Do OECD Economists Read OECD Data?

I had the opportunity to meet late last week with the OECD Policy Mission to Canada – the folks who write the country reviews. These meetings are usually interesting and useful, though I find the OECD Economics Department to be ultra neo liberal in their orientation.

Even so, I was a bit taken aback to read the following in their questionnaire (the original was in italics.)

“Although Canada remains in an advantageous fiscal position relative to most other OECD countries, the deterioration in the country’s public finances has been substantial. Years of expenditure increases above trend economic growth have led to high structural spending levels, and many jurisdictions are now on unsustainable fiscal paths, a diagnosis made starker when taking an even longer-term view that considers the implications of demographic change.”

The argument that there has been an unsustainable increase in program spending is often heard from the CD Howe, the National Post etc., but it just does not stand up to even a cursory glance at  OECD data.

If spending had been growing above trend growth, program spending would have been rising as a share of GDP. Yet, after bottoming out at 39.3% in 2005 (down from over 50% in the early 1990s) program spending had climbed to the heady height of 39.7% in 2008. (The pre recession period is the relevant end point.)

Over the same period 2005 to 2008, revenues fell from 40.8% to 39.8% of GDP.

The source of these data are the OECD Economic Outlook, which also show that Canada was running underlying and structural surpluses – as well as large actual surpluses – in each year 2005 to 2008.

So, government spending bottomed out in 2005. In the period following, Canada continued to run surpluses. The underlying surpluses were sufficient that program spending could be increased at the margin, but governments chose to cut taxes by even more.

So much for “high structural spending levels.”

7 comments

  • Excellent post! This is certainly not the first time that the OECD has just microwaved views from the C. D. Howe Institute. In addition to your question, one is inclined to ask, “How many OECD economists does it take to operate a microwave?”

    I suspect that the key weasel word in the questionnaire is “trend.” Clearly, public spending merely grew in line with the economy during the years before the financial crisis. But if the OECD now deems our economy to have been growing “above trend,” then public spending also grew “above trend economic growth.”

  • I thought it was standard knowledge that the OECD country reports are tailored to fit (within reason) the prevailing public policy orientation of the government of the day. That is how you get such difference of advice depending upon which country is being investigated. Note in particular the difference in the labour market policy advice given for Nordic countries and Anglo-Saxon countries over the years. It is worth recalling that the OECD is a cooperative owned by its members. So the OECD was in some measure projecting the Conservative meme. When the report is fully made public and dually disseminated the Cons will point to the study and say the OECD agrees with us.

  • That is a trifle mechanical Travis. eg the OECD criticized the recent GST rate cut. And the Nordic model has been critiqued by the Economics Department — eg in the early 1990s Jobs Study -but supported in a nuanced way by the Department of Employment, Labour and Social Affairs.

    I wrote a piece on the OECD and Canadian economic policy for a book edited by Rianne Mahon and Stephen McBride which points to repeated interventions against some Canadian government policies – notably those disliked by the Department of Finance.

  • Also, the OECD’s recent call for privatizing Canada Post was quickly rejected by the Conservative government. I see the OECD more as a promoter of neoliberal economics than as a promoter of incumbent governments. However, it undoubtedly does calibrate its recommendations somewhat based on the government in power.

  • they are not 100% pander, but fairly close and the correlation tightens when the country specific is neo-con.

    Of course they will make the odd claim to the middle, just to keep everybody off balance.

  • I would also think it fitting to add that given the financial crisis and the resulting recession, a few words from the OECD centering regulation and financial reform would have been nice. Especially given that Canada at the international level is playing a derailing role given its friends within the financial community. Instead of leveling all the fiscal responsibility and cut backs, onto the back of workers- some sort of, at least sharing the pain could have been mentioned. I was so outraged at these reports given the global mess, I found it quite a irresponsibility to have one of the few voices at the global level- screaming at us to keep marching forward to the beat of the neo-con drum. Wow this group sure has nerve, and I hope some loss of job security was at least a passing notion when you met up with them.

    I am not sure of the complete history of the OECD but this was just so far over the edge of being acceptable, I am not even sure why you were meeting up with this group Andrew, as you merely served as a legitimizer to this report, personally and institutionally I would have refused to meet with them.

    And again I don;t care what their history is, if at the end of the day the economy tail spins back into the ditch because of austerity and ending stimulus, then I would hope we hold this group Accountable to some degree.

    Labour should be a whole lot more wary of economic idiots at this level.

    Where is the call for financial reform?

  • I would have thought too cynical but not too mechanical but I take your point. And the link with finance would be that finance is staffed by similarly trained economists.

    Was there not a spat in the 1970’s that involved Myrdral and the OECD over their move to the right on labour market issues?

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