Peter Boockvar dug up these fascinating charts from this CBO report from 2002.

What really surprised me is how consistent the US economy has been for most the latter half of the 20th century: About 20% of GDP. It starts about 19%, peaks at about 23% then falls back to about 18 and a half%.

Note that this data is before the Bush’s Prescription Drug Act or Obama’s Health Care bill.

Federal Outlays, 1962 to 2001

(As a percentage of GDP)
Table


Chart


Charts via CBO, Perot Charts

More charts after the jump . . .


From Perot Charts:

>

Source:
A 125-Year Picture of the Federal Government’s Share of the Economy, 1950 to 2075
CBO, No. 1, June 14, 2002; Revised July 3, 2002  <br>http://www.cbo.gov/doc.cfm?index=3521&type=0

Category: Economy, Mathematics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “Government’s Share of Economy, 1950 to 2075”

  1. Yossarian says:

    Total (Fed/State/Local) spending went from about 7% of GDP in the early 1900′s to 20% in the 1930′s to 30-35% since the 1970′s to 45% this year and projected 48% in 2011 (maybe an anomaly, probably not). At the same time, 36% of taxpayers will pay no Fed income tax (16% in 1970). How much of the economy should be controlled by various govts- 50%, 60%, 80%? What percentage of filers should pay no income tax? Is the incentive for those who pay no income tax to want more spending (w/higher taxes) or less? Do you think this is healthy- are we getting a return on our investment? Collectively we work half the year to pay for govt budgets (I’d say those on the low AND high end work less than half the year while most in the upper middle work more than half).

  2. Mannwich says:

    @Yossarian: “(I’d say those on the low AND high end work less than half the year while most in the upper middle work more than half).”

    Data please?

  3. Mannwich says:

    And please, it’s dishonest to omit social security and medicare taxes. Everyone pays those.

  4. DL says:

    This makes an important point for those who think that “the rich” will pay for all these entitlements.
    They’re not.

    One way or another, they’ll either avoid the taxes, or else there’ll be sufficient “spillover” effects that federal revenues will dry up somewhere else.

  5. bsneath says:

    Interest expense is discretionary? Don’t tell China.

  6. alexp says:

    Yossarian:

    Correct me if I’m wrong, but I don’t think anyone’s working to pay for these government costs. It’s been 10 years since the budget has been even close to balanced, and our children & grandchildren are the ones that will pay for 2 wars, unfunded mandates, prescription drugs, bailouts, and now expanded health care coverage (not to mention existing SS & Medicare).

    This health care bill will be awful if it doesn’t lead to more sane policies on prevention, efficiencies, and participation. If we follow-up on the tough choices, it may prove to be a good first step.

  7. scharfy says:

    As long as the government takes care of my every need, from birth until death, then I shall be a compliant citizen.

    Also they must fight many wars to protect me from evil people, as war is the only way to really maintain peace.

    Cool chart though, note the late 60′s vietnam defense spending. almost 10%. If our current wars weren’t off balance sheet, I wonder if we’d be right about 10%. I think we’d be right there.

    Watch out for that SS/Medicare/Medicaid column, that’s gonna be a doozy….

  8. Mannwich says:

    I love how the chicken hawks don’t mind deficit spending for war adventures overseas (if they don’t have to pay for it, it’s all good), but when it comes to doing it for things that actually help average folks and the country overall, we can’t have that now, can we? What is wrong with this picture?

  9. wunsacon says:

    Mannwich, you bring up a good point about Obama’s birth certificate. And how his secret Muslim agenda is the most dangerous and socialist ever.

    Sorry, if I’m not making sense here. I wrote some notes down on my hand this morning. But, my palms started sweating. So…

  10. wunsacon says:

    How much of the budget pays interest on existing debt? Does that go to the top 1% or to FIRE economy companies 30%-owned by the top 1%? Seems like they’re “collecting” rent on increasing deficits (because we don’t raise taxes) and then bitterly paying a portion back as taxes.

  11. W T F says:

    While Peter Boockvar is at it, I hope he has time to show us health insurance company profits over those same time periods (1) in an absolute amount and (2) as a percentage of S&P 500 profits.

    This would start to address his earlier claim that the newly passed HCR law will lead to a larger government that will crowd out the private sector.

  12. DL says:

    Mannwich @ 12:30

    No one is arguing that, with respect to Iraq, the benefits have outweighed the costs.

    That being said, we will eventually get to the point where we don’t have to spend any more money on that particular “adventure”.

  13. Marc P says:

    Interesting charts, but I’ve never understood the notion of comparing government spending to GDP. GDP doesn’t pay taxes.

    How about the same charts with spending plotted on a per-household or per-capita basis, plus a line for median income? You’ll get a very different view of whether government spending is “affordable” for the nation.

  14. theorajones says:

    You’re missing a LOT of the picture here. There is a lot of spending that’s done in the form of tax credits.

    For instance, in 2007, the deductibility of health insurance purchased through the job was about $200 Billion in foregone federal revenues. Tax deductions for retirement savings & college savings, charitable contributions (which includes your kids’ schnitzy private school and your wife’s seat on the board of the arts foundation), the mortgage deduction…these easily add up to something in the neighborhood of $800 billion a year.

    So, as our national prosperity has increased, so have our public subsidies for all kinds of things. There is direct pending, sure. But to an enormous extent, we have been publicly financing all kinds of things like home purchases and health insurance: and in contrast to things like Medicare, where you only get more benefits if you’re sick, for this kind of government subsidy the more well-off you are and the more you spend, the more you get in a hidden payback from the government.

    I don’t understand the difference in terms of economic efficiency between the government giving you a tax deduction to buy health insurance versus giving you a subsidy to buy it.

    I do understand the difference in terms of economic justice–poor people get more under a subsidy system, and rich people get more under a deduction system.

    And I do understand the difference from a political perspective: you can maintain the fiction that the taxes that middle-class people pay are only used to support social programs for poor people that they aren’t eligible for. When, in fact, a lot of their taxes are used to offset the value of deductions claimed by very wealthy people who are using social support programs that middle income people don’t get much from. (And there’s another side of this when you consider middle class people’s taxes are also used to offset the lower rates paid on sources of income–like unearned income–that are mostly held by the wealthy).

    If these were trivial sums, then the bookkeeping wouldn’t matter. But they are VERY large sums of money.

    In the real world, our economy has dedicated half as much money to regressive subsidies for health insurance as it has dedicated to government spending on healthcare for poor people and old people combined.

    This should be reflected somehow on the balance sheet when we talk about government revenue flows.

  15. DL says:

    Marc @ 12:48

    Government spending = current taxes + future tax liabilities

  16. socaljoe says:

    Just because we sell each other more services does that mean we can afford more government? The size of government should be compared to wealth created, not internal exchange of services. By that measure, the size of government has grown substantially, without a corresponding growth in the wealth needed to pay for it.

  17. E says:

    Why do these charts end in 2001 or 2007? We have the 2009 actuals in hand, and the 2010 numbers are easy to approximate.

  18. Its_Science says:

    So, we’ve basically replaced Defense spending, which is not binding, with entitlements, which are. Still bad news.

  19. ZedLoch says:

    From the first chart, it looks like the size of the US Government peaked around 1985. But that’s when Reagan was president, so how is that possible?

  20. bart says:

    Another view of government expenditures against GDP, using a different dataset, and showing a very different picture:

    http://www.nowandfutures.com/images/govt_expenditures_to_gdp.png

  21. Dogfish says:

    “I love how the chicken hawks don’t mind deficit spending for war adventures overseas (if they don’t have to pay for it, it’s all good), but when it comes to doing it for things that actually help average folks and the country overall, we can’t have that now, can we? What is wrong with this picture?”

    Profit margins are higher with war, plus there is business on both destruction and reconstruction sides, and all in an unregulated environment with no oversight (Reading over this again, could just as easily apply to our economic situation as well as our war one… replace war with volatility, and decon/recon with short/long). How could anyone not love that? Social programs in a (hypothetically) regulated environment have limited margins in comparison. We have to focus limited resources on what gives the best returns for the next few quarters, ya know? Hold on, gotta call my lobbyist.

    Plus, poor people are easier to control. Societies with a strong middle-class expect “rights” and such, can’t have that, can we?

  22. The Curmudgeon says:

    The economist Gary Becker posited that ultimately all transfer payments and government subsidies end up benefiting the middle class, no matter their stated intent, because that’s where the votes are.

    @ DL:

    Pray do tell–what benefit to the United States citizen–one of those middle class folks I just mentioned–was so great as to outweigh the costs of satisfying little George’s oedipussian fantasies that he could show his daddy what he should have done in Iraq? What have we gained thereby? A piece-meal client state headed by someone that doesn’t have his hands dirty with our prior support of his ethnic cleansing and war mongering? Perhaps it is our increase in stature on the world stage? Alas, nothing that was done in or to Iraq had anything at all to do with “supporting and defending the Constitution of the United States” as the President on down to the military officers he commands pledge to do. It was all cost and no benefit, and the worst part–it was done with an utterly reckless disregard for understanding anything at all about profitably projecting military power. It got a fair number of good troops killed and wounded and cost several hundred billion dollars (conservatively estimating), with really nothing to show for it. Iraq is as much a basket case of a country now as it was under Hussein. Oh, but I forgot–we did rid the world of all of his WMD’s.

  23. ashpelham2 says:

    That war in Iraq has cost us too many of our sons and daughters and too much $$$$$. It’s good that a despot has been removed, but another resides just to the east. Where do we draw the line? This was to settle a score for daddy.

    I can’t believe we let such a pea-brain run this country into a quagmire in a place we will never understand fully. Meanwhile, a couple hundred miles away, the real terrorists were at work selling us mortgages and HELOC’s.

    We are threatening our status as a sovereign state in ways that could never have been imagined 50 years ago. I say 50 because many people saw the threat in Vietnam in a similar light.

  24. Transor Z says:

    Gary Becker is a tool “Nobel laureate” who teaches at U of Chicago. Any other questions?

  25. The Curmudgeon says:

    Becker a tool? Really, of whom? And do you have an answer to his theory, or would you, whom I presume is not a “tool” of anyone, just prefer ad hominen attacks?

  26. DeDude says:

    The question is how much money should be wasted on stupid self indulgencies. When is enough GDP wasted on stupid crap enough. Private consumption is way out of control and it should be frozen. I mean frozen as a $ per citizen for self indulgence not frozen as a % of GDP. We need to use the GDP growth to create a better society not giving people more things.

  27. Dogfish says:

    Curmudgeon:

    “The economist Gary Becker posited that ultimately all transfer payments and government subsidies end up benefiting the middle class, no matter their stated intent, because that’s where the votes are.”

    I would dispute this. In earlier times I would agree with it, because politicians needed the votes to get into office to do deals. Now they need campaign contributions to get votes to get into office to do deals.

    Corporate donors are more important than voters in our current system, because those donors control the money which controls exposure, and you can’t get votes into today’s media without exposure. The Citizens United case makes this worse.

    I would update Becker to say that in the last decade or so all transfer payments and government subsidies end up benefiting corporations (and thus the upper class), no matter their stated intent, because that’s where the money is. Further slanting an already crooked playing field.

    Also,
    “It was all cost and no benefit, and the worst part–it was done with an utterly reckless disregard for understanding anything at all about profitably projecting military power.”

    I would dispute this also. The Iraq War (War on Terror in general, really) has been very profitable for some (and thus a good ROI)… see updated Becker statement above. When thinking of this, also keep in mind that some companies like GE make our news and weapons.

    If we stop framing our leaders’ decisions less on what is good/bad for the country and start framing it as what’s good/bad for them personally or who financed them, it all makes more sense, and real corruption replaces perceived incompetence in many instances.

  28. alfred e says:

    @dogfish: x2

  29. The Curmudgeon says:

    Dogfish: I have no disagreement with your clarifications. “Trickle down” has come to mean “pissed on”.

  30. Marc P says:

    DL wrote at 12:55 pm

    Marc @ 12:48
    Government spending = current taxes + future tax liabilities

    DL, I agree with your factual statement. But I don’t understand the point you’re making.

  31. Moss says:

    The politicos love defense spending as it creates a positive economic metric since it generates an output without needing any demand. The ultimate supply-side voodoo.

  32. catman says:

    Lies, damned lies and statistics…

  33. scharfy says:

    Welfare or warfare. Choose your poison…..

  34. DL Says: Government spending = current taxes + future tax liabilities

    Absolutely, 100% wrong. Federal taxes do not pay for federal spending. As a matter of accounting, when you send your tax money to the federal government, that money immediately is destroyed. The government pays it bills by reaching into the bank accounts of its creditors, and crediting those accounts. It can do this endlessly. There is no federal spending fund, from which the government pays its bills.

    If taxes dropped to zero, this would not affect by even one penny, the federal government’s ability to spend. Neither your children nor your grandchildren will pay for today’s deficits, just as you do not pay for the Reagan and Roosevelt deficits.

    Actually, “deficit” is a misnomer when it comes to the federal government. It should be called, “money created.” Think about the federal government differently from the way you think about state and local governments, corporations and you and me. The federal government is unique.

    This all may be counter-intuitive, but those are the facts.

    Rodger Malcolm Mitchell

  35. Avl Dao says:

    @ RodgerMitchell:”…Neither your children nor your grandchildren will pay for today’s deficits, just as you do not pay for the Reagan and Roosevelt deficits….Actually, “deficit” is a misnomer when it comes to the federal government. It should be called, “money created.”

    I basically agree; I was wondering why more comments don’t state this…though there are numerous ways to wordsmith it or to diagram the “money” flows.
    Admittedly, much of what the government does in “creating money” is does within the context of a global finance system where our behavior rests upon a shared global belief that such behavior by the US is “backed by the full faith and credit of the U.S. government”. The Full Faith meme is a powerful and so far enduring human-psychological construct, a shared belief system.
    I wonder to what degree global markets think through the follow-up to that meme: “that because the U.S. government is very strong and stable, its taxing authority can be used to ensure that the debt obligations are honored in the event of a default by the issuer”.
    Could argue the presumed future taxing authority of the US also relies on maintaining an enduring human-psychological construct, an internal domestic psycho-construct which I suspect California, Illinois and some less-populated yet also massively-indebted states will soon be pounding away at while Iceland and other sovereign states do likewise abroad.

  36. because the U.S. government is very strong and stable, its taxing authority can be used to ensure that the debt obligations are honored in the event of a default by the issuer”.

    Taxing authority has nothing to do with it. The U.S. government can pay its bills, because it can create the money to pay them. Period. Iceland is a miniscule country, with a highly volatile currency, that is not trusted worldwide, and so is afraid to create money, wrongly I believe. Greece, for instance, cannot create sufficient money to pay its debts, because it is tied to the euro — effectively a “euro standard.”

    Prior to 1971, even the U.S. had trouble paying its debts, because it was limited by the gold standard. Our states, counties and cities are similarly restricted by the “dollar standard,” meaning they cannot create the money to pay their debts. Thus, they must have federal support to survive.

    No municipality can long survive on its own tax revenue. There always must be money coming in from outside.

    Current or future federal taxes do not support the dollar. They do not pay for federal spending. From a fiscal standpoint, federal taxes are unnecessary, though they may have certain other functions. That’s why the battle over health care is so sad. People will be denied care because of the false belief federal deficits are harmful.

    If the word “deficit” were properly replaced with the words “money created,” the argument would end. We are losing the battle to semantics.

    Rodger Malcolm Mitchell

  37. scharfy says:

    @RodgerMitchell

    If the word “deficit” were properly replaced with the words “money created,” the argument would end. We are losing the battle to semantics.

    Let me first state I am in agreement with your post.

    As a follow up question:

    Could it be stated that taxes impose some higher degree of fiscal austerity on Governments, in that they have to “ask for it” as opposed to creating it, and that the amount of money that can be “created” via taxes is measured from output?

    Further, a government could not impose a progressive tax curve – if it just “created” the money, no? Printing government expenditures, versus taxing for them would be the equivalent of a flat tax (in that purchasing power would be reduced from the private based on consumption but not on income)?

    If you have the time I am asking for some philosophical and structural differences between taxing and creating….

  38. DL says:

    Roger Mitchell @ 8:33

    “Neither your children nor your grandchildren will pay for today’s deficits, just as you do not pay for the Reagan and Roosevelt deficits”.

    I’m not sure where you’re going with this.

    The national debt will not get any smaller unless taxes are collected to pay it down. (There is also the matter of devaluing the US dollar, but I’m leaving that out, for simplicity). Maybe it’s true that, as you suggest, I haven’t contributed to the retirement of U.S. debt such as it existed under Reagan, but equally true is that the national debt isn’t any smaller, and is, of course, quite a bit larger than it was then. So I don’t see how you can say that all of this spending isn’t generating a future tax liability (or a greater propensity to devalue the U.S. dollar).

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  40. dsawy says:

    The last chart (Composition of 2007 Federal Spending) is somewhat misleading.

    Interest on the debt is not “discretionary spending” – especially if you have to borrow more money to make next year’s budget. If Congress didn’t pay the interest on the debt in this year’s budget, there would be some rather severe and abrupt adjustments to next year’s budget.

  41. Stephen says:

    We do have the 2009 data and it’s easily found at the CBO site and the federal outlays for 2009 have shot up to 24.7% of GDP.

    Now that’s sustainable.

    Of course nobody likes to look at the data prior to 1970, because then we see that the outlays were a nearly monotonically increasing line from about 3% of GDP near the beginning of the 20th century to the 20+% that we now ‘enjoy’ … history tends to piss people off so we hide from it.

  42. Stephen says:

    Oh, here’s a link.

    http://www.cbo.gov/budget/historical.shtml

    almost could have guessed the url.