Don't Blame The Welfare State

Paul Krugman writes:

Whenever a disaster happens, people rush to claim it as vindication for whatever they believed before. And so it is with the euro.

As an aside, the interesting thing about the euro from a political point of view is the way it cut across the ideological spectrum. It was hailed by the Wall Street Journal crowd, who saw it as a sort of milestone on the way back to gold, and by many on the British left, who saw it as a way to create an alliance of social democracies. It was criticized by Thatcherites, who wanted to be free to move Britain in an American direction, and by American liberals, who believed in the importance of discretionary monetary and fiscal policy.

But now that the thing is in trouble, people on the right are spinning this as a demonstration that … strong welfare states can’t work.

So, just to say what should be obvious, the countries in trouble are not in any way marked out by having especially generous welfare states. You can use a number of indicators; take the OECD measure of “social expenditure”, measuring (separately and together) both public spending and private spending that is channeled and regulated by public policy, like US employer-based health insurance.

Sweden, with the largest social expenditure, is doing just fine. So is Denmark. And Germany, which is the up side of the pulling-apart euro, has a bigger welfare state than the GIPS.

Not that the facts will convince anyone on the right, but the blame-the-welfare-state meme is nonsense.