The Level of Government Spending
A quick note on what has happened to the level of government spending since the economic crisis began.
Of course it has risen — we have a growing economy (usually) and a growing population, and you expect spending to rise even if the role of government remains unchanged. The question is how it has changed relative to some unchanged-role-of-government baseline.
The chart below makes a first stab at such a calculation, but requires some further comment; when all is said and done, the role of government hasn't actually grown.
So, both lines below show total (federal, state, local) government spending as a share of potential GDP, the CBO's estimate of what the economy would be producing at sustainable full employment:
The first line shows the total; the second takes out unemployment benefits, which are an obvious example of spending that rises temporarily in a slump, but doesn't represent a permanent change.
What this second line suggests is that we're left with a rise of about 1 percentage point of GDP. But even that is basically not a change in policy, for two reasons.
First is that there are other programs that have ramped up because of the depressed economy, such as Medicaid and food stamps, not to mention more people going on disability and taking early retirement.
Second is that demography and rising health care costs continue to do their thing.
Overall, then, government's role has not increased. The whole Obama/socialist thing never happened.
And here's the thing: government's role should have increased, at least for now. We still have a private sector in the throes of deleveraging, which means that this is a time for the government — which can borrow at negative real interest rates! — to be spending more. Instead, the entire brief increase in government's role during 2009-2010 has now been unwound, with more cuts to come.
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