As part of the work I’m doing for my book, I’ve been working with my research manager, LeeAnn Prescott, staring at various charts and graphs related to how we’ve funded our “Commons” over the past half century or so. I’ve got a working hypothesis that we are in the process of transitioning very important portions of our “public lives” to private corporations, and that this transfer is related to our adoption of digital technologies and platforms. Examples include identity (from driver’s licenses and SSNs to Visa, MasterCard, Amex, and Facebook), delivery of important information and items (from the Post Office to Telcos, Internet, and FedEx and UPS), and protection (outsourcing both prisons and military jobs to private companies). Not to mention retirement (from Social Security to 401ks, etc.).
Of course, were such a hypothesis true, one might imagine that the over percentage of GDP represented by government workers would have gone *down* over the past few decades. However, as this chart shows, that’s not the case:
If we’re depending on government less and less, as I hypothesize, how on earth could government employees go *up* by ten percent in the past six decades?
Either my hypothesis is wrong, or there are devils in the details. And indeed, as you drill down further, some interesting things start to pop up.
For example, check out this chart of what’s growing in our government, and what’s not:
Aha! Turns out, the Federal Government has actually shrunk by more than half, but we, as a society, have simply moved the burden to State and Local Governments. I wonder how the folks at the Tea Party HQ would respond to this data: They spend an awful lot of time talking about Big Government, but they seem overly focused on the Big Bad Feds. They might take aim at their own backyards instead.
Let’s take a look at some detail:
Ahh….Education. Very interesting. As local governments have taken over the once Federally run education system, payroll there has skyrocketed (has performance? Nope. But that’s another story).
Also interesting to note how dramatically our Military spending has dropped, but, given we’re comparing to Cold War, Korean War and WWII eras, that’s not too surprising.
Now let’s compare Government as a percent of GDP to private Industry. If my hypothesis is to hold water, I’d wager that private industry is taking over more and more of our GDP over time. Is it? Yep.
As one might expect, the numbers show the rise of the services industry, and the decline of manufacturing in our economy. But they also show a rise in percent of GDP by government, due in the main to state and local increases.
Here is more detail by industry on what’s growing and shrinking:
Check out that first item: Financial services has nearly doubled and now leads our nation in terms of contribution to GDP. No wonder 2008 was such a (continuing) disaster.
But it’s clear to me we have an education and healthcare problem on our hands (quite a surprise, eh?). Now, education is, in the main, a government enterprise. Healthcare, not so much (Obama’s plan is in essence private, folks). So the question then becomes, will education make the transition from public to private sector in the digital era, and might Healthcare move the other way? I can imagine an argument for both. I post these charts not to draw conclusions, but to open debate.
One last chart of detai on how our Federal Government spends money:
Huh. Social security has risen a lot. So has Treasury and Health. One might reasonably conclude that 1. Our population is aging, creating the demand for more Social Security services. And the two dominant private industries in our country – finance and health – require significant regulation, hence the rise of Treasury and Health.
But I’m not a government economist, so I’m just guessing. I look forward to interviewing many of them as I dig in. Meantime, I just thought it’d be fun to share these data points with you. Enjoy.
Your choice of 1950 for a starting date causes some odd conclusions. For example, government spending has shrunk considerably since 1980 (and even more so since 1965)– I am not sure why you are saying it is “up.” If you further analyzed it you would find that a large fraction of the increase is increased per-employee/beneficiary health care costs, which is independent of “big government”. When airlines’ costs skyrocket due to oil price rises, we don’t ask whether they are mismanaged.
Also in 1950 Europe and Japan were still rebuilding and SE Asia wasn’t yet industrialized, so the US had something like 80% of world manufacturing GDP by default.
WRT “the two dominant private industries in our country – finance and health – require significant regulation, hence the rise of Treasury and Health,” Googling for “department of health and human services budget breakdown” returns as the top hit a link to hhs.gov; the 4th page of the linked report for 2010 is a pie chart showing that 52% of the spending is Medicare and 33% Medicaid — so not regulatory activity, but transfers to doctors for treating the old and indigent.
I would recommend The Washington Post’s “Wonkblog” for regular informed discussion of these topics. One example: http://www.washingtonpost.com/blogs/ezra-klein/post/our-budget-problem-in-two-charts-and-one-issue/2011/09/02/gIQAuMfBxJ_blog.html
Regarding government’s share of the labor market: http://modeledbehavior.com/2011/09/16/where-is-the-middle-class-going/ .
With regard to “As local governments have taken over the once Federally run education system, payroll there has skyrocketed (has performance? Nope. But that’s another story),” you might ask yourself who went to college in 1950. The answer is a true elite. It wasn’t until the mid-60’s that half of American adults had a high school degree. The typical student in college in 1970 was the son of a rich family who’d received an excellent high school education. The typical college student today is a much tougher job for her professors. Baumol’s Cost Disease also applies.
“The once Federally run education system” ???!!!!??? What??? When did the Federal government run the education system?
Money, is the main thing.
Remember prop 13 in CA ?
I have to think that if the Occupy movement spawned a non-profit venture of sorts that could be an alternate bank and capital clearinghouse, we’d then see the seeds of real change…
The outlays chart isn’t just admin payroll outlay, is it? The growth in SS and HHS depts is surely recipient benefit expansion, rather than increases in admin/reg, no?
I think so. Great comments from all. Really help me get smart on this.
The White House Office of Management & Budget data is sourced from this page http://www.whitehouse.gov/omb/budget/Historicals/
The outlays are total outlays, not payroll. Table 4.1 has the hard numbers, 4.2 lists the percentages as shown here.
For those interested, this is the gateway to the treasure trove of economic and GDP data from the US Bureau of Economic Analysis. http://www.bea.gov/itable/index.cfm
Awesome Post .. i liked it
Slightly off the main point but I’ve had this question for a while: Aren’t social security numbers outdated? We are relying on a “technology” (which is crucially important to our identity – online identity even more so in the future) that was created in 1935?! Why? Great post.
Exactly the point that culture is making by moving on
However all is still founded in the SSN — Like your Visa. Facebook is not. To get the SSN, they either need the payment companies, or, they need to break totally. If they make such a break, it would be historic.
Interesting presentation.. hope to see some improvements on these numbers..
IF OBAMA’S HEALTH PLAN IS MOSTLY PRIVATE, THEN WHY THE NEW TAXES?
MR. PENROSE MIGHT LOOK UP WHERE THE HEALTH CARE DOLLAR REALLY GOES. NOT TO
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These are interesting data points. I think it helps to also look at how the total size of the two “pies” have changed over the same time span:
U.S. Population in 1950: 151 million
U.S. Population in 2010: 312 million
Size of U.S. GDP in 1950: $293 billion
Size of U.S. GDP in 2010: $14.7 TRILLION (quite a compounded interest rate!)
Good data thanks
How would your analysis text change if you’d selected a 40-year horizon: 1970 to 2010?
Eyeballing the graphs, it looks like it’d be a 20% decrease in government size, huge decrease at the federal level, and perhaps 20-40% increase at the state level.
Or, perhaps I should have read the comments first. Ah well. 😉
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