Economic Perspective: The Size of the Federal Government

MARY WALDEN:

“Today’s program looks at the size of the federal government. Mike, as the Trump administration unveils its first federal budget recommendations to Congress debates over the size of the federal government will again come to the forefront. What is the best way to measure the size of the federal government, and how has this measure changed over time?”

MIKE WALDEN:

“Well what we see over time, of course, as the country increases in population and as the cost of providing government services, just like all kinds of services goes up, we do see an increase in the dollar amount of federal spending as well as we see that for other levels of the government.”

“So if you just look at that you’d say, ‘Wow, the government is just getting bigger, bigger and bigger.’ But I think if you look at your own household budget, and you say, ‘Gosh, am I spending more food?” Well you may simply because the price of food goes up, but what you would probably also look at is the share of your budget, the share of your income, that goes to food. Actually, that’s goes down.”

“So I think a better way, at least according to economists, to gauge government whether the government is getting bigger or not is to look at government spending as a percent of the total national budget, and this is what we call GDP (gross-domestic product). It’s the value of everything we produce in the economy.”

“So when we look at that, recent government spending has hovered around 21 percent of total spending, total GDP in the economy. Now it did take a jump during the Great Recession. That was primarily because the size of the economy went down. Federal spending actually went up a little bit as a percent of that. And if we look at, say, over the last 40 years government spending at the federal levels hovered between 19 and 21 percent of GDP. So you can argue a little bit of an increase, but not dramatic.”

“Now if you look over a long period of time you see two things. One is that government spending at the federal level always goes up during wars. For example, we saw a big hike during World War II. And when the federal government adds major new programs we tend to see a hike in government spending at the federal level as a percent of GDP. The most recent example of that is when social security was added in the 30s and then in the 60s when Medicare and Medicaid was added.”

“But again, I think what you want to focus here on is what is the government spending as a percent of the total slice of the economic pie in the nation.”

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook, and public policy.