In a previous post I graphed how much the government spends and obtains over time. Leaving aside for a moment the regulations that the government generates, we can get a good sense of how involved our government is in our society.
The most striking fact is that the government's role in our society hasn't changed at least since the mid 1960s and arguably even as far back as the end of World War II. This is true in Democratic administrations and Republican administrations, in wartime (cold or otherwise) and peacetime, in good economic times or bad. This is also true in GW Bush's administration, despite all the heated rhetoric by both sides. There appear to be general guidelines that the politicians follow on spending and taxes. Maybe politicians listen to economists after all?
It wasn't always like this. Before World War II, the government only spent about 15% of the economy (about half what it does now). Before the Great Depression, state and local governments spent twice as much as did the federal government! We also had high economic growth, and periods of severe downturn, which I doubt are coincidences. Perhaps the body politic made a choice that if a democracy were to endure, then economic growth would have to be sacrificed to protect against severe downturns?
One interesting sidenote is that we could take our Cold-War peace dividend off the table and choose a smaller government. Perhaps pre-mid-1960s level. Even with the current military operations underway, military spending is expected to settle at 3.75% of GDP. This is a figure substantially lower than during the Cold War.
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