You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

What Spending Surge?

Government spending as a share of the economy has skyrocketed. But why? Not because President Obama is spending us into the ground. Rather:

1) the economy has contracted due to the recession, which makes a given amount of spending account for a larger share of the economy

2) the federal government is compensating for lower spending at the state and local level

3) unemployment insurance and other automatic spending has risen as the proportion of the population in need of such benefits has shot up

4) general entitlement spending has continued to rise

Paul Krugman has a good, chart-laden post explaining this:

So what do the numbers look like when you look at total government spending as a percentage of potential GDP?
At first sight, it depends on how you measure government spending. If you consider government consumption and investment spending — that’s the government actually hiring workers, building roads, employing bureaucrats, and all that — it looks like this:


Feel the surge!
What’s going on here? Basically, the Obama stimulus didn’t contain a lot of public works — and those works, such as they are, have only partially come on line. Meanwhile, aid to state and local governments wasn’t enough to prevent substantial cuts. So by this measure, government spending has gone nowhere.
Now, the picture looks a little different if you look at all government spending, a number that includes Social Security, Medicare, and other transfer payments:


This has gone up — but why? There haven’t been any large new social programs — health reform, which actually isn’t that big anyway, won’t start spending in earnest until 2014. As best as I can tell, the main cause of the rise in total spending is a surge in spending on safety net programs, which are spending more because more people are in distress. Unemployment insurance alone seems to account for almost half the rise:

The bottom line is that notions of a vastly expnading government are highly overblown.