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What is the generally accepted best measure of total government spending (federal, state & local combined) as a % of our GDP?

The Heritage Foundation report that for the United States it is 41.7%.
http://www.heritage.org/...

This surprises me. I always assumed that you calculate this number by
*retrieving the GDP data file from the BEA report
*finding the line entitled "Government consumption expenditures and gross investment" *dividing it by the top line - the one simply called "Gross domestic product".

But that produces a value half of the one reported by Heritage.

Is a there generally agreed upon correct way of determining this number?

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Comment Preferences

  •  OMB gives 35% in 2011 (2+ / 0-)
    Recommended by:
    SantaFeMarie, dharmafarmer

    See Politifact: Romney claim 42%.

    Note the 42% number seems to come from the worst quarter of the recession when both the GDP (denominator) was low and stimulus spending (numerator) was high.

    So that number isn't an average, steady-state number but a worst-case snapshot at the depths of the recession. (Gosh, surprise, surprise. Heritage playing with statistics.)

    When the recession actually ends and the GDP recovers, that number should go down a bit. According to the OMB, the 2007 number was 31%.

    On the other hand, since SS and Medicare spending is expected to rise, that number is going up a bit.

    •  Thanks. Is it possible to take the BEA quarterly (0+ / 0-)

      GDP report and accurately calculate the correct number for any given quarter? Or do you need to supply some additional numbers from outside that report?

      It seems to me that you should be able to do it just on the basis of the BEA report alone, but it produces a number which is consistently lower than those reported almost everywhere else.

      •  I got 35.8% for 2012 Q3 (1+ / 0-)
        Recommended by:
        dharmafarmer

        $5,661B total government (table 3.1)

        $15,811B GDP

        And 24.5% for Federal (table 3.2)

        which is similar to the Polifact number.

        •  That's interesting. I was NOT using Table 3.2. (1+ / 0-)
          Recommended by:
          ferg

          I was using Table 1.1.5. taking line 21 (Govt consumption expenditures and gross investment) and dividing it by line 1(GDP).

          It is a much smaller number.

          What is contained in your number that is missing from mine?

          •  social security and interest, mainly (0+ / 0-)

            There's a note at BEA: BEA seems to have several different measures of government spending

            Total spending by government is much larger than the spending included in GDP.  Current expenditures measures all spending by government on current-period activities, and consists not only of government consumption expenditures, but also current transfer payments, interest payments, and subsidies (and removes wage accruals less disbursements).  Payments such as transfer payments and interest payments are excluded from the calculation of GDP because these payments do not represent purchases of goods and services, though income from transfer and interest payments may fund consumption expenditures or investment in other sectors of the economy.
            They seem to be saying that the 35% calculation is an apples-to-oranges comparison. I think because the transfer payments aren't production(?) I'm not sure.
    •  Yet Politifact rated Romney as "mostly true" (0+ / 0-)

      when the only back up to his statement that the government was "now spending 42% of our economy on government" was data from an outlier, from 2009, to back up an assertion made in 2012.

      Quelle Surprise!

  •  One clear indication that Heritage fudges their (0+ / 0-)

    data - look at their definitions.

    I'll take Labor FReedom!!!

    Their wording reads ...

    The labor freedom component is a quantitative measure that considers various aspects of the legal and regulatory framework of a country’s labor market, including regulations concerning minimum wages, laws inhibiting layoffs, severance requirements, and measurable regulatory restraints on hiring and hours worked.

    Six quantitative factors are equally weighted, with each counted as one-sixth of the labor freedom component

    The US of A get's a studly (We're #1!!) rating of 95.5 on these scores.
    And the factors are ...
    Ratio of minimum wage to the average value added per worker,
    Hindrance to hiring additional workers,
    Rigidity of hours,
    Difficulty of firing redundant employees,
    Legally mandated notice period, and
    Mandatory severance pay.
    Funny that, as someone who works, I'd think of getting mandatory severance pay as helping me be freer in the labor market - to find a new job, or start a new business for instance.

    Similar arguments apply to the several of the other - equally weighted - factors.

    In other words, Heritage does not merely choose their data, er, selectively; they also choose their definitions to fit their conclusions.

    Which would be funny, if Heritage wasn't given such weight by many of those who used to be able to depend on impartial data analysis, in Congress.

  •  Funny you should mention this (0+ / 0-)

    I was thinking about this last night. I even considered a Diary about it for those new to economic issues. The bottom line:

    Never, ever pay attention to ANYTHING expressed as a "percentage" of GDP.

    It is the most manipulable, disingenuous, bullshit-form of stat in the known universe.

    Sure, it can have meaning. But only if every variable imaginable is strictly enforced and correlated -- such as population growth, inflation, extraordinary emergencies, war, national disasters, poverty, life expectancy, environment, energy costs, human capital investments, and so much more.

    The minute you hear "...as a percentage of GDP" -- walk away! Unless you are a stat professional.



    Denial is a drug.

    by Pluto on Mon Jan 21, 2013 at 05:23:21 PM PST

    •  Let me add to the correlation list: (0+ / 0-)

      Business cycles, economic bubbles, recessions, standards of living, condition of national infrastructure, policies, hunger, violence rates, surpluses, tax rates, obesity rates, health care costs, salary growth, privatization and for-profit systems of government services, currency debasement, savings rates, consumer debt -- just to name a few.

      Without all of these correlations defined and set -- any thing expressed as a percentage of GDP is complete horseshit.

      I ought to know. I get away with it all the time.



      Denial is a drug.

      by Pluto on Mon Jan 21, 2013 at 05:30:27 PM PST

      [ Parent ]

    •  well, the alternatives are worse (0+ / 0-)

      For example, the Republicans always play the trick of using nominal dollars to show that the government is increasing or revenues increase despite tax cuts. Or forgetting the population growth naturally means more teachers are needed.

      GDP has the advantage of taking care of inflation, population growth, and productivity.

      It's not perfect. For example, it's terrible about environment costs. But it's a better comparison over time than most other measures.

  •  Best way to measure depends on the type of (1+ / 0-)
    Recommended by:
    ferg

    questions that will use the numbers.

    A major part of the different measures is the treatment of transfer payments such as social security, Medicare and Medicaid.  In the classic GDP equation, these transfer payments are not included as the ultimate spending appears in consumption.  For example, a person on Medicaid receives $1000 in health services, or a social securty recepiant buys a food with the payments received -- this is counted in Consumption not government spending.  This is done partly to avoid double counting.

    However, if the question being asked is how much revenue does government need to balance its budget, transfer payments must be included.

    Lastly, increasingly spending is being done through the tax code.  In particular, tax credits for buying certain types of cars, or production of electricity by certain means, or purchasing bio fuels, tax credits for investing in low income housing, etc..  So an adjustment may be needed for this as well for some applications.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Mon Jan 21, 2013 at 06:30:44 PM PST

  •  Not sure this is a useful calculation (2+ / 0-)
    Recommended by:
    ferg, Tom Anderson

    The difficulty in deciding what to use as the numerator and denominator is a symptom of a bigger problem: Why is this a useful number to have?

    There is some sort of wonkish-sounding theorizing about what is essentially a debt-to-income ratio, similar to what banks use in deciding whether you can afford a mortgage.

    But "government spending" isn't like paying a mortgage. It's a component of a larger economy. It's not a separate thing. And spending can get recategorized pretty easily. How? Let's say my town stops collecting the garbage, and residents have to hire a private carrier to haul their stuff to the dump. Bingo! reduced government spending, increased "private" spending. Is that useful? Does it change anything on the ground, other than make people pay extra money to the private guy??

    So before trying hard to get the "right" calculation, I'd recommend rethinking why it is that this number has assumed the importance it has -- who is pushing this narrative and why.  

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