Federal Receipts and Outlays as %GDP

Another look at how big our government has grown (or not)…

Here’s a chart I made from White House data on historical federal receipts and spending from 1931 to the present:

Nothing amazing or really stunning to see here, but it is informative.  For the last few decades the size of the federal government as measured as a percentage of the economy has fluctuated but not shown any definitive trend.  We’ve had a tendency to overspend on a regular basis.  No clear patterns related to political party in power jump out to me.  Prior to the current financial crisis, spending as a percentage of GDP peaked in 1982  excluding WWII (that did surprise me a little).

Government is NOT much bigger now than at other times during the post-war era when measured against GDP.  The massive U.S. national debt appears to be mostly due to policies of moderately overspending while reducing federal receipts over a period of many years — i.e. we keep spending a little too much as a country while also lowering tax collections.

So should government size generally be measured against GDP?  If GDP doubles is it optimal or necessary for government spending to also double?  I have no answer to those questions.  In other words, I can draw a few conclusions from the data in terms of where we are now compared to previous times, but I can’t tell you if that means we’re doing well or poorly.

Another “How Big?” Question: U.S. Federal Spending

Just about everyone and their dog has seen those scary graphs of government spending shooting skyward along an exponential curve.  They look like this:

This runs from 1913 until 2011 and was retrieved from http://www.whitehouse.gov/omb/budget/Historicals.  In 1913 Federal spending was $715 Million.  In 2011 it was $3,603,061 Million ($3.6 TRILLION).  However, if you’ve seen my last few posts you know how important it is to adjust for inflation and population before assigning any meaning to these kinds of statistics.  Well, that’s just what I did.  I grabbed my population numbers from a previous post and used an online inflation calculator to convert everything to 2012 dollars.  We end up with real (inflation-adjusted) Federal spending per person from 1913 to 2011.  How’s that one pan out?  Again, I was stunned by the result (which means my guess and reality were *again* very different).

Wow!  I kinda thought the folks screaming about how much government spending has grown were exaggerating in a major way.  It looks like I was wrong.  In 1913 the federal government spent $172 per person per year (in 2012 dollars!).  In 2011, the federal government spent $11,799 person person per year (in 2012 dollars).  I’m blown away!  At the height of WWII we spent only $8515 per person in 2012 dollars.

Here are my thoughts:

  • Since around 1930 we’ve seen an almost linear growth in federal spending per person.  The nineties represent a departure from that trend, but 00′s soar to bring us right back to the trend line.
  • We get a LOT more from our government today in terms of social safety nets, research, public health, education and other programs than we did in the early 1900′s.  Is that good or bad?  That’s a matter of whether or not that is what we want in terms of what we give the government and what we expect to get in return. There isn’t a clear right or wrong — but we need to recognize that fact as a society and make an enlightened choice.
  • Federal spending really is increasing dramatically over the long-term trend and seems to do so in a fairly predictable way.
  • I don’t think that trend line is sustainable.  How far can it go?  How will it end?  I have no idea.

I’d really like to look at federal spending vs. median household income, but that is a topic for another day.

Hat tip to Kenny Felder for getting me to pursue this set of calculations!

In Perspective, How Big is the U.S. Government?

This is another post in which I’m trying to separate fact from rhetoric for my own sake, and I thought I’d share my results. There are a lot of politicians making promises to shrink “Big Government” in the U.S. What I wanted to know was simply how big has that government actually become.

Let me say right off that there are LOTS of ways to consider whether the federal government is “BIG” or not — budget-wise, intrusiveness into local/regional issues, etc. As a start I’m just looking at how many employees the federal government actually has. There are real problems with this — for example, contractors are not, I believe, counted as employees and I can’t say how the number of contractors has changed over the years. Likewise, this gives no glimpse into private-sector workers whose livelihoods are completely dependent on federal work (defense industry, for example).  This is just another glimpse that might give me a bit of insight.

As in my previous posts, I’ve analyzed the data by adjusting for population (i.e.: per capita results). Why? If the population has doubled, but the government is the same size, then are government has HALF as many employees per citizen as it did previously. That indicates a much leaner government. On the other hand, if population doubles but government employment quadruples, then we have TWICE AS MANY employees per citizen as we did previously.  Population adjustments are absolutely necessary if you want to make sense of historical trends.

A second caveat:  this is another “first order” approximation.  I’m not looking to publish this for economic modelling purposes, so I’m not worried about being off a few percent here or there due to interpolations I made on census data, for example. I just wanted to make a quick-and-dirty reality check to see how big a problem government growth actually is. Employment data were drawn from this table: http://www.opm.gov/feddata/historicaltables/totalgovernmentsince1962.asp

Once again, the data and my expectations were pretty darn different!  Here’s total U.S. Federal Employment (Civilian + Military) per capita from 1962 through 2010:

Much to my surprise, the size of the federal government in terms of employees per capita has been on a general downtrend since the end of the 60′s. In fact, it’s now under half the it’s peak size for this time period. I absolutely did not expect that.  Digging through the data reveals that we’ve seen big drops in civilian employees per capita and still bigger drops in uniformed military per capita. The drops in military employment as the cold war wound down and we refocused on stand-off engagements (cruise missiles, smart bombs, drones) make sense, but I didn’t think that through beforehand. What really surprised me, though, is that the number of civilian employees (what we can consider to be the bureaucracy) has actually shrunk per capita.  I really did think government was much bigger in terms of employees now than it was in the 60′s or 70′s.

Well… now I know better!  Just for kicks here is one more graph stacking up all federal employees (executive branch employees, legislative/judicial employees and military):

So what does all of this say about whether or not our federal government is too big?  Not a thing.  It does not tell us what the best size would be for the most successful government for our society.  It only says that our federal government has been shrinking since the 60′s in both the civilian and military side of things.  We may or may not have a “BIG” government, but it *is* a much smaller government than it used to be.  The only other thing that I notice is the lack of any convincing claim that one party or the other has a significantly different impact on size of government from their rival.  The downward trend is fairly uniform.

 

On the Nature of Economic Growth

My last post was a basic investigation into a simple question:  would “tax the rich” fix our deficit and or debt?  It generated a lively thread over on my Facebook page, but a lot of that discussion went well beyond the scope of my simple question.  All that debate got me thinking:  in a more-or-less free market economy like our own, can you discern the impact of tax rates or government spending or politics or anything else in the growth of our economy?

To answer that question I went dredging the web for data.  I started by finding a table of U.S. GDP from the end of 1929 through the present in inflation-adjusted (real) dollars.  If you don’t use real dollars then “growth” can actually be simple inflation, so that’s a necessary adjustment.  I charted it using a Google spreadsheet and got this:

We see a basic exponential curve with some variation along the way and a blip at the end that represents the current financial crisis.  Hmmm… exponential…  That made me wonder how much of our growth is due to nothing more than having MORE PEOPLE and therefore MORE WORKERS.  To answer that question I grabbed census data from 1920 to 2010, ran a linear interpolation for years in-between, and used those numbers to create the following graph of Real-Dollar GDP per Capita:

Wow.  That’s *almost* linear, but perhaps it could be the early portions of an exponential growth curve.  Regardless of that, however, what can we conclude?

Tax rates varied wildly over the range, but the trend is almost linear.

Government policies varied greatly, but the trend is almost linear.

Wars and recessions came and went, BUT THE TREND IS ALMOST LINEAR.

I can’t draw conclusions from this about what are really the biggest drivers of economic growth (my first guess is progress via science and technology) but I *can* see that it seems to vary negligibly based on who is in power, what the tax rate for the rich is, or most of the other political positions people tend to take.  So maybe one position *IS* better than another. Fine.  I’ll give you that.  On the other hand, the impact of any particular position seems to be insignificant in the larger sweep of history in terms of economics.  It’s noise in the long-term trend.  I don’t know about you, but I find this FASCINATING and a bit unexpected!

Tax the Rich!!! (or not…)

There’s been quite a bit of talk of making the rich “pay their fair share” as a way of solving the U.S. budget problems.  I got curious as to how much good it would actually do.  I’m not interested in being super-duper precise here — just enough to know whether there is any sense in it or not.  PLEASE note that this is NOT a meant to be any statement of support for either end of the political spectrum as my feeling is that both extremes are self-deceiving at best and  self-serving at worst.

Here’s what I found:

The Current Population Survey from the Census Bureau reveals that there are 2.484 million households (out of 118 million) in the U.S. that make more than $250,000 per year.  Those households have an average income of $398,194 per year. With current tax brackets, their upper income is taxed at between 33% and 35% That’s on everything ABOVE $250K/yr of taxable income, so $148,194 per household.  At 33% that would bring in about $121 billion per year.

What if we raised it to 50%?  That would give the U.S. government about $63 billion more per year.  What if we TOOK IT ALL — ALL THEIR INCOME OVER $250K PER YEAR??? The U.S. government would get a little less than $250 billion a year more (in year one — after that NO ONE would be interested in making over $250K a year anyway, so the take would go to $0).

Through July of this year the federal deficit — the amount we’ve overspent so far just this year — was $974 billion.

So…  if we took away all income over $250,000 from the wealthiest 2.5 million households in the U.S.,  we would only be able to cover about a QUARTER of our current overspending.  So no matter how much we tax the rich, it barely even puts a dent in the problem.

That means EVERYONE is going to pay much, much more in taxes or we’re going to see HUGE reductions in spending. The former means much slower economic growth and reduced prosperity.  The latter means cutting Social Security, Medicare/Medicaid and the military (along with interest on the debt they make up ⅔ of the budget, so you can’t balance the budget without cuts there).  We have to pick our poison… there is no such thing as a free lunch.