Government Spending and Investment
Uncle Sam's Economy
Well, after almost two weeks of staring at a bunch of lines related to GDP, we have finally come to the last major line - government consumption and investment. This is the last of the four main components that make up GDP and it looks a little something like this:
As has been mentioned many times already in previous posts, the US is a big economy. And, in this big economy, things like politics are really important. Primarily because the most important person in politics (aka the president) has a big military and if you do bad things then that big scary military will come and get you. But also because politics can shape things like the rule of law, which affects how business operates and consumers consume and how trade works and many other things. And, if you don’t follow the rule of law, the president can send the big scary military to come and get you.
All that political stuff not only influences things like laws that affect all those aforementioned aspects of GDP but also how the government spends and invests. And, as can be seen in the chart above, the government is a big chunk of the total economy. It is the public side of GDP and, in essence, the counterbalance to the private side of GDP. So, the US is a big economy, and the public component of GDP is a large percentage and is, therefore, a big deal. And, if you don’t think the government is a big deal, then the president can send the big scary military to come and get you and force you to think it is a big deal.
What is cool about the chart above is it basically captures the essence of many political battles in the US. Do you like the government and want more of it? Or do you want less of it? Essentially, do you want that chart to go up or down? What I find fascinating is this metric has really only moved a few percentage points in the last sixty years. All of that time spent arguing over a few percentage points here or there. Oh, well, yes and arguing over laws that affect everything else and stuff like the big military I suppose.
In general, it’s easy to see the downtrend. The government’s consumption and investment used to big a bigger component of the overall economy. However, there have been drastic swings at various points of time. Most notably, during the financial crisis. We know the financial crisis was weird and a lot of weird stuff happened but this is just another example of weirdness to add to the pile of evidence! Look at that bump from around 2007 to 2014. Seven years way above trend. Weird.
In the next couple of posts, we will take a deeper look into all this government consumption and investment stuff to see what is really going on with all those US tax dollars.
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