Government Spending and GDP

While U.S. government spending as a percentage of GDP has risen dramatically in recent years, it isn’t as high as it has been. I made that point to someone today who had been arguing that the ratio was at unprecedented levels, and that the government had squeezed out the private sector, etc.

I finally had to pull out the following FRED graph. It shows that we’re back to the mid-point of recent history in that ratio, and below most of the period before 1985.That shouldn’t be surprising given the post-2000 U.S. wars, and then the expansion of social programs after TWDSTGD (The Worst Downturn Since The Great Depression), but it does seem to cloud people’s minds (sic.).


  1. Actually, I think you are both clouded!

    "Government expenditures" includes both deficit spending and tax receipts, and this graph doesn't make the distinction between what is borrowed and what isn't.

    As an extreme example, the govt could cut taxes to zero, borrow everything it needed to operate, and the ratio would (other things equal) remain flat (it might actually go down, initially!).

    Since gov't deficit spending varies over the interval, you can't draw the conclusion you are attempting to from this data set alone. Your friend might have meant *deficit* spending over tax receipts or GDP, something this graph does not show.

    Finally, since govt spending improves GDP (by definition), so does govt deficit spending, and you have to take that in consideration too, especially when we are in the range of 10-12% deficits, like now.

  2. There are two very sharp downturns that I've noticed from this graph. One, half-way through the 1950s (Eisenhower), but (ironically) after the biggest increase the US has ever seen, and in the 90s, when Clinton was President. While it's still early, it looks like the graph is trending downwards (during Obama's Presidency). I suppose, only time will tell.

    With Love and Gratitude,


  3. dilbert dogbert says:

    I see that bush boom spending like a drunken sailor or maybe a failed texas oilman high on cocaine.

  4. Good point, but people are worried not only about current levels of govt spending, but also about unfunded future commitments (Medicare, Social Security, state and local pensions) that are not shown in the figures above.

  5. Highly misleading given that your are excluding social security, medicare and other transfer payments which show up in the personal consumption figures. If you include those, gov. spending is indeed at a post war high.

  6. Does this include tax breaks and corporate welfare?

  7. bnorthlich says:

    wha happin ta graphic, mon?

  8. Notice that there are recessions AFTER the ratio starts increasing? It happens with almost every recession and increase.