The only industrialized country that spent a higher percentage of its GDP than the United States on Covid-related fiscal stimulus was Singapore.
That’s according to a blog post from Alex Durante of the Tax Foundation. Expressing the amount of spending as a percentage of GDP allows for better cross-country comparison because it takes into account each country’s ability to spend. One dollar of spending in a country with a small economy means more than one dollar of spending in the U.S.
Cross-country comparisons can still be tricky, though, because not all countries approached the pandemic the same way, Durante notes. Japan was initially hailed as the country that spent the most on Covid-related fiscal stimulus, but much of that spending was on other things, such as carbon emissions and loan guarantees, he says.
Singapore spent 29 percent of its GDP on Covid-related stimulus. The U.S. spent 27 percent. The only other large economy in the top ten is Germany, in ninth at 20 percent. The other seven members of the top ten are European countries with small economies.
Durante also notes that the U.S. was one of the only countries that gave cash directly to people instead of using indirect subsidies. The U.S. also distributed those benefits more widely than other countries. European countries did more to target spending to people in actual need.
There’s a few takeaways here. First, goodness gracious. The federal government spent 27 percent of America’s roughly $21 trillion GDP on stimulus! Never again can anyone on the left say the federal government didn’t do enough to respond to Covid. Not only is the amount astounding on its own, it’s more than any other large economy in the world.
Second, the American fiscal response represents a meaningful expansion of the welfare state. The European countries had larger welfare states than the U.S. to begin with. They were largely spending more money within existing systems and programs. The U.S. government created a bunch of new systems and programs. And it did so on a bipartisan basis, using an “emergency” mindset, with little thought on how these programs would be phased out when the pandemic was over. The American Rescue Plan is entirely the Democrats’ problem, and as Brian Riedl wrote for us in December, it may be the worst spending bill in decades. But the bulk of the spending was done with bipartisan support in Congress and was signed into law by President Trump. This isn’t a Democrats vs. Republicans problem; it’s a Washington vs. common sense problem.
Third, this geyser of spending will have plenty of effects we aren’t even aware of yet. The causal links between the spending and many of the economic problems we are facing are not always clear, and in some cases, they may not exist. But it would be absurd to expect this massive amount of spending to have no unintended consequences. On inflation especially, it cannot be ignored. The sheer quantity of spending the federal government has engaged in over the past two years will be in the background of economic-policy discussions for the foreseeable future.