Part 1: The Ketchup Problem
By: Don Leonard
Tags: Politics, Economy, Life, World, Leadership

Part 1: The Ketchup Problem

We can’t pick governments like we pick groceries. Even if we could, there are no labels to help us compare. Let’s make some.

How much do you think America spends per person on government in a given year?

We’re talking all-in. Everything from highways, defense, and social programs at the federal level, on down to public schools, first responders, and streetlights at the local level. How much does the bill for all that come to when you divide it up among more than 320 million people?

If you add up all the public spending across federal, state, and local governments in the United States, it works out to around $7 trillion dollars. When you divide that number by the total population, the check comes to $22,083 per person.

Now think about all the government services that you consume in a year. Does $22,083 seem like a bargain or a fleecing? Depending on your political leanings, you might feel one way or another about how much government we need. But it’s hard to know for sure whether we’re getting a good value for the government that we’ve got. After all, we can’t comparison shop for government like we shop for groceries. But what if we could?

High or Low?

Next question. Do you think $22,083 is substantially more, less, or about the same as what other wealthy countries spend per person on government?

Consider our peers in Western Europe. If the first thing that comes to mind is defense, you might expect that we spend far more per person on government than these other countries do. If your first thought runs instead to all the generous government services and social welfare programs that European countries are known for, you might expect that they spend more per person than we do.

As it turns out, Americans spend about as much, and in some cases much more per person on government as all but the Nordic countries.

At $22k per person, US government costs us a little less than France, about as much as Switzerland and Germany, and significantly more than the U.K., Japan, and others.

Does this surprise you as much as it did me? I assumed that the United States was much more on the limited government end of the spectrum compared to the typical European country. It turns out that we spend a lot of money on government.

What are we getting for it?

A Nutrition Label for Government Services

One way to think about this final question is to do some comparison shopping. How does the bargain between American government and its taxpayers hold up against that of another, similar country?

In 2016, Germans spent nearly the same amount on government as we did-$21,587 per person compared to our $22,083. And like the US, Germany has a federal system comprised of national, state, and local government. What does the typical citizen in Germany pay for basic services-the bills that pile up on our kitchen table at the beginning of every month?

College tuition and student debt have been in the headlines quite a bit recently, so we’ll start with higher education. Since 2014, tuition and fees for public universities have been eliminated in every German state. Apart from living expenses, the cost of getting a bachelor’s degree in Germany is zero. By comparison, undergraduate students at public universities in the United States paid an average of $8,700 in tuition and fees in 2016.

One result is that American students leave college with far more debt than Germans do. The average amount of student loans owed by an American who graduated college in 2016 was $37,172. In contrast, the average debt burden for a German graduate was only $2,400.

What about medical expenses? Like the US, Germany has a hybrid health care system that combines public and private medical insurance. Yet the average German spent 38% less in out-of-pocket health care costs in 2016-$677 compared to $1,090 in the US.

If you worry that those differences in cost make for inferior health care outcomes in Germany, think again.

If you worry that those differences in cost make for inferior health care outcomes in Germany, think again. According to a recent study published in the Journal of the American Medical Association, Germans live almost two years longer (80.7 years average life expectancy compared to our 78.8) and have far lower rates of maternal and infant mortality. This, despite the fact that Germans drink and smoke at higher rates than Americans. In contrast, Americans suffer the highest rates of maternal and infant mortality among wealthy countries.

These differences in out-of-pocket costs are even more magnified when we look at transportation. Germans love their cars and highways almost as much as Americans do. Yet the average German spends $2,500 less on mobility in a given year. They are twice as likely to walk, four times more likely to take public transit, and ten-times more likely to hop on a bike as Americans. As a result, Americans rack up twice as many miles on the odometer every year.

Lastly, Germans also enjoy more affordable social services. Take child care. According to OECD data, two German parents with median earnings spend less than one-tenth of their household income on daycare. By comparison, the same American couple shells out more than one-quarter of household income to pay for child care. For single parents, the imbalances are even more drastic still.

This is the direct result of government action. Back in 2013 Germany passed a law making daycare a legal right. This mandate is funded by government subsidies that amount to nearly five-times as much per child as is found in the United States. Yet, the issue of affordable daycare has been conspicuously absent from policy debates here at home.

Taking stock of these differences across a range of basic services, it becomes obvious that German citizens get substantially better value for their tax dollar than we do.

Sources as elaborated above.

If Americans spend as much as Germans on government, why do we have so little to show for it?

The Real Ketchup Problem

On the one hand, our government provides the platform for the wealthiest economy in the world. On the other hand, many of our citizens are bumping up against the limits of consumer debt and even poverty paying for the same basic services that citizens in other countries get for much less.

With all due respect to Mr. Burns, the actual ketchup problem is how do you design a bottle to get every last drop out of it? How much does American government leave in the bottle, and what can we do about it?

The Bargain shines light on why we don’t get more for our tax dollar in the United States. The journey begins by comparing spending priorities in the US with other wealthy countries. In Part 2 we identify the three biggest outliers in terms of US government spending. Warning: it’s a bit of a shocker.