemployment, which is expressed as percentage of the work force).  The numbers seem to support both approaches to correcting the dismal peformance in the developed countries.  The good news, however, is that economic growth in the less developed or developing nations, on the whole, is going well.

Country            Total Gov’t Expend    Tax Burden     GDP Growth     Unemployment

USA                            45                       27                 1.8                    7.7

Japan                          37                       28                -0.8                   4.2

Germany                     44                       41                 3.1                    5.4

France                        53                        45                1.7                   10.7

UK                              47                       39                 0.8                    7.8

Italy                            49                       43                 0.4                  11.1

Spain                          41                       34                 0.4                  26.2  

 

The difference between government expenditures and the tax burden is essentially equal to the government deficit (implied deficit).  One can see that the largest deficits are the USA and Japan but the outcomes are different.  Japan has negative growth while the USA plods along at slightly better than most of the other countries, 1.8%.  But Japan enjoys  4.2% unemployment,  while the USA remains at 7.7%.  Germany has the lowest implied deficit and enjoys the fastest growth rate among these nations, 3.1%,  and one of the lowest unemployment rates, 5.4%.  Italy has the next lowest implied deficit but suffers 0.4% growth and 11.1% unemployment.  France and the UK have siimilar implied deficits but France’s growth rate is double that of the UK while the UK’s unemployment rate is at 7.8% and France’s stands at 10.7%.  And finally we see Spain at a lower implied deficit but economic growth at a mere 0.4% and unemployment at a staggering 26.2%.

Obviously there is no clear path to improved economic performance.  Some have achieved some modest success by large deficits and others by austerity programs.  Nor do tax policies seem to be the determinent.  The US has the lowest tax burden iin the group, although I have seen this number at as high as 42%, with Japan about the same.  The results are strikingly different.  Nor do the other countries offer any coorelation between taxes and economic outcome.  Probably the best result has been Germany where a relatively low deficit is coupled to the best economic growth and second lowest unemployment rate.

Looking at these numbers one gets the feeling that perhaps we have overlooked the more critical factors in producing a revived economy.  Certainly it would be better to search for these instead of wasting time arguing over the merits of austerity versus deficits.