Big Government in 1975 And In The Lesser Depression

Whether our current level of government is big or small, not everyone has always written about "Big Government" as if it were necessarily a bad thing. Here's Hyman Minsky from "Stabilizing an Unstable Economy", writing about the impact of Big Government towards avoiding deep depressions,

"Big Government, with its potential for automatic massive deficits, puts a high floor under an economy's potential downward spiral. Although this high floor is important in itself, it is particularly important in a world with business and household debt because corporate gross profits and household savings are essential to validate such debt.

Without the emergence of a huge government deficit in 1975, the debt-carrying capacity of business and households would have been severely compromised. Such compromising, due to an iterative, downward spiral of income and profits, led to the debt deflation and deep depressions of the past. The sectoral budget impact of Big Government that sustains business profits is precisely what makes such a cumulative interactive decline impossible."

The Lesser Depression

Impossible is a strong word, and arguably a bit overboard. Given that Minsky would say we have "Big Government" and the experience of the Lesser Depression starting in 2008, it seems rather clear that a sufficiently large financial crisis without sufficient mitigation from increased discretionary spending can indeed still create such a decline even with our size of government. However, "Big Government" certainly slows the decline. (And even an under-sized increase in discretionary spending -- one not large enough to make up for the output gap -- can still help bring about an anemic recovery ... if not the robust recovery we'd see from an appropriately scaled fiscal mitigation.) As larger government create resistance to decline, it partially stabilizes the economic system. That's likely more or less what Minsky meant in describing the beneficial impact of big government, even if he may perhaps have employed a touch of hyperbole when making that point.

Big Government? Or Big Drop In Government?

January 2007 - December 2011; from BLS and Census data

Proportionally, our American government has been shrinking since April 2009 on a steady slop of decline in relative size compared to the population. Even without population growth, total govt payrolls dropped by 702,000 between April 2009 and January 2012. Those layoffs slashed over 3% of the govt workforce from the start of that period.

Private Payrolls Versus Govt Payrolls

Over the course of the Great Recession, we naturally dipped a bit in our percentage of all payrolls from private employment. At first, over the course of 2008 and very early 2009, private payrolls were dropping significantly faster than government payrolls. That has since reversed.

The dotted red line indicates the level of the first full month of President Obama's tenure.

As 2009 wore on, the bleeding in private payrolls slowed (from -0.73% in April to -0.29% in May and eventually dwindling to -0.04% in November). The change in private payrolls turned positive in March 2010 and the tally's been growing every since. Meanwhile, except for a spike in May 2010 from Census hiring, govt payrolls fluctuated in the same narrow band from late 2008 until plummeting after the Census work. By January 2012, govt payrolls dropped to a five year low at a level not seen since July 2006.

Private payrolls on the larger scale at left; govt payrolls on the smaller scale at right.

Growing population casts the drop in government payrolls with an even larger impact. By 2010, we reached a 20 year low as far as the number of government workers per capita.

Year	Govt workers per million Americans	Annual change
2008	73.94	0.36%
2009	73.47	-0.64%
2010	72.70	-1.05%
2011	70.94	-2.42%

As Daniel Gross put it, describing the increasing private share of all payrolls, "Socialism? Hardly."

Socialist Presidents? Who Comes Closer: FDR, Obama, or Reagan?

We seem to have a resurgence of folks worrying about socialism. Those claiming rampant socialism have particularly fretted about certain Presidents, but more on that later. First, let's get an overview of private industry's percentage of all payrolls since 1939 via the BLS data to put it into broad perspective. If there's one clear, defining trait of socialism, it'd be that folks work for the government rather than private industry. After all, to qualify as socialism requires social ownership of the means of production. Private employers aren't socially owned. So the private % of payrolls tells us just how much we're still a [mostly] capitalist society.

What do we see here? Rather little change in the broad perspective. Clearly we'll need to get a close up in order to see any differentiation from President to President. Let's get right to looking at how they stack up. Sadly, using the BLS data only gets us back as far as 1939, so that'll have to do.

Up there we've got a picture of the average % private industry occupied of total nonfarm payrolls during each President's active years. With a high of 86.64% and a low of 80.95%, it's a rather tight range. It takes a close up to see a difference. But while it's neck and neck, Truman gets the high mark. Honorable mention should obviously go to that bastion of small government, Franklin D. Roosevelt, with an average of 86.08% private payrolls during the latter part of his term (1939 onward). Ironically, the low mark goes to a man who bore the same surname as an auto industry magnate, President Ford.

Many have focused on the current President lately. In particular, there's a virtual cottage industry for discussing President Obama in the light of things said by President Reagan. So let's focus on how those two compare.

The private share of payrolls under President Obama rises a bit above the private share under President Reagan. So if President Obama were a socialist as alleged, that'd make President Reagan a socialist ... and an even more effective one at that. Not that President Reagan really was, of course. But this should make it quite clear to anyone who isn't arguing from an unreasoning bias that President Obama has maintained the largely capitalist nature of America. In his first three years, President Obama has presided over a mostly growing private share of payrolls that has averaged higher than that under half of the preceding Presidents since JFK.

What is Small Government?

What does small government mean? Those calling for massive cuts say we've got big government and they just want us to get back to small government. They say that whoever disagrees with them wants "big government."

Like pretty much all of my fellow Americans, I want govt to stick to its appropriate role. I want a government that does only what we need it to do. But what if that's what we've got now?

Comparing against other modern, industrialized nations would be one way to put it into perspective. In 2009 we had larger than normal expenditures from stimulus and lower than normal GDP from the Great Recession. That year, we had a GDP of roughly $14,258 billion and total Federal spending of $3,518 billion. That's 24.7%. In the same year, the U.K. central government spent around 32.6% of their GDP. Looking back to the more normal levels of a year that doesn't include stimulus spending, in 2007 our Federal spending was 19.38% of our GDP. That same year, the U.K. central government spent 28.44% of their GDP. That's how the general trend goes. Between 1995 and 2010, the our national govt spending undershot their national govt spending by 8.7% on average.

National govt spending as a share of GDP in the US and UK

The U.K. is far from alone among the other industrialized nations in dwarfing our national govt spending.

Expense (% of GDP) in 2004 from data.worldbank.org

By and large -- though some other countries often run budgets proportionally similar to ours -- we have a relatively small government compared to the other industrialized nations.

Perhaps one could argue that maybe the general trend in the other industrialized nations is to maintain giant governments that dwarf our so-called big government. If that's the case, we should easily be able to find vast, expensive programs that we don't really have any use for in our society ... that few of us would want government to do. Where are those programs?

Shall we cut infrastructure spending and let our already crumbling roads and bridges decay further, making it harder for our businesses to transport products? Shall we dismantle Social Security and allow elderly citizens to starve in the streets? Should we stop investing in the medical research that has helped make our biomedical industry such a large contributor to our GDP? Shall we stop funding education and fail to foster skills needed to compete in the modern global economy? Shall we stop monitoring our food supply so that producers can get away with cutting corners and contamination runs unchecked? Shall we cut billions by stopping payments for police, fire-protection, and border security?

These things are all quite necessary from the government. A modern society doesn't function as well without any of that. When you look at charts showing a much smaller government hundreds of years back in our history, keep in mind that we had an entirely different economy back then. We didn't have the transportation system that we have today. We didn't have a social safety net to make it so an elderly miner could retire rather than just working till he died nor workplace regulations to make it less likely for him to die of black lung. We didn't have such a thriving biomedical industry both making our health better and enriching our nation. We didn't have a workforce capable of designing high-tech products to sell to the rest of the world. We didn't have most of the great things about our modern economy that require government programs to work smoothly and in many cases to function at all. One can't expect the economy of the 21st century to operate with the government spending levels of the 18th or 19th centuries. When we had significantly smaller government, we also drove horse-drawn carts, used outhouses, suffered polio, and couldn't reasonably expect to have a chance of ever retiring. Should we really be basing our idea of appropriate government spending on a time to which we wouldn't want to go back in any other way?