Echoes Dispatches From Economic History
Sources: Historical Statistics of the United States (Millenial Ed.); Office of Management and Budget
Is Government Spending Historically High?: Echoes
As the debt-limit debate heats up in Congress, we're hearing a lot of talk about how much the government spends. The more pertinent question is how much it spends in relation to the overall economy.
A look at this chart shows just how high that figure has climbed. Total federal expenditures as a share of the national economy dropped drastically after World War I. They kept creeping downward through the 1920s before rising in the 1930s and ballooning during World War II. The end of that war ushered in another big decline.
But since the 1950s total federal spending as a share of our economy has grown markedly.
One interesting thing to note is that this has happened even as defense spending as a share of the economy has been falling. In her column Monday, Amity Shlaes noted that one of the most crucial tasks facing the budget cutters of the 1920s was to get military spending under control. In more recent decades, as entitlements have grown, restricting defense outlays is no longer as effective in limiting federal spending, and lowering defense budgets doesn't always lead to a smaller government.
A crucial question will be whether the rising trajectory of federal spending as a share of the economy will continue or whether it can stabilize at about 20 percent. The more fundamental question is whether we can have strong economic growth with big government.
(Nikolai Krylov is a contributor to the Echoes blog. The opinions expressed are his own.)
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