federal spending as a share of GDP has risen, from 19.6 percent in fiscal 2007 to 23.6 percent in fiscal 2010. (I use 2007 here as the last pre-Great Recession year). But whats behind that rise?
A large part of it is a slowdown in GDP rather than an accelerated rise in government spending. Nominal GDP rose at an annual rate of 5.1 percent from 2000 to 2007; it only rose at a 1.7 percent rate from 2007 to 2010. How much would the ratio of spending to GDP have gone up if spending had stayed the same, but there had not been a slowdown? Heres the answer:
That still leaves a significant rise in spending. Whats that about? Heres one way to look at the federal budget; I compare growth rates in spending from 2000 to 2007 and from 2007 to 2010:
Income security is unemployment insurance, food stamps, SSI, refundable tax credits in short, the social safety net. Medicaid is a means-tested program that also serves as part of the safety net. Yes, spending in these areas has surged because the economy is depressed, and lots of people are unemployed.
What were seeing isnt some drastic expansion of Big Government; were seeing the government we already had, responding to a terrible economic slump.
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