(a chapter of the Grandfather Economic Report series with graphic presentation reviewing economic issues facing today's generation compared to prior periods,on: Family Income, debt, savings; government spending and size, education quality, social security, regulations, taxes, inflation, foreign trade and exchange, voter turnout, trust, celebration, and health care/life expectancy)
Many believe a small government sector is best, which was the clear intention of America's founding forefathers. (by government we mean the sum of U.S. federal and state & local governments). The question is how small is small? Is 10% of the economy to government enough? How about 20% - or 40% or 50%? Or, even more? Question: how much government dominance do you think our founders intended?
Stated in a different manner: How would you answer this question > "What share of our economy's national income should be controlled & dominated by federal, state and local government and its planners, and how much federal debt should be allowed in peace-time?"
That is a very important question, which significantly impacts the economic future and freedom of our children - - compared to prior generations and to the intent of our nation's founding forefathers. Many will answer, "About 10% to 20% of the economy for spending, with near zero debt." But, today's government consumes more than twice that much - 39% of the economy - - and federal debt is $5.7 Trillion. It has not always been that way - only recently.
|Several pictures show a core problem - - the unparalleled expansion of government, whereby 39% of the economy now depends on government spending - - causing shrinkage of the productive private sector's share. Here's where we are.
This pie chart approximates today's economy - - divided into two (2) slices: government vs. private sector.
The red slice shows 39% of our economy depends on government (federal + state/local) spending. The blue slice is the part of the economy left over to the free-market private sector that does not depend on government. (note: this chart only covers government spending, not also the costs of complying with government-mandated regulations which amount to another 16% of the economy- - the latter covered via a graphic at the bottom of this report).
The government (red) slice of this chart is derived by taking the sum of federal and state & local government spending, nation-wide, and dividing same by the total economy (as measured by its total national income reported by Dept. of Commerce, Bureau of Economic Analysis). The residual (blue) slice is the balance left to the private sector.
Did our nation's founders, who planned for small and limited government, intend the America of their dreams to evolve where nearly 40% of our economy is dependent upon government? Is 40% the economy controlled by government what Thomas Jefferson meant when calling for 'least government is best'?
Is such a large share dependent on government what we mean by 'small government'? Do we intend such for our children and grandchildren?
Is the future of their freedom & economic well-being at risk - compared to the past and to what it could and should be?
Socialism is considered by some a dirty word. Many economists (such as Nobel Prize winners F.A. Hayek, Milton Friedman and others) claim advanced collectivist societies of socialism, communism and fascism are similar words to describe economies too much dominated by government - that, as a society becomes more government-dependent due to expansion of same faster than the general economy expands, the free-market sector & individual freedoms are compressed - - contrary to the intent of the founders of our Constitution.
If 10% of an economy's national income depends on government spending & control, then its economy can be called 10% 'socialistic' and 90% free-market. If government steadily expands its control over time faster than the economy, such that say 39% of the economy becomes socialistic (dependent on government spending), then only 61% of the economy is free - - that's where we are in today.
If such expansion is gradual over time, many do not recognize what is occurring. They may sense a steady degradation in quality of life and one's control of one's destiny, but do not understand the cause. Like a cancer, it steadily spreads - step by step eroding freedom and economics of citizens. At some point, if not reversed, the future well-being of citizens can become even more severely jeopardized - - as proven by history.
Over time more and more citizens have become so dependent on government spending (control) that, while they know major changes need to be made, they resist the very changes that are needed to restore the health of their freedom and economic future, and that of their children and grandchildren. They have become so government-dependent (or, addicted) that they fear giving up that dependence. They have been 'captured' by socialism - - and, headed toward a result their founding forefathers never intended - - a road of increasing serfdom to the state.
America is more a socialistic nation, and less a free-market economy, then ever before in its history, because our total economy has become significantly more government-dominated and dependent.
Think of the total economy as a pie, divided into two economic slices (the government sector share and the pure private sector share), where the whole pie is the total national income. If the government share expands faster than the total economy, then the free-market private sector's share is compressed.
With 3 simple color pictures, we will view the relationship between these sectors at three different times in our history (prior 1930 and the New Deal, after World War II disarmament in 1947, and as it is today) - - and observe the march of socialization in America.
Keep your eye on the red slice of the economic pie, as we will move from the first pie chart (below) to the second, and then to the third. That's the government [federal + state & local] spending sector dominating & controlling more and more of the nation's economic pie.
Therefore, less and less of the nation's economic pie is left for the pure private sector, being that part of our economy not dependent on government spending yet upon which national productivity, savings, living standards AND freedom fully depend for our youth.
| Picture #1: Look at the left chart.
68 years ago, just 12% of the economic pie was dependent upon GOVERNMENT (the red slice of the pie). [restated: 12% of national income was consumed by, or dependent on government spending].
leaving 88% to the productive PRIVATE sector (blue pie slice).
At that time the private sector was 7.3 times larger than the government share.
America WAS 88% FREE and 12% socialistic.
Note: to cover the 12% government spending share of the economy (red slice), the average person had to work 1.4 months per year just for taxes.
*(the technician will note national income used to measure the economy, not GDP. This approach was firmly recommended by Nobel Laureate Milton Friedman, as the only proper method - - discussion at bottom of page)*
| NOW, watch the non-productive government share in the left chart double to 22% of the economy, from the prior 12% share. (the red slice got bigger),
and note the remaining portion left to the productive private sector has been squeezed out of 10 points, compared to the previous chart.
That 10 point swing was mostly attributed to government getting into the 'socialized spending business', starting with the 'New Deal'.
At this point, the private sector was about 4 times larger than government - - well below its prior 7 times larger ratio of the first chart.
America was 78% FREE and 22% socialistic. (instead of 88% free and 12% socialistic in the first chart).
From chart #1 to chart #2, we have observed how the private sector's share of the economic pie was reduced by 10 points - as a result of socialization up to 1947.
|NOW, look at the left chart for 1999.
the government sector (red color) doubled its share again -
from 22% of the economic pie in 1947 to 39% of the economy today,
shrinking the private sector share (blue color) of the economy an extra 18 points - - caused by even more expanded socialistic spending (not intended by our nation's founders), at rates many times faster than growth of the general economy.
Now the productive private sector (having lost 27 points) is not much bigger than the government-controlled share of the economy;
a long fall from its prior position of being from 5 to 7.3 times larger than government.
American has become 39% socialistic, leaving only 61% FREE, a tremendous move from the first chart of 12% socialistic and 88% free.
Note: the 39% government share (red slice) is nearly exactly the same ratio as that derived by another method, as shown in the Tax Report - - which shows the average citizen must work 5 months per year to earn his share of all government taxes needed to fund that spending. This equates to working 39% of the year to earn all taxes (from all sources) required by our federal and state/local governments.
Note #2: the 39% share of the economy for government spending in the above chart is understated compared to past years since the measurement criteria for national income (and inflation) was recently changed in a dramatic way.
NOTE: had the National Healthcare Plan of 1993 been implemented, the Government red slice above for 1999 would have jumped at least 8-10 points to about 50%, reducing the above Private Sector blue slice to half - - effectively causing the 3rd major social spending surge in U.S. history. Perhaps those interested in another social spending surge will continue to try again.
QUESTION: Who was it that said: "Government that governs least governs best"?
ANSWER: Thomas Jefferson. (the above charts show America's massive departure from the wisdom of his warning).
QUESTION: Who was it that said family income, saving, living standard AND freedom growth depend on the capacity of the private sector?
ANSWER: Just about every economist in the world, including the Economic Report of the President to Congress.
NEXT QUESTION: If most say nearly all eggs belong in the private sector basket for the sake of good and secure jobs with long term real income growth, then why have we allowed government to grow faster than the economy - - and thereby shrink the relative size of that important private sector and its capacity to generate good stuff?
ANSWER: There can be but one answer. Those in control in recent decades have been more interested in government expansion, political power, control and dominance, than in families and children and their freedom to choose - and more convinced that big government knows better than families what is good for them, or for children than their parents. What else explains the result?
QUESTION: Who said government has too much power?
ANSWER: 63% of those answering the 1997 poll conducted by Opinion dynamics and Fox News. (pg 21, The American Enterprise, Nov/Dec 1997).
QUESTION: Who said the federal government creates more problems than it solves?
ANSWER: 72% of those polled March 1995, conducted by Hart/Teeter Research for the Council of Excellence in Government.
LAST QUESTION: Who was it that said today's average citizen should spend 5 months per year just to earn all income, sales, excise and property taxes (plus debt loads), compared to but 1.4 months working in government servitude in prior generations? It stands to reason, the more you work to pay government the less of your work effort is left over for your own use today and for your future.
ANSWER: I don't know the answer, but the facts are that the average citizen today does spend 5 months per year at his job to pay his 'fair' share of all taxes to meet this government growth. Pro-big government advocates obviously believe bureaucrats are better at deciding what to do with ones earnings than families and workers making their own decisions.
And, WHAT HAPPENED?
While there are so many wonderful things about our great nation, as summarized in the Celebration Report, there are also some troubling items that need attention. If we understand the negatives then we have the chance to make the nation we hand over to our children and grandchildren even better.
For the first 1 ˝ centuries following our Constitution, American government stuck to the 4 principal reasons for government. As documented in the Federalist Papers of 1787, Alexander Hamilton, etc., the framers of our Constitution outlined but four (4) principal reasons for government to assure our welfare: (1) national defense, (2) preservation of peace between states (civil wars, riots), (3) trade between states & nations, and (4) international relations. If successful in carrying out those principals, it was believed the 'welfare' of citizens would be assured. (note- this was their meaning of the word 'welfare', not income distribution and entitlements). As further evidence of original intent, for the following 1 ˝ centuries the federal government stuck by those principal reasons, and by the late 1920s was still consuming/controlling only about 3% of national income (the economic pie), as shown by chart bottom of page. Taxation was used only to pay those bills. Such principals did not include such items as social welfare, entitlements and income re-distribution functions. We were a nation that used government primarily only for those 4 principals, relying on ourselves for all other needs. This history is covered in A Road to Serfdom & Legacy.
Starting with the New Deal in the early 1930s, America embarked on a course not included by her founders in their 4 principal tasks of government. We imported from Europe the concept of Big Government and socialization of the economy. (note: its amazing that we would listen to 'ideas from Europe' since much of our nation was formed by those fleeing European history and its reliance on big-government and centralized power). The next leg up started after WW II, and gained a tremendous acceleration with the Great Society of the 1960s. America had started along an un-charted path, of increased citizen servitude and government-dependence - - and, the 'chickens are coming home to roost.' Despite these two (1930s and 1960s) surges in government expansion, there was a major attempt in 1993 for a third surge, being the National Healthcare Plan - - which sputtered, but may not be considered fully aborted - - despite clear evidence of the world-wide failure of dominant government and socialization, and the resulting reduction of citizen freedoms and economic opportunity therefrom. Since the 1920s, the federal government share of the economy has zoomed from a 3% share to a 25% share (8 fold increase) (Federal Budget Report). And, state & local government's share of the economy has increased 2-3 times (State & Local Government Report). Nearly all of the increase is in the 'social arena', a category not included in the 4 principal reasons for government.
And here's a few resulting items: 2 ˝ decades of stagnant inflation-adjusted median family incomes, and declining savings to historic lows and soaring household debt to historic highs (see Grandfather Family Income Report), largest debt ratio in 4 decades with nearly half all federal debt in history created in the first 6 years of the 1990s (see Grandfather Debt Report) yet our founding forefathers intended debt only during war-time provided paid-off thereafter, 70 % erosion of our dollar (see Grandfather Foreign Exchange Report), poor international competitiveness (see the Trade Report), poor national productivity and savings (see the Productivity Report), terrible education productivity (see the Grandfather Education Report), run-away social spending (see Social Report), etc., etc. (for a listing of all reports, visit the Home Page). And, these only describe some of the economic ramifications - - not the biggie: freedom of choice - - and the attendant ramifications eroding our beloved society such as family values, reduced education quality, drug use of our youth, increasing majorities of children without full-time moms, etc. Additionally, the Tax Report shows the average citizen must work 5 months per year just for taxes to pay for this spending, compared to but 1.4 months required in prior generations. Did our nation's founding fathers intend this?
And, WHY DID IT HAPPEN?
We see the dramatic pie chart trends above. We saw the trend chart on the prior page in the Government Spending Report , which reported increases faster than the economy for social spending per the Federal Budget Report and the dramatic increases in the State & Local Government Report, with rising Debt and Regulations. These trends happened because pro-government forces sold the 'free-lunch' concept to voters, and we fell for it. We have turned over more and more responsibility and control of our lives to government. But, the Voter Report shows a declining rate of citizen participation in national elections, indicating that a lower and lower percentage of voting-age citizens feel there is something they as citizens can do to turn this around. And, the Trust Report shows trust in government declining to near an all-time low. A sad commentary on a representative democracy. What about the next generation?
|This chart combines, in bar form, all 3 Chart periods we saw above.
The red bars in this chart show the upward march of combined government spending growing 4 times faster than the economy - - from a 12% share to the 39% share today.
The blue bars in the chart show the reciprocal downward slide of the private sector's share of the economy, as it lost 27 points to government spending growth - - from an 88% share down to a 61% share in 1999.
Was 12% of the economy enough - - or should government control more than today's 39% of the economy? The correct answer certainly should not exceed 20% which most Americans believe sufficient, although even that ratio would probably be considered excessive by our nation's founders.
|The above charts all show government spending as a share of the economy over time - with government's share today at about 39% of national income. But, government spending is not the only item by government that reduces the private sector's share of the economy. Not only must the economy cover government spending but we must also pay for the costs to comply with government regulations - - since government officials create and mandate regulations on the private sector which further reduces the private sector because government does not 'fund' these costs - nor does it budget them. The cost to comply with said regulations is just as much an economic impact caused by government as is government spending.
The rising red bars in the left chart represent the sum of government spending plus regulation compliance costs mandated by federal, state and local government. You will note the latest year shows the government spending-regulation combination at about 55% of national income (39% spending plus 16% regulatory compliance costs) - - compared to about a 13% share in the past.
This means 55% (6.6 months per year) of a worker's income is needed to cover government - - 5 months to cover government spending and another 1.7 months to cover mandated regulatory compliance costs.
The declining blue bars in the left chart represent the residual share of the economy remaining to the private sector after subtracting combined government spending and regulatory compliance costs - - as the private sector share dwindled from about 87% of the economy in the past to a 44% share today.
The Grandfather Regulation Cost Impact Report (at: http://home.att.net/~mwhodges/regulation.htm ) shows mandated regulatory compliance costs are about 16% of national income. Dramatic pictures in that report, with reference to a learned study.
What national policy actions are suggested by these charts to enhance the economic future and security of our children & grandchildren, and how can such actions be encouraged? It is my view that the share of our economy now controlled by government should be downsized to a level that does not exceed the historic norms that occurred before and right after World War II. This report is a section in the series of Grandfather Economic Reports , which are aimed to provide information about economic threats facing families and their children, compared to prior generations - with recommendations.
This author has developed a set of graphics showing a format approach for setting possible targets for government spending and private sector ratios in the ACTION PLAN TARGET REPORT, in case you would like to view same. Perhaps you will use this model to develop your own set of targets - - and share with the author via email.
This grandfather hopes the presentation is useful and informative by displaying real data by a method that is easy to understand.
There is no attempt to point fingers, or play politics. Its about our children and grandchildren and what type of economy we want to leave to them. More government or less? Contacting your congressional representative and informing your friends and family members might help if you are as concerned as we.
- a series of mini-reports documenting challenges to the economic future of families and their children, compared to prior generations - the home page contains an index of subjects with graphic presentations reviewing: Family Income, debt, savings; government spending and size, education quality, social security, regulations, taxes, inflation, foreign trade and exchange, voter turnout, trust, celebration, and health care/life expectancy
Data Sources: Bureau of Economic Analysis, Commerce
Department, and 'Economic Reports of the President to Congress
- Feb 1995 and 1999'.
Several data and sources, inputs, and encouragement were provided by Nobel Laureate Economist Milton Friedman. The comments & charts are the author's.
Income data (instead of GDP data) is used
to measure the net size of the economy, because such was firmly
recommended (as the only proper method) to this author via written
inputs from Nobel Laureate Economist Milton Friedman.
The measure of National Income is exactly as calculated by the
Dept. of Commerce's Bureau of Economic Analysis. Some of the reasons
to require use of national income instead of GDP data are the
fact GDP overstates economy size by such items as: GDP includes
double counting - such as indirect business taxes & transfer
payments. Further, GDP treats the consumption of fixed capital
as something earned instead of consumed; the Commerce adjustments
were used for capital consumption. Additionally, National Income
takes into account net factor income payments to and from the
rest of the world. [there is an increasing spread between National
Income and GDP plots (from a 3 point difference in the 1950s to
10 points today), which is due to net factor income from rest
of world going from positive to negative against America, and
an increased ratio of fixed capital consumption]. Such factors,
as well as Dr. Friedman's inputs, must not be ignored. (In any
case, the objective of this report is to show relative trends
over time using clean, arms-length data.) National income and
spending data used in this report are from such sources as the
Bureau of Economic Analysis (Commerce), tables within the 'Economic
Report of the President to Congress, Feb. 1999'. (Commerce spending
data indicates federal grants to state & local governments
is in federal expenditures but does not indicate if same is in
state & local spending; should it be in both then the federal
portion of the charts above would be reduced about 2% points).
Freedom School is not affiliated with the links on this page - unless otherwise stated.
Freedom School information served for educational purposes only, no liability assumed for use.
The information you obtain at this site is not, nor is it intended to be, legal advice.
Freedom School does not consent to unlawful action. Freedom School advocates and encourages one and all to adhere to, support and defend all law which is particularly applicable.
Copyright© 2003, 2008
All Rights Reserved
H O M E