This is a list of government spending as a % of GDP.
The highest on this list is Zimbabwe with 97.8% of GDP.
Amongst developed countries, the highest levels of government spending include Iceland (57%), Sweden (52%) and France (52.8%)
China’s government spending accounts for only 20% of GDP
Readers Question: The argument in Europe at the moment is whether the ECB should be able to buy bonds (new? old?) directly from governments as well as being able to buy old ones on the open market (“secondary market”?). Is it correct that in either case that the ECB would just the create Euros to buy the bonds? I am confused about when the central banks create money and when they use other reserves. I can already hear you asking me “Well where else would they get the money from?”, but talk of borrowing from China, and all the fuss over quantitative easing has left me just a bit confused.
The Central Bank can purchase bonds in two ways
If you look at the Bank of England, they created over £200bn as part of their ‘asset purchase scheme’ and used this ‘newly created money to buy government bonds. They created money by simply increasing the amount of money (electronically) in their bank account. It is similar in principle to printing money and using that money to buy bonds from commercial banks.
Readers Question: I am much in favour of governments defaulting on what they owe to private financial institutions (as opposed to other governments). This would be in line with the ideas fuelling the current OCCUPY THE WALL STREET movement. I would very much like someone to comment if this is at all possible and practical. Would that help to stop the 1% living off the fat of the … USURY (shameless and gotten out of hand)? from (why not default on debt)
A government could decide to default on the debt it owes private financial institutions. But, the cost would be very high for everyone in society (not just the richest 1%). Government debt is owned by a variety of private sector institutions, including commercial banks, investment trusts, and pension funds who buy government bonds.
If the government defaulted it would hurt the richest members of society, as the top financiers would lose money and see bank profits fall sharply. However, government default would also hit workers who have contributed to a pension fund. If the government defaulted, it would cause a serious fall in the value of pension funds; this would probably hit everyone who has a stake in a private pension.
If the government defaulted on debt, it would cause serious repercussions for taxpayers and the economy in the future. If a government decides to default, they won’t be able (or will find it very difficult and expensive) to borrow in the future. If a government can’t borrow easily this can affect everyone in society. For example, in a recession it is necessary for government borrowing to increase (lower tax receipts / pay more on unemployment benefits). In a recession, government borrowing helps to stimulate the economy (expansionary fiscal policy) and also reduce the economic hardship of those made unemployment.
Readers Question: The number of Rhinos that are killed every year for their horns is increasing. They may soon be extinct. What would an economist do about this?
An economist would say that if Rhinos are at risk of becoming extinct it would impose a significant social cost on society. Therefore the economic incentives should be changed so that there is a much greater cost to being involved in the Rhino trade. If necessary funds should be raised from a wider range of countries who indirectly are involved in the Rhino trade (e.g. Western economies giving financial aid to African countries for the policing of the trade).
A key test in understanding economics is being able to interpret data. If you really want you can present data in a way which supports your argument. Therefore, always be careful about how you look at data. This is an example of how you could view employment statistics in the US. Total employment This graph …
The Congressional Budget Office produced an in depth study into inequality in the US. They concluded inequality has widened in the US in the past three decades. In particular, the biggest growth in income has come from the top 1% of the population. See full report at: Trends in US income inequality (CBO)
CBO finds that, between 1979 and 2007, income grew by:
Top 1% gained increased share of income, bottom 80% saw marked fall.
Readers Question: If the markets decide the UK is not such a safe haven and bond yields rise will pension funds heavily weighted in Gilts tend to fall? Yes. If investors feel that the UK is not a safe haven (they feel increased risk of UK government default). Then investors will sell UK bonds, this …
Readers Question: What on Earth is the point of the Eurozone borrowing money from China when the ECB can print any amount of money it wants any time? Of course the effect of the ECB printing money donating it to indebted Euro countries and/or the banks holding those countries’ bonds is likely to be inflationary (absent some compensating deflationary instrument), but you’d get exactly the same inflationary effect from borrowing money from China and throwing it around all over the place. (from Euro Bailout)
I think part of the issue is psychology. The ECB doesn’t want to contemplate ‘printing money’ It claims printing money is not in its remit, but even if it was, I doubt they would want to do it. (I do believe that in current crisis, it would make sense for the ECB to create money and be involved in bond purchases.)
In the current climate, printing money may create some inflation. (see: why printing money causes inflation) However, given the stagnant nature of the European economy, this inflationary effect is likely to be muted. This is especially the case in Southern Europe where austerity measures (spending cuts) are causing lower aggregate demand, weaker growth and pushing inflation below target.