Fiscal Policy and Growth In Europe

Interesting Graph pointed to by Brad and Paul but without a lot of context or information. More data please people! But it shows the normal centre-left story: Austerity – not a good idea.

A little left out here though… thoughts below the fold.

  1. Which way is correlation? Greece has no choice but to decrease the size of its state, it has run out of Euros in a way we have not run out of pounds or the Poles Zlotys. Short term rigidities thus mean that euro countries have little choice but to fit somewhere on this line of best fit.
  2. To what extent is this a deviation from trend? Poor countries tend to have small, ineffectual governments and rich countries large less ineffectual governments. As growth is easier if you’re poor than rich you would expect this correlation anyway.
  3. As demographic pressures (read: more old people) build, states will become larger as the costs of servicing pensions becomes greater and they will become less productive as their employment to population ratio decreases.