Earlier today, in an attempt to develop a thumbnail metric for how socialist and capitalist a national economy is, I examined where 26 counties fell in a public-private mixed economy continuum. While much of the discussion on the story involved whether this was the proper use of the term "socialism" (some people can get really sensitive over which broad, vague signifiers should be applied to abstract concepts), the lead item of the story remains powerful. Namely, over the last two years, public expenditures as a percentage of GDP has risen dramatically in the United States, from 35.5% in FY 2007 to a projected 44.7% in FY 2009. Outside of World War Two, this is the largest the public sector has been in the US relative to the nation's GDP. The two-year increase of 9.2% is also great than any experienced outside of World War Two. Here is a graphical illustration of trends from 1900 through 2009:
There have been similarly rapid increases in the past, though perhaps not a single, 7.7%, jump that was not directly related to war, which we experienced from 2008-2009.. From 1929 to 1933, public spending rose from 11.3% to 22.4% of GDP. From 1948 to 1954, public spending rose from 20.5% of GDP to 29.3%. On a slightly smaller scale, we went from 30.2% to 34.0% from 1974 to 1976. The sharp, upward climbs punctuating long eras of stability are shown on the graph by the black line and the red arrows.
The two previous, sharp upward gains, from 1929 to 1933 and from 1948 to 1954, were never reversed. The pre-1930 status quo of 11-12% was erased permanently by post-1929 spending. The pre-1948 status quo of around 20% was erased permanently by the 1949-1954 spending increase. The upward movement in the mid-1970's was also never reversed, as we stayed in the mid-30% range for the next 30 years. As such, one of the main question for our times is whether the recent upward shot into the mid-40% range will ever be reversed.
I think that it is important to consolidate our new status in the mid-40% range as, combined with a shift in public expenditures, it would allow us to enter a Western European realm of social investment. Consolidating this upward increase will require finding new sources of government revenue that are easier, from a political perspective, than cutting down the size of the public sector. There are avenues through which that can be achieved, and I will explore them tomorrow (hint: expanding Social Security revenues by eliminating the income cap is both very popular and lucrative). For now, it should suffice to note the historic shift that has occurred, and also the tremendous opportunity it presents the American left. Given that it has been about 60 years since a shift of this magnitude last occurred, it is possible that we won't get another opportunity like this again in our lifetimes. As horrible as the economic downturn has been, it really is a crisis / opportunity point for the American left.
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