Federal and State GDP
Breaking down the government
Government spending is an important component of GDP but has been generally trending down in terms of overall contribution. Even though it has been shrinking in a relative sense, the government is still huge (obviously), and so it makes sense to consider things from the Federal and State (including local) perspectives:
Let’s start with the Federal aspect of government spending and investment since this is what people usually think of first when it comes to the government. Even without looking at the trend for State spending and investment, it is clear that the Federal side drives the behavior of the overall trend for total government spending and investment seen in the previous post. Additionally, the trend, while downwards, has fairly clear mini-cycles throughout the last several decades. There are slow up trends and slow downtrends. There isn’t a lot of choppy behavior. The government certainly doesn’t move as quickly as private spending and investment.
For all the attention the Federal portion of government receives, which I suppose isn't very surprising considering the political landscape, I was actually quite surprised to see that State spending was so much larger of a driver! I guess the lack of attention makes a little more sense when considering the other part of the government has a big scary military at its disposal. Though don’t go underestimating your friendly neighborhood militia!
Generally, State spending and investment has been really consistent since the early 1970s. Meaning, government spending below the Federal level has grown in tandem with the economy. I wish I knew more about the steady rise that occurred during the 1960s. Perhaps someone reading this has some expertise and will be able to fill me in.
Unfortunately, even though the State component is bigger, there isn’t much availability for disaggregation and not a lot of interesting things to say about a more detailed look. So, in the next post (which will be the final for the GDP components series!!), I will look at the three main drivers of Federal spending and investment.
Related content:
Government Spending and Investment