Is Gov't Now Too Big To Succeed?

IBD Editorials ^ | May 24, 2011 | J. T. YOUNG

[Kaslin]

The current recovery's slowness is often noted, but not explained. Despite economic growth's resumption it lags earlier recoveries — most notably in employment. Hard-core liberals complain still more government intervention is needed.

However, historical comparison shows government's size and its response have never been greater, albeit to less effect. The recession's mantra has been too big to fail; in the case of the government's size and role in the recovery, perhaps it should be too big to succeed.

The recent recession is the worst since the Great Depression, yet the differences in the government responses — and the economic recoveries — are striking.

From 1933 through 1940 (just before WWII's rearmament boom), federal government spending averaged 9.4% of the nation's economy. In doing so, Washington ran an average annual deficit equal to 3.6% of GDP. During that time, the economy's average annual growth was 7.4% in nominal terms.

Including the nonpartisan Congressional Budget Office's assumptions for 2011, since 2008 federal government spending has averaged 23.4% of GDP annually. In doing so, Washington has run an average annual deficit equal to 7.9% of GDP. Yet during this period, the economy's average annual growth has been just 2% in nominal terms.

Inverted Response

As percentages of GDP, the current deficit is almost equal to total federal spending during the New Deal, while current federal spending is over 2 1/2 times greater than total federal spending under the New Deal.