Government Spending

 

Recent posts by Menzie Chinn about the “ever-expanding” government have been highly criticized for having some spin on the data or being bias (hysterical comments accusing him of being naive, dishonest as Krugman put it).

However, if we check the data, it is clear that both Federal Non-Defense and State and Local spending have been fairly stable since 1976, as it is showed by Calculated Risk.

Furthermore, by analyzing the data from the US Department of Commerce, we can see that the Federal Non-Defense consumption and investment from 1976 to the present has been stable, being always within the range 2.0 (1988 III, 1998 III and 2000 IV) to 2.9 (1980 III) percent of the GDP.

Likewise, we can also notice that the State and Local consumption and investment has also been fairly stable in the range 10.7 (1984 II) to 12.6 (1976 I).

It is the National Defense spending (that was excluded from Chinn’s analysis) that has had a large fluctuation throughout this timeframe. After picking in 1986 III (7.6), it had a significant drop until 2000 (3,7 in I,III and IV), only to start gradually increasing up to the present.

 

Even though the federal deficit is at an all time high, the spending relative to GDP seems at a reasonable value. Hence, most of the adjustment on the fiscal deficit should be done from the taxes side. Something to think about now that the Bush taxes cuts are expiring.