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The Tip of the Iceberg?

Mar 26, 2010 • Government, Macroeconomic Measurement, Thinking Economically • 160 Views    No Comments

Growth or a safety net? Thinking at the margin, an increasing number of European policy makers are debating a change.

The result is a classic economic dilemma. Unemployment and medical insurance, pensions, licensing protections, and job guarantees can each tug GDP downward if they are government mandated. Between 2000 and 2007, eurozone economic growth averaged a sluggish 1.7%. By contrast, though, millions of individuals lead better lives because of government support. Thinking at the margin, the tradeoff is more growth or a bigger safety net. Because of scarcity, we cannot have everything.

Greece’s fiscal problems are a consequence of enlarging the safety net. One Chinese official is quoted as saying the Greek fiscal crisis is only “the tip of the iceberg.”  Implying that the choice has to be a smaller safety net, he believes that the spending problem extends far beyond Greece to the entire eurozone.  

Interesting facts:  According the OEDC, average number of actual working hours in 2008:  US: 1792, Netherlands: 1389, France: 1542;  But why is Greece 2120? Korea exceeds all and has the least vacation time.

The Economic Lesson

Economically speaking, the definition of scarcity is limited quantities. Because there are limited quantities of the factors of production (land, labor, capital), whenever we allocate resources for one good or service, we have less to use elsewhere.  The only remedy is economic growth.

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