Government Spending, 1979 vs 2007

Given the political furor over budget deficits and the size of government, I thought it would be interesting to compare the patterns of government spending in  2007 (pre-financial-crisis) versus 1979 (pre-Reagan-Revolution). First, though, a long-term look at combined government spending at all levels (federal, state and local) as a share of GDP.

Remarkably, we see that government spending as a share of GDP moved within a relatively narrow band for a 30-year period.  Government went from roughly 30% of the economy in the early 1970s, up to 35% of the economy in 1992, and then down to about 30% again in  2000.

Now let’s look at government spending patterns. I’m going to compare 1979 and 2007, which were both business cycle peaks.  I’m going to use the BEA’s data for government current expenditures plus gross investment (slightly different from the total expenditures charted above).  Once again, this  includes all levels…federal, state, and local.

Government spending patterns were little different in 2007 (pre-bust) compared to 1979 (pre-Reagan revolution).   The biggest change was an increase in government spending on health as a share of GDP.  Defense nudged down a bit, as did economic affairs (spending on highways, roads, R&D, etc).  Spending on public order and safety nudged up.  But overall, the patterns were remarkably similar

Of course,  2009 and 2010 (not yet available) would show big changes in the patterns of government spending. But given the long period of stability, we can regard those shifts as a response to the crisis rather than part of a long-term trend.

Comments

  1. Your article states that “we can regard those shifts as a response to the crisis rather than part of a long-term trend.” But only if the government spending is reversed once the “crisis” is over. Given the propensity for this administration to make foundational shifts from the private sector toward increased government spending, I’m not confident that we will see a trend back to pre-crisis levels. I think another interesting chart might be government borrowing as a percentage or GDP. That would show how sustainable government spending programs are long term. Reduced revenues due to the financial crisis will eventually hamper our credit rating and our ability to borrow. What will government spending look lke then? Perhaps below 30% of GDP? Could it go to zero as our country becomes insolvent?

  2. We continue to spend more and save less, not a good long term combo.

  3. T.Dagger says:

    I notice spending as a share of GDP went up under Reagan, Bush I, and Bush II, and down under Clinton. I’ll reserve assessment on Obama because he’s less than a year into a budget his administration created, and the financial crisis demanded unprecedented government spending to stabilize the economy. I bring this point up not to be a cheerleader for Democrats, but to point out the hypocrisy of Republicans calling Democrats “big government spenders”. I’m an independent moderate; I dislike unnecessary government spending, but I hate dishonesty and hypocrisy even more.

    One area of spending we ought to cut is military spending. It should never have risen with GDP. We could cut $750 billion* out of our military spending and we’d still spend 50-60% more on our military than the 2nd biggest military spender (China). Many years we spent $325 billion (adjusted for inflation) during the height of the Cold War, where we faced the Soviet empire’s massive military, its 7.5 million soldiers and its enormous strategic advantage. Even Reagan only jacked it up to around $550 billion at the peak.

    And now we spend close to $900 billion a year to deal with a few hundred militants in the mountains of Afghanistan? That is nonsense. And we shouldn’t even be over there to begin with.

    We’re worried about deficits? Military spending is absolutely, positively the worst waste of money and the worst policy we have. That money would have kept us from any deficit spending whatsoever over the past 30 years. That money would have paid for proper levees in New Orleans, for updating bridges in Minneapolis, for upgrading our power grid in the Northeast, for better monitoring of oil companies in the Gulf, for more investment in biotech. It would have gone a long way toward improving our public transit systems and getting us off foreign oil.

    And it still could.

    * Note: I include supplemental spending on military actions in my figure. To ignore the huge sums being slipped under the table to them would be disingenuous. A good chart of the figures is at http://www.davemanuel.com/2010/06/14/us-military-spending-over-the-years/

  4. The Fifth Horseman says:

    Michael,

    1979 is not a good starting point. If the data for 1960 (or thereabouts) is available, then comparing ~1960 to 2007 would be more interesting.

  5. Interesting that you start your graph in 1969, conveniently excluding the four-fold growth in govt spending as a percentage of GDP from 1900-69. Also funny how you start off talking about the current blowout spending and deficits, yet never mention them again in the post, except at the end to say that it’s somehow warranted by the crisis, for no apparent reason. Yes, rises in govt spending haven’t been as egregious, in terms of percentage of GDP though still dumb on an absolute level, as they were in the first half of the century, but the question isn’t whether we should just keep peddling the status quo with this bloated and useless govt, it’s how we get back to the small govt we had a century ago. That’s what the furor is about, exacerbated by the blowout spending and deficits under Obama, and accelerated by technology trends that are killing govt bureaucracies like the post office and are about to destroy public make-work systems like education and medicine.

  6. We have about 400 million people in the US now. While some of the above costs are fixed, the cost for education, health, or income security would need to go up to have the same amount of spending on a per-person basis, but percentage-wise the costs seem to not have gone up. Sure we are going to have efficiencies in some areas but I am surprised about the degree of consistency of area over the years. I think that says more about the changes made within each area rather than overall the spending has remained mainly within the 30-35% band. It would be helpful to see the GDP and spending amounts in each area for 1979 and 2007

Trackbacks

  1. […] Michael Mandel compares government spending in 1979 and 2007: “Government spending patterns were little different in 2007 (pre-bust) compared to 1979 (pre-Reagan revolution). The biggest change was an increase in government spending on health as a share of GDP.” […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Archives

%d bloggers like this: