Those of us with a political preoccupation tend to divide time into four and two-year increments, corresponding to presidential and congressional election cycles. This artificial division can obscure real long-term changes.
The beginning of the 20th century saw an economy not unlike that of the late 19th century. In the 1920s a booming economy fueled an especially optimistic view of the future. The Great Depression of the 1930s decimated this confidence and the confidence in the ability of a free economy to provide jobs and growth.
We know now that the Great Depression was in large measure caused and prolonged by incompetent actions by the central bank. Nonetheless, the conventional wisdom of the era concluded that an unregulated economy was not only inequitable, but also inefficient.
The real political argument was waged between Liberals and Socialists. Socialists argued for intimate government control of the economy. Liberals conceded the efficiency and productivity of such arrangement, but urged for a different balance between political freedom and efficiency.
Socialists have enjoyed a unique privilege in the last half of the 20th century. They were able to see their policy prescriptions tried and failed in their own lifetimes. Most people now concede the superior productivity of a free economy and capitalism, but search for a balance between economic disparity and economic efficiency.
This seminal change in attitude is reflected in the involvement of the Federal government in the economy. There are many possible metrics of government involvement. One important one is the fraction of the Gross Domestic Product (GDP) spent by the national government.
The graph below shows the fraction of the GDP spent by the Federal government as a function of time starting in 1933. The most conspicuous feature of this graph is the enormous jump in government spending caused by World War II. Everyone can concede that this expenditure was made under extreme circumstances and is not necessarily reflective of long-term trends.
Even neglecting the anomalous WW II spending, from 1933 to the early 1980s, there was a clear upward ratcheting in Federal spending. Unchecked this spendingwould have reached 28% of GDP by the year 2000. From the early 1980s and the ascendancy of Conservative ideology there has been a steady downward trend in the fraction of the GDP spent by the government.
Moreover this declining fraction has occurred at the same time that Social Security obligations are increasing. There is less and less spending on activist programs. This is not an unalloyed blessing for Conservatives. The increase in Social Security spending and the decrease in overall spending will make it
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