Monday, April 4, 2011

Have We Created A Monster?

While most people agree the Federal debt has grown too large, some also suggest government itself has become too large. Is this true? Have we created a monster? Recent articles in The Economist, among other sources, suggest we have. (Big Government: Stop!, Leviathan Stirs Again) While it's no surprise to hear libertarian-leaning Rand Paul (TX-14th) or Tea-Party favorite Michelle Bachmann (MN-6th) call for smaller government, I for one, take other sources more seriously.

According to figures published by the Office of Management and Budget, the size of the Federal Government relative to Gross Domestic Product (GDP) has not changed much in the past 40 years. For example, from 1970 to 2010, yearly Federal Government receipts have ranged between 14.9% and 20.6% of GDP. Federal receipts during that time were an average of about 18% of GDP, and have not grown significantly in recent years as some suggest. Nearly the same situation holds true for Federal outlays, which have ranged from 18.2% to 25% of GDP. And if the past two years are excluded from the calculation (assuming outlays due to the recession are one-time expenditures) Federal outlays as a percent of GDP range from 18.2% and 23.5%.

To find significant growth in the size of government as a percentage of GDP one must look further back in time. During World War II, Federal outlays jumped from 6.8% of GDP in 1940 to 20.9% in 1944 - an understandable increase. However, after the war, most of this increase was not given back. Government receipts have remained above 15% of GDP in every year since, except 1949 and 1950, when they were 14.5% and 14.9%, respectively.

So, neither U.S. Government receipts nor outlays have grown significantly as a percentage of GDP since 1950. It would seem that as we have grown richer, we happily consumed more government services, but we are not out-pacing growth in GDP. GDP has grown from about $96.8 billion in 1940, to more than $14,508 billion in 2010, almost a 15 fold increase, with little significant change in the relative size of the Federal Government. It would seem American's decided long ago they approved of "big" government.

The House Committee on Budget recently released its Fiscal Year 2012 Budget Resolution. It claims the Republican budget "brings government down to below 20 percent of GDP by 2015; 15 percent by 2050" (page 6).

Image Source: TheEconomist.com

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