Federal Reserve Bank of St. Louis
Think federal spending is eating up a bigger share of U.S. wealth? Not so fast.
Gross distortions of reality used to be reserved for political season. Now that they are the staff of everyday life, it’s difficult to know when to crank up the fact checking.
Most Montanans probably already have decided how they will vote for Congress in the November election. Republicans will go for whoever is opposing Sen. Jon Tester; Democrats will back whoever opposes Rep. Greg Gianforte. The 20 percent or so of Montanans who ride the high ground between the two parties may not pay much attention until after the June 5 primary, and maybe not until November.
By then, campaign assertions will be so baked into the cake that not even strawberry icing will hide the flavor. So let’s try to take out of the recipe one ingredient that we are sure to hear repeatedly until Election Day.
David Crisp
A letter to the editor in Sunday’s Billings Gazette lays out the familiar case: Ed Hostettler of Billings says the U.S. population has doubled since 1960 while the size of the federal government has tripled.
“We now have a bloated, all-powerful federal government which collects enormous taxes, prints money on a whim, and spend as they see fit with no regard for the people or the financial stability of the country,” he wrote.
There is truth in what he said. There were 180 million Americans in 1960; an estimated 326 million live here now. That’s not twice as many, but it’s a 78 percent increase – close enough.
Gross Domestic Product in the United States, by the way, was $543 billion in 1960. A million dollars in 1960 had the buying power of about $8 million today, so that $543 billion was worth about $4.3 trillion now. Actual GDP is now about $18.6 trillion, so we are about four times richer than we were then.
How much has government grown? That’s a trickier question. In January 1960, the federal government employed 2.3 million people. By December 2017, employment had increased to 2.8 million. That’s a 22 percent increase, so federal hiring has lagged well behind population growth.
How about spending? There, Hostettler is closer to the mark. Per capita spending during the Kennedy administration was $4,300 in inflation-adjusted dollars. In Barack Obama’s second term, spending was nearly $11,000.
Social Security cost about 12.5 percent of the federal budget in 1960. By 2002, it had risen to more than 22 percent.
Compared to that, everything else in the federal budget is a bargain. Discretionary spending, in 2009 dollars, rose from $547 billion in 1962 to $1.06 trillion in 2017. That’s a bit faster than population growth but quite a bit slower than GDP growth.
Overall, federal outlays cost 17 percent of GDP in 1960 and 20.5 percent in 2017. Most of that increase came with the passage of major social programs in the 1960s. As a percentage of GDP, the federal government costs us less now than it did during the Reagan administration.
Taxes, you should know, remain low in the U.S. by the standards of developed countries. The Federal Reserve Bank of Chicago has calculated the total tax burden of U.S. citizens at 25 percent, lower than all 35 developed economies except for Chile, Mexico and Korea.
That’s despite the fact that we spend more on defense and on medical care than any other country in the world. And we have a population of aging Baby Boomers like me who will strain our resources for a couple of more decades.
Then we Baby Boomers will die. Problem solved. You are welcome. Just don’t rush me.
The federal government hasn’t exactly been printing money on a whim, either. Except for the inflation-rich years of 1974 to 1984, inflation has been a fairly stable 2.75 percent a year going all the way back to 1914.
Now, it’s possible to accept all of that and still think the government is spending too much on old people and medical care. But classifying social spending as bloat is a bit of a stretch. I have paid Social Security and Medicare taxes for more than 50 years and have only recently starting getting some of that money back.
Whether I will live long enough to ever make money on the deal is an open question, but it doesn’t strike me as bloat for the government to pay me back the money that I paid into it. That was the deal.
Medicaid and Medicare spending don’t so much make government bigger as make those who need healthcare more solvent. In 1962, only about half of Americans age 65 or older had medical insurance, and the insurance they had, to use one expert’s word, was “terrible.” Eighty percent of the elderly paid their own medical costs, which even in those days could be devastating.
In a 1963 survey, for example, 25 percent of respondents said they did not seek medical care for “pains in the heart”; 34 percent avoided care for unexpected bleeding. Those numbers improved after Medicaid and Medicare passed, and life expectancy has increased by nearly nine years.
Still, Mr. Hostettler may think Medicaid, Medicare and Social Security all are a bad deal. But he needs to make sure that his favored Senate candidate, Russ Fagg, has specific plans to deal with all of those issues.
Just calling it “big government” won’t get the job done.
