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America’s Incredible Shrinking Government

Research & Commentary
January 18, 2012

by Salvatore Babones

We hear all the time about America’s bloated federal government and how it’s grown like a kind of bureaucratic kudzu to smoother and strangle our otherwise dynamic economy. Now that federal spending accounts for over 25% of America’s gross domestic product this seems more true than ever.

Throw in state and local spending and it turns out that total government spending accounts for over 35% of US national income. That’s over 5 trillion dollars of government spending each year. That sure sounds like socialism.

If only.

In fact, it’s completely ridiculous to measure the size of government in terms of spending. Most government “spending” is just money that passes through government hands on the way from one person to another.

The biggest example of this is Social Security. The government doesn’t spend money on Social Security any more than a bank spends money when you make a withdrawal. Social Security is a transfer program, not a spending program.

[pullquote]The size of government hit a high point in 1976 and has been declining ever since.[/pullquote]

Ditto Medicare, TANF, and Food Stamps.

A better way to measure the size of the government than by the size of its budget is by the size of its payroll. How many people does it employ?

In terms of employment, the size of government hit a high point in 1976 and has been declining every since. State and local figures are difficult to verify, but the statistics for federal employment are clear. It has dropped from 1.34% of all American workers to just under 1%.

That’s a proportional decline of 1/4 over the past 35 years — it’s America’s incredible shrinking government.

State and local governments add a further 10-15% of the civilian workforce, depending how you count government-related institutions like county hospitals. State and local government employment also maxed out in the 1970s and has declined by about a quarter since then.

The simple fact is that American government is small and shrinking. Maybe our problem is small government. It certainly isn’t big government.

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