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1 J. D. Foster, Statistics and the Role of Government 1 (1998)

handle is hein.taxfoundation/starolegxz0001 and id is 1 raw text is: )ATION February 1998 Statistics and the Role of Government The President has released his Fiscal Year 1999 budget amid swirling stories of budget surpluses. This would be a great time for a national debate on the appropriate activities of the federal government. This debate would tell us not only whether we are spending too much or too little, but, more importantly, whether we are spending correctly to meet some set of carefully delineated objectives. Unfortunately, this seems too complex an issue right now. So instead, we watch our leaders toss largely irrelevant statistics at each other. The ratio qf spending to (D P tells as very little about whether government is big or not. It says nothing at all aboul the appropriate size of government. One such statistic is the ratio of govern- ment spending to gross domestic product (GDP). This figure, which currently stands at 19.8 percent, has fallen below 20 percent for the first time since the mid-1970s. And even with the President's many proposed spending increases, the Office of Management and Budget predicts that the ratio of total federal spending to GDP will fall to 18.6 percent by the year 2003. These developments really have conserva- tives wrapped around the axle. You might think that they would be jumping for joy, but instead they complain that the era of big government is alive and well. How can both statements be true at the same time? How can the ratio of federal spending to GDP be falling, and yet the era of big government continue to reign? Simple. The ratio of spending to GDP tells us very little about whether government is big or not. It says nothing at all about the appropriate size of government. Suppose GDP were to double over the next ten years, and yet federal spending were held constant as additional expenditures for national parks and basic operations were funded out of reduced expenditures due to declining welfare rolls. The ratio of spending to GDP would then be cut in half. But would government's role in society have been reduced? No. Now suppose that GDP and government spending each doubled over the next 10 years, and that population growth was minimal. The ratio of spending to GDP would then be constant, but spending per capita would have essentially doubled and government's role in society would be vastly greater. The ratio of government spending to GDP is only useful in depicting the size of the claim government is laying on the economy. Gov- ernment spending represents resources not available to the private sector. When spent by government, these resources sometimes yield real value to society. Sometimes they don't. When they do not, they represent a net drain. Politicians and pundits like to use histori- cal comparisons of past spending to GDP to make their arguments. But this comparison is useful only to the extent it gives us comfort in the knowledge that the current level of spending relative to the size of the economy is unlikely to sink the economy. Yet there is a statistic that can capture in a meaningful way the change over time in the size of government: real per capita spending. The one sense in which government can be TAY~ FOL By Dr. J.D. Foster Executive Director and Chief Economist Tax Foundation -A- -.-A r17

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