The Future of Growth
Just in case you were wondering where future growth might come from, the Washington Post reports:
a new analysis warns that the Washington area doesn’t have nearly enough housing for the wave of new workers that will arrive in coming decades.
Researchers at George Mason University say the area is projected to add more than a million new jobs by 2030.
That’s the future we can expect if we don’t start constraining the size, scope, and power of the federal government: further transfers of wealth from the rest of the country to Washington, from the productive sector to the redistributive and regulatory sector.
Thank You, America!
The Washington metropolitan area is the only major U.S. housing market where prices increased on an annual basis in the first quarter, according to a 20-city S&P/Case Shiller home-price index released Tuesday. The region was helped by relatively stable employment, fewer foreclosures and an abundant supply of house hunters.
Other surveys indicate sales in the area are approaching boom-time levels.
Precedents in Government Growth
As an opponent of government growth, I’m interested in what we can learn from history to help us reverse the trend going forward. We need to understand the mechanisms of government growth if we are to combat the disease.
In a new Federal Reserve Bank of St. Louis article, Thomas Garrett and coauthors provide a useful overview of explanations for the federal government’s historical growth. They note that while the economic depression of the 1930s helped boost the size of the government, the severe recession of the 1890s did not do so. What was the difference between the 1890s and the 1930s?
The authors identify a number of factors that paved the way for sustained federal growth beginning in the 1930s:
- Path Dependency. Governments have inertia such that once a program is in place it is difficult to remove. When new programs are added during crises, they take root and aren’t cancelled when the crisis passes. Thus, government programs tend to accumulate over time.
- Tax Bases. The addition of new tax bases provides the means of government expansion. The best example is the addition of the federal income tax in 1913, which fueled huge government growth in subsequent decades. This can be called “feeding the beast.”
- Ideology. The rise of populism and progressivism during the late 19th and early 20th century broke down the traditional American resistance to big government.
I would add an additional cause of growth: legislative precedent. Politicians push the envelope on their allowable powers, and they build on the power grabs of prior policymakers. This is evident, for example, when you look at the steady destruction of federalism over the last century due to the growth in federal aid to the states.
Government and GDP
The expansion in government and poor state of the economy got me thinking about how government growth is reflected in measured gross domestic product. So here is a wonky look at the treatment of government in the Bureau of Economic Analysis GDP data.
Data notes: By “government,” I mean total federal, state, and local. For 2009, I’m using the average of second and third quarter data. All data from BEA Tables here.
GDP measures total production. In 2009, government production was 20.7 percent of U.S. GDP. Government production is roughly the sum of government value-added (the stuff it produces itself) and government purchases. The first item, government value-added, was 12.4 percent of GDP and mainly consists of employee compensation. For example, the Pentagon produces output by adding together fighter pilots, which it hires, and fighter jets, which it buys.
A more commonly cited measure of government is total government spending. In 2009, that was 38 percent of GDP. The difference between this number (38 percent) and the production number (20.7 percent) is 17.3 percent, and represents the sum of government interest payments and transfer payments to individuals and businesses.
Figure 1 shows how the three measurements of government size have changed over time. Government production has remained fairly stable as a share of the economy, but total government spending has soared. The growing gap between these two lines mainly represents the massive growth in transfer (or subsidy) programs, such as Social Security.
Taking Over Everything (2)
“My critics say that I’m taking over every sector of the economy,” President Obama complained to George Stephanopoulos back in September. And I responded:
Not every sector. Just
And now check out the lead story in Sunday’s Washington Post:
Federal Oversight of Subways Proposed
The Obama administration will propose that the federal government take over safety regulation of the nation’s subway and light-rail systems, responding to what it says is haphazard and ineffective oversight by state agencies.
Not everything. But more and more. So much that even the growing opposition can’t keep up with it all.
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