Government and GDP

Here is a chart detailing the percentage of government spending regarding the Gross Domestic Product (GDP). Defined, GDP is the market value of all officially recognized final goods and services produced within a country in a given period of time.

Are you as concerned as I am that our government continues to become a larger percentage of the GDP? Should we be concerned? The chart below helps us understand the history of this phenomena.

The government spends in three sectors: federal, state and local. This chart indicates that in the early 1900s (1900-1940) the government's primary spending was at the local level. The spike of government spending at the federal level after 1940 is World War II. As you can see by the chart, after World War II, government spending at the federal level came back down every so briefly before beginning to grow again.

Today (2013), we see that total governmental spending has soared past the 40% mark for the first time since World War II (See the article referenced below.). We also see that governmental spending at the federal level continues to grow while spending at the local level continues to stay relatively the same. In my opinion, this is a very revealing trend. Keep in mind that the spike that occurred in response to the war was a needed. Without the government, the economy would have certainly been adversely affected. Many business were operating far below optimal levels or not at all due to the collective focus on the war. The government had to step in and fill the void, and fill the void, they did, but once the war was over, the government settled back into its normal trend for a few short years before beginning a climb from which it would never return.

Franklin D. Roosevelt's Great Deal was a push towards large government and resulted in a bump of growth in governmental spending, especially in the area of federal spending. The difference between federal governmental spending and state and federal governmental spending is philosophical. A government that feeds itself does not feed its people. A government that becomes a majority part of GDP leaves little room for small business growth.   

If we look at country comparisons regarding size and population we find a interesting trend.

Brazil 41%
Germany 43%
Mexico 24%

If we look at those economies with which we compete, we find these numbers.

China 21%
India 27%
Russia 34%
Japan 37%

The Heritage Foundation predicts that federal spending with grow 69% in the next ten years. This will most certainly increase government's percentage of the GDP past the current 40% mark. What happens to a democracy when the government of that democracy become a greater percentage of the GDP? Those countries with percentages 50% or greater have one thing in common... none of them are true democracies that operate on capitalistic tendencies. They are various forms of federations with the federal government serving as the focal point of the country.

The Heritage Foundation served as an excellent resource for this post. Click HERE to go to an in-depth article by the Heritage Foundation that breaks down these the numbers in greater detail.