burden of taxation

The Recession Still Lingers

UPDATED 10/30/10

The latest release from the Bureau of Economic Analysis, which includes the “advance” estimate of real GDP for the third quarter of 2010, indicates that the recession isn’t over, by my definition of a recession:

  • two or more consecutive quarters in which real GDP (annualized) is below real GDP (annualized) for an earlier quarter, during which
  • the annual (year-over-year) change in real GDP is negative in at least one quarter.

Real GDP for the third quarter was $13,260.7 billion (annualized rate, chained 2005 dollars). Although that’s better than the second quarter, it remains below the peak of $13,359.0, which was reached in the second quarter of 2008.

Here’s how real GDP has fared from the first quarter of 1947 through the third quarter of 2010 (recessions are denoted by vertical bars):

(In this version of the graph I have eliminated the 1947 recession, for lack of complete statistics, and pushed the beginning of the current recession to an earlier quarter.)

(I have added the following sentence and related graph.) Here’s a closer look at the depth and duration of post-war recessions:

Finally, here are year-over-year changes in real GDP, from the first quarter of 1948 through the third quarter of 2010:

This graph, by the way, updates the one I used in “The Price of Government: More Evidence,” where I say:

You will notice two things about the graph. First, the economy is cyclical, thanks in part to the actions of government (e.g., the low-interest, housing-bubble recession). Second, economic growth has declined from an annual rate of around 4 percent to an annual rate of about 2 percent, because of government.

Related posts:
Economics – Growth & Decline
The Economic and Social Consequences of Government

The Price of Government: More Evidence

It is time to remind everyone of the economic toll that has been exacted by the growth of the regulatory-welfare state since the end of World War II:


Source: Bureau of Economic Analysis.

You will notice two things about the graph. First, the economy is cyclical, thanks in part to the actions of government (e.g., the low-interest, housing-bubble recession). Second, economic growth has declined from an annual rate of around 4 percent to an annual rate of about 2 percent, because of government.

Related posts:
Economics – Growth & Decline
The Economic and Social Consequences of Government

The Price of Government Redux

In “The Price of Government,” I assess the staggering cost of government intervention in economic affairs:

Had the economy of the U.S. not been deflected from its post-Civil War course, GDP would now be more than three times its present level.

I should have referred in “The Price of Government” to an earlier post, “The Laffer Curve, ‘Fiscal Responsibility,’ and Economic Growth,” where I argue that an optimally sized government is one that

divert[s] a minimal fraction of economic output to government (about 15 percent, nowadays), for the purpose of protecting ourselves and our economic activities from predators, foreign and domestic. Any diversion beyond that is pure waste.

Fifteen percent of GDP represents the pre-1929 level (10 percent) plus an allowance for the additional cost of defending the nation in these more perilous times.

I should note that my assessments are consistent with the analysis that is summarized in The Empirical Evidence against Big Government, a presentation of the Center for Freedom and Prosperity. The presentation is based on two Heritage Foundation Papers: “The Impact of Government Spending on Economic Growth” and its “Supplement.”

P.S. In case you’re wondering how government interventions could have cost as much as three-fourths of GDP, consider the cost of just one pending legislative proposal. The cap-and-trade law, aimed at reducing carbon dioxide emissions, would cost between $800 and $3,100 per year, per family. If you think it’s a good idea to impose that cost on your fellow Americans, you have been hoodwinked into believing the myth of man-made global warming, the main supporters of which (surprise! surprise!) are the tax-and-regulate crowd.

Or consider Obamacare, with an advertised cost of about $900 billion over the next 10 years — and that’s before it really starts to get expensive. Moreover, none of the cost estimates for Obamacare reflects an important hidden cost: the damage it would do to the quantity and quality of medical care in the U.S. as drug research diminishes and prospective caregivers seek other, less regulated, occupations.