How do the government expenditures of USA and Norway differ?. USA follows the capitalist economic model whereas Norway is a socialist country. It is a general notion that the US spends less on social entitlement programs compared to socialist countries. When we compare the expenditures of Norway and US using the charts below, there is not much difference between these countries especially when it comes to social programs.

USA – The Federal Budget for 2008

Norway – Government Expenditures in 2008

Source: Statistics Norway

The top 3 areas of US expenditures are : Defense and Security, Social security, Medicare and the like. The US spent 21% of the budget on defense and security compared to under 5% by Norway in 2008. This is understandable since the US maintains hundreds of military facilities worldwide and currently runs two wars.

Norway spent about 55% on social benefits and health-care. The total expenses spent on Social Security, Medicare, Medicaid and CHIP and Safety Net Programs equaled 52%. This comparison clearly shows that the US spends more than half of the budget on social programs. Despite being a capitalist country, it shows that the government has become socialistic over the years. Though the “public” option has been eliminated from the health care reform, Uncle Sam is the main provider of health insurance for most of the senior citizens thru Medicaid and Medicare. All these entitlement programs cost the government a lot of money and will continue to grow in the future. Some say that the government run entitlement programs such as the Social Security is the largest ponzi scheme of all as majority of the funds needed for these programs are borrowed from lenders or paid out of tax revenue from workers.

Since Norway is a surplus country it does not have interest payments. As of July this year the US budget deficit amounted to $1.3 Trillion. This US borrows heavily from other countries including the major lenders China and Japan to fund its operations. As a result , 8% of the US budget goes to the payment of interest on national debt. In 2008, the total interest payments were $253 B. As more funds of borrowed to finance additional social welfare programs and the various corporate bailout programs like TARP, this part of the budget will definitely increase. From another perspective, one can say that 8% of the national expenditure went to waste unnecessarily in the form of interest payments.

The remaining 19% of the US budget went to all other areas such as education, transportation infrastructure,scientific research, etc. It would be better if a higher percentage of government spending is allocated for these areas.

Financial crises are very costly according to an article in the latest edition Finance and Development magazine of the IMF.

Financial crises occur more frequently in emerging countries than developed countries.Between 1972 and 2007 emerging markets have been hit with more currency crises than banking and debt crises. Developed countries have had virtually no debt crisis in the same period.

The average fiscal cost of banking crises is under 10% of GDP for the developed world compared to more than 15% of GDP for the emerging countries. Output lost is similar to both emerging and developed countries.

On the causes of a financial crisis, the article notes:

“Whereas each differs in its details, nearly all reflect a confluence of some underlying economic vulnerability and a specific crisis trigger. The underlying vulnerability
is often a credit or asset price bubble, a balance sheet mismatch (excessive borrowing in foreign currency, at too-short maturities, or with inadequate capitalization), whereas the crisis trigger can be almost any event—political turmoil, terms of trade shocks, contagion from other countries, or, to take the example of the current crisis, the collapse
of the subprime market (see table)”

The table below shows the vulnerabilities and triggers of some of the past crises:

On the recent credit crisis that started in the US, the vulnerabilities were the credit and the house price boom. In addition weaknesses in financial regulation resulted in a buildup of leverage and mispricing of risk. The trigger for the crisis was the collapse of the sub-prime mortgage market. Will the financial reforms that are being proposed block astronomical leverages among financial institutions and consequently prevent future crises?.Only time will tell.