How Much Does Government Spending Really Change? Answer: Not Much.

Each January, the Congressional Budget Office releases its massive budget outlook report. This report details what the country is (in theory) going to spend over the next ten years.
The official release date is a big day for public policy geeks. That’s today, and the report was posted at 10 a.m this morning. The CBO’s Web site was so jammed that I couldn’t get through until a few minutes ago.
Personally, I think ten-year forecasts are a waste of time, and I ignore most of that data. What I like to look at is the historical numbers. By the way, the CBO should get major props for presenting so much data in an easy-to-read and accessible format.
What I find fascinating is that despite all political rhetoric we hear, what the government spends each year is fairly consistent. This might upset some people who are convinced that government spending is either out-of-control, or hopelessly being slashed to the done. Sorry, but it’s just not true. The level of government spending is remarkable steady. I’m not saying that there aren’t major changes in spending patterns, but it’s far less than you might think.
Over the last thirty year, total government outlays minus defense spending as a percent of GDP, has averaged 16.31%. Quite simply, that number hasn’t fluctuated much. The high reading was 17.38% in 1983, and the low was 15.39% in 2000. As you might expect, government spending rises in recessions and falls during expansions. The standard deviation is just 0.63%.
Last year, non-defense spending rose to 16.10% from 15.93% in 2004 (this is the government’s fiscal year, which ends on September 30).
Some of you may take issue with me excluding defense spending. I understand that, so like me explain my reasoning. Defense spending can—and has—changed quite dramatically in response to real world events. Over the last 30 years, the standard deviation of defense spending is over 1%, which is higher than the budget as a whole.
I see defense spending as similar to a company declaring a one-time earnings charge. Obviously, defense spending is important and it affects our national debt, but I don’t see it as a reflection of Washington’s spending habit.
Here’s the big CBO report. You can download my data here (which is all pulled from the historical tables of the CBO report), and here’s my chart of non-defense spending as a percent of GDP. As you can see, the budget soared in the 60’s and early 70’s, but since 1976, spending hasn’t changed that much.

Posted by Eddy Elfenbein on January 26th, 2006 at 1:16 pm

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