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

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.

The Mega-Depression

In the preceding post, I offered my definition of recession and asked whether the current one has ended. (The answer: not yet, but I may know soon — or sooner than the official score-keepers at the National Bureau of Economic Research.) It since occurred that to focus on the current recession — or any recession — is to ignore America’s mega-depression, which is now more than a century old.

As I explain here, the mega-depression began in the early 1900s, when the economy began to sag under the weight of “progressivism” (e.g., trust-busting, regulation, the income tax, the Fed). Then came the New Deal, whose interventions provoked and prolonged the Great Depression (see, for example, this, and this). From the New Deal and the Great Society arose the massive anti-market/initiative-draining/dependency-promoting schemes known as Social Security, Medicare, and Medicaid. The extension and expansion of those and other intrusive government programs has continued unto the present day (e.g., Obamacare), with the result that our lives and livelihoods are hemmed in by mountains of regulatory restrictions.

The mega-depression is an example of  “that which is not seen,” a coinage of Frédéric Bastiat. In “That Which Is Seen and That Which Is Not Seen,” Bastiat writes:

Have you ever chanced to hear it said “There is no better investment than taxes. Only see what a number of families it maintains, and consider how it reacts on industry; it is an inexhaustible stream, it is life itself.” . . .

The advantages which officials advocate are those which are seen. The benefit which accrues to the providers is still that which is seen. This blinds all eyes.

But the disadvantages which the tax-payers have to get rid of are those which are not seen. And the injury which results from it to the providers, is still that which is not seen, although this ought to be self-evident.

When an official spends for his own profit an extra hundred sous, it implies that a tax-payer spends for his profit a hundred sous less. But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it.

In the case of aggregate economic activity, what we see is what has been left to us by government. What we do not see is the extent to which the money taken from us by government and the restrictions placed upon us by government have deprived the economy of entrepreneurship, innovation, technology, and productive capacity. The cumulative effect of those deprivations — that which we do not see — dwarfs the Great Depression in depth and extent. The cumulative effect is our mega-depression: