What happens in the OECD countries when as a group their general government expenditures have exceeded 50 percent of GDP, when government expenditure on individual goods (i.e. social welfare expenditure) is twice its expenditure on collective goods (e.g. infrastructure, public order, defence), and then -- bang bang -- some bubbles pop, some too-big-too-fails go belly up, advanced economies experience hard landings, and debt-to-GDP rises from 55 percent to 75 percent as governments compensate for unemployment and bank losses, and scramble their stimulative forces to avert depression?
So, Lenin, what is to be done?
1. Too Much
The OECD considers that the fiscal trajectory of most of its member countries became unsustainable as a result of the crisis beginning in 2007. Just in order to stabilise debt-to-GDP ratios by 2026 the OECD calculates countries will need to improve fiscal balances by 3.6% on average. Reducing debt back to 2007 levels by 2026 (and for Eurozone countries to comply with 60% debt-to-GDP ratios required by the Maastricht Treaty) would require much tougher fiscal tightening. In either model, the Nordic countries (with high taxes) and South Korea (with low spending) and, for example, Germany, require no consolidation or minimal consolidation, whereas the USA, UK, and Japan require a lot of consolidation.