Shrinking Government? Not Quite.

Years of stories about skyrocketing government spending? Uncontested reports of soaring federal debt?  The unemployment reality that Americans live every day?  The New York Times thinks you should be watching the magician’s other hand, at least if Floyd Norris’s report is any indication:

For the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.

Of course, the qualifications come almost immediately:

Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.

So, Norris is shuffling into the deck local and state spending, which are inherently bound by an inability to run deficits, create money, and simply charge local property, sales, and income taxpayers more than they’re willing to spend.  It’s not surprising that the answer, during the Great Recession, has increasingly been, “not much more.”  Looking a little closer, at his charts, shows that the feds’ “slow rate” is only attributable to the near stagnation of military spending.

More important, though, are the terms of the analysis.

First of all, the rate of growth is a matter of acceleration, not of absolute numbers.  A $1 trillion increase these days is not quite what a $1 trillion increase would have been during the initial years of the W presidency.  Furthermore, the numbers shown are percentage growth from the beginning of the first quarter of the president’s term, so the early boost of the stimulus and other factors leading up to Obama’s early days set a high bar.

Second of all, using the “government sector” of GDP is misleading, because it leaves out entitlement spending (i.e., direct transfers) and interest payments.  As this chart shows, entitlements constitute around 60% of spending, and in the Times charts it would appear under “private” economy, not “government.”

The different views of government spending are explained well in a Cato post by Chris Edwards.  It’s from the end of 2009, but already it shows the leaps being made in total government expenditures.  This nifty tool allows an interactive idea of how the various factors interrelate.

The upshot is that, while it’s possible to cut the data in such a way as to make a counter-intuitive (and by-most-definitions false) booster point on President Obama’s behalf, it isn’t a very accurate way to characterize what the United States is actually experiencing.



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