The Burden of Government

When the state is more than a “night watchman,” its cost and intrusiveness diminish liberty and prosperity. (See this and this, for example.) Thus it has come to this: Government takes far more from productive Americans than it returns to them in the form of protection from foreign and domestic predators.

This point is overlooked by the keepers of national-income accounts. To them, government spending (which properly includes so-called transfer payments) adds to GDP. In fact, it detracts from GDP. It is a tax on the output of the private sector. The following graph indicates the size of the tax and its growth with time.


Sources: See footnote.

Some observations:

  • In 2010, the average output of a private worker was worth $114,000; government confiscated 40 percent of that output, leaving $68,000 in the private sector. (These estimates do not reflect the regulatory burden, which brings the total cost of government to about 50 percent of GDP.)
  • The direct burden of government spending nearly doubled from 1950 to 2010, rising from 23 percent to 40 percent of the average private employee’s output.
  • As indicated by the trend lines, real output per worker rose at the rate of $1,125 a year, but only $645 of each year’s increment remained in the private sector. In other words, government spent 43 percent of every additional dollar’s worth of real output per worker.

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Sources:

Estimates of GDP in year 2005 dollars are from the feature “What Was the U.S GDP Then?” at MeasuringWorth.com.

Estimates of government spending (federal, State, and local) are from Statistical Abstracts of the United States, Colonial Times to 1970: Part 2. Series Y 533-566. Federal, State, and Local Government Expenditures, by Function; and the Bureau of Economic Analysis (BEA), Table 3.1. Government Current Receipts and Expenditures (lines 34, 35). The BEA tables are available here.

I estimated private-sector employment by subtracting the number of civilian government employees from the total number of employed persons in the civilian labor force. Government employment figures come from the 2012 Statistical Abstract, Historical Statistics, No. HS–46. Governmental Employment and Payrolls: 1946 to 2001, and the Bureau of Labor Statistics, Series CES9000000001: Employment, Hours, and Earnings from the Current Employment Statistics survey (National), available here. Total civilian employment is from BLS Series LNS12000000, available here.

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