"America has been more than fifty percent socialist for many years & we are not getting our money's worth." – Professor Friedman in 1996
By this the great libertarian professor meant that when federal, state, & local government spending is added to the mandates on private spending that governments impose, the total is more than 50% of the output of the country - i.e., the share that is controlled by the government. This is the equivalent of saying the government owns more than 50% of the means of production.
In the calendar year 2021 the GDP (total production of new goods & services) was $22.99 trillion. The federal government had current expenditures (i.e. spent) of $7.02 trillion of which $1.56 trillion was part of the nation's GDP - no part of government spending, including for defense, is a good part of GDP regarding building wealth in America. The other $5.46 trillion represents the sum of federal government interest payments & transfer payments to individuals & businesses - which form the cornerstone of America's welfare system.
In addition, state & local governments had current 2021 expenditures of $3.24 trillion of which $2.49 trillion contributed to the GDP bringing total government spending in 2021 to $10.22 trillion.
All of the above spending figures are from the Bureau of Economic Analysis (BEA) & equal 44.5% of America's GDP in calendar year 2021. When added to the government's mandates on private spending (environmental, OSHA, workplace, building & zoning requirements including renovations to comply with new codes & the requirements for off-track improvements like the Mount Laurel Affordable Housing fee, & the employer mandate for healthcare) the trend tips toward the more than 50% socialist bent that Professor Friedman described.
The majority of the rest of this post is based on Brian Wesbury's presentation @ Hillsdale College on November 9, 2021.
Consider the growth of transfer payments. In 1930 there were none. By 1959 transfer payments from the government equaled 6% of all personal income. By 2012 they equaled 17.8% & by 2020 they had grown to 21.6%. $2.16 out of every ten dollars of national income were transfer payments from the government.
The following graph shows the growth of non-defense federal government spending as a percentage of GDP.
America went from spending 2.5% of GDP in 1930 to 27% of GDP in 2020 on non-defense expenditures, meaning that over the past 90 years the federal government has grown 10.8 times faster than the economy by this measure.
Taking selective points from the above graph - in 1935 there were 10 people in the wagon with 90 people pulling; in 1980 there were 17 in the wagon with 83 pulling; & in 2020 there were 27 in the wagon with 73 pulling.
The potential increase in the standard of living for all of America is massive if the 27 people would have jumped out of the wagon & contributed to the GDP like the other 73 people did.
But even more important, someone in the wagon undermines their own self-worth. Their souls die.
Part of the human frailty of wanting to be in the wagon is the trait of always counting on, or looking for, someone or something to provide the strength to get us through the day - when in reality that strength is already there within all of us.
Ayn Rand regarded the greatness of man as a heroic being as one who lives by his own effort, achievement, & reasoning ability & does not give or receive the undeserved, who honors accomplishment, & rejects envy. Consider the following revision of the above graph to show the decline in church membership, hardly the point that Ayn Rand or I are making, on the left scale compared to federal government growth on the right scale - i.e., as people forsake religion their faith in government grew. Government became the savior - the ultimate higher power for weak people - this is the point.
But it is this growth of government spending that has caused the inflation that is today tormenting all but the wealthiest of Americans. Living off of transfer payments, as well as low & even middle class wages can't keep up with inflation. There is no such thing as a free lunch.
In March of 2020 we shut down the economy yet were able to spend 20% more on retail sales in nominal dollars, a measure of spending @ stores, online, & in restaurants (normal increase for the time considered is 7%). All with 4 million fewer people working. And the answer is we printed more money (see graphic below) & gave it to everyone to spend today as if there was no tomorrow. Lose your job in November & spend a full year's paycheck in December on your credit cards.
The year over year headline inflation increase figure for January is 7.5% - this figure is really more in line with the 10+% annual increases in the 1970s due to rent-housing methodology changes that lowers the entire Consumer Price Index. Inflation has been above 5% @ an annual rate since May. Moody's Analytical has calculated that the average household is spending an additional $276 per month because of inflation - determined by subtracting the average 2018-2019 baseline increased by the expected 2.1% inflation from what the average household spent under 7.5% inflation.
The following graph shows the growth of the money supply. During 2020 - 2021, & even now, the production of goods is curtailed because of the Covid-19 pandemic. The Fed & Treasury have increased the money supply during this curtailment of supply meaning the government directly induced too much money chasing too few goods - the definition of inflation.
Look @ the above graph in the 1970s when the money supply grew just under 15% year over year, year after year - substantially slower than the recent 28% growth shown on the above graph. Many in this readership lived through this period where annual inflation was still 15% as late as 1980 - Paul Volker, the great inflation fighter, had been appointed Fed Chairman on August 6, 1979 by President Carter. In fact it took until February 1982 before inflation dropped to 7.6% - the last time inflation was higher than it is now. The graph below shows the CPI growth from 1967 to the present.
The point is it took several years for inflation to be tamed by Volker even with President Reagan helping on the supply side. Today, we have Biden nominating Fed officials who have no interest in taking the steps necessary to bring inflation under control - regardless of what they say during Senate hearings.
In fact, the current Fed has produced the loosest monetary policy in its 108-year history as even, @ this late date of high inflation, the Fed is still purchasing bonds, albeit @ a slower rate than in 2021. It should have already ceased the QE bond buying program & called an unscheduled meeting to raise interest rates - not wait for the March 15-16 meeting.
But the Biden administration, working through the Fed, doesn't have it in them to stop the monetary cancer known as inflation - & it is insidiously showing.