Is government getting smaller?
Date posted: June 1, 2012
A national newspaper recently carried a headline stating that government in the United States has been getting smaller. Given all the borrowing and spending the federal government has done during the recession, can this be true? N.C. State University economist Mike Walden responds.
“It’s useful to think of what government does in two broad categories. The first category is where government directly makes a product or delivers a service: the military, the post office, roads, K-12 education would all be examples. And we economists call this government production.
“The second category what government does, we call transfers, and here government simply acts as a middle-man to move money from some people to others. Social Security, Medicare, Medicaid, Food Stamps are all examples of this.
“And what the author of the article was saying is, If you look in the last year, for the first time … in 17 years, spending on government production — that is, products or services the government delivers — actually went down by about 2 percent, after you adjust for inflation. Now, government spending on transfers continued to go up.
“So, again, this headline was true in the sense of when you’re looking at a particular kind of government spending – production – (but) certainly not true for all of government.”
Category: Economic Perspective