The Growth of Government, Updated

The news has been ripe with administration scandals as of late and will likely be for some time (Memo to BHO: There may be no better way to keep scandals in the news than to use the Justice Department to go after the Associated Press). But soon attention will turn to the issue of fiscal sustainability (or at least one hopes).

I have been updating some charts for a second edition of a book I wrote a while back. One of my favorite charts presents inflation-adjusted spending per capita. I focused on domestic spending in this chart not because I discount the importance of defense spending, but because it was in support of an argument I was making. To give you a flavor of the numbers, consider the following (all figures are in 2005 dollars):

  • Starting at the New Deal, the peak level of domestic spending before US entry into WWII was $865 per capita (1940).
  • Let us leap forward to the 1960s. The highest level of domestic spending per capita under LBJ was $2,265 (1968).
  • Peak domestic spending during the Reagan presidency was $4,950 (1987).  That is 218 percent of the Great Society levels (Don’t fight the urge to cheer “LBJ, All the Way”).
  • President Clinton assured us that we were witnessing the end of Big Government. While federal spending as a percentage of GDP fell to 18.6 percent (2000), per capita domestic spending stood at $6,206.
  • George W. Bush increased that figure to a peak of $7,215 (2007). And Barack Obama made history in 2010, when domestic spending per capita hit $8,631 (it stood at $8,141 in 2012).

Real Spending

A couple of thoughts: First, while many may associate “big government” and FDR,   “that man” (as Grover often calls him) was a piker. In inflation adjusted terms, the Reagan Revolution entailed spending 5.72 times that sum. In 2010, the federal government was spending almost 10 times that amount. Second, these numbers grossly understate overall domestic spending. State and local governments expenditures are 11.3 percent of GDP—a larger share of GDP than the federal government spent in any year during the domestic phase of the New Deal (the peak was 10.3 percent in 1939). If we combine federal domestic, state and local spending for 2012, it stands at $13,034 per capita. Third, the big driver is the combination of demographic trends and mandatory spending on entitlements programs.

6 thoughts on “The Growth of Government, Updated

  1. Given this growth in per capita spending and the role of entitlement spending which is appropriately called mandatory a solution may lie in making such spending non-mandatory and forcing it to compete with all other programs on a regular basis. It is simply anti-demcratic to fence off such spending from the rigors of political competition in a democratic system. I would go so far as to abolish Medicare and put all citizens in Affordable Care and make the government subsidies for insurance compete on an annual budgetary cycle. If this is not possible at least establish a low ceiling for the mandatory part and open the rest to competiton.

  2. First, the graph is rather annoying. Why is spending per-capita displayed with 3 digits after the decimal place? The small graph looks like it has a scale from 1 million to 10 million (obviously wrong). Not sure where this came from, but whoever created the graph needs to have some lessons in how to present data.

    It is interesting that the graphs leveled off under the Clinton years, much more than Reagan.

    1. Thanks for noticing both things. I had just updated the chart and failed to notice the formatting of the axis. You caught it, I fixed it, the world is a better place.

      On the substantive point, when you look at the data–and I have posted on this before–if anyone can make a claim to changing the growth of government spending in the last several decades, it is Clinton. Overall government spending fell relative to GDP (from 22.1 to 18.2 percent of GDP, overall, and from 17.5 to 15.6 percent of GDP when we remove defense expenditures). Of course, when we look at things as inflation-adjusted spending per capita, it increased from $5,812 (1993) to $6,832 (1998) before declining to $6,206 (2000).

  3. 1st of all,as you indicate, your only including certain Federal Spending. If you include the cost of all Federal spending both directly and indirectly plus add in the cost of State,County and Local spending plus fees,tolls and other forms of taxes from “Government Authorities” Plus add in value added taxes that are passed on to the consumer by businesses and corporations plus the hidden tax of inflation (now accurately at about 8%) plus the costs of tax compliance added onto the increased costs to businesses by regulations(that are passed onto the consumers) plus about 200 or so other taxes such as fuel taxes that are hidden in the costs of products one comes to the astounding conclusion that the average productive American is working from January 1st to about August 8th to pay for the growth and costs of government,on all levels,in America today. Is it any wonder why today the average productive American family must have two breadwinners instead of just one to survive, Yet,the Political Class just keeps asking for more.

  4. Back to the issue of turning attention to fiscal sustainability. It is very clear that the window for attention to this issue has closed for the next few years. A crippled President and a deadlocked Congress have better things to do than to tackle serious problems that need urgent attention. I suspect that history will be very unkind to the whole Washington establishment for its failure to act in time before the fiscal train wreck is upon us. History will be less harsh on those amongst us who think that it is an economic problem alone. But there is far more at stake than economic values and we need to be addressing noneconomic values more effectively.

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