ANALYSIS: Why the Federal Government Keeps Growing

News Analysis

In January 1948, then-Federal Reserve Chair Marriner Eccles, who had served as chief of the U.S. central bank since 1934, was terminated by former President Harry Truman. The reasons given for the decision varied—from inflation management concerns to tighter federal regulations. But Sen. Robert Taft (R-Ohio) claimed that Mr. Eccles told the Joint Congressional Economic Committee that he proposed “a rigid government economy,” resulting in his dismissal by the White House.

Is this dream of a government-run economy being more realized as the years pass?

The federal government has grown exponentially over the last 75 years. For example, as of July 27, 2023, there were more than 47,000 pages in the Federal Register. Or, as another instance, since 1948, federal spending has exploded about 16,000 percent, reaching close to $6.5 trillion in the fiscal year 2023.

But 2023 has already been a year of tremendous growth in the size and scope of the U.S. government.

Government Lifts the Labor Market

Since 1940, government payrolls have been on an upward trajectory, growing from around four million workers to nearly 23 million today.

Over the past year, government employment levels have swelled by 600,000, representing nearly a fifth of all job growth. In the first half of 2023 alone, federal, state, and local governments added 380,000 employees, outpacing several industries, such as leisure and hospitality, health care, professional and business services, and social assistance.

The 380,000 new hires are more “than any industry in America,” the Committee to Unleash Prosperity noted. “It was more than mining, manufacturing, construction, wholesale, and transportation—COMBINED.”

Experts say that the health care and social assistance sectors already depend a lot on government funding, so much of their growth has been the result of the state. With Washington allocating tens of billions of dollars from the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act to various private industries, be it microchips or electric vehicles, the government is financing employment growth.

In Jeffersonville, Ohio, two new LG and Honda factories will be established, costing federal and state taxpayers about $22 billion. The plants are expected to create 4,200 new jobs, meaning each position will cost taxpayers $4.3 million.

Ford is partnering with Chinese battery maker CATL to develop a plant in Marshall, Michigan. It is estimated that every new green job will cost taxpayers $3.4 million.

“To get to its targets, the Biden administration is deploying lucrative tax credits that are costing millions of dollars per ‘green’ job,” wrote the Institute for Energy Research.

How much tax money is being used to create jobs in the American economy? The tally has not been finalized.

Spending Explodes in America

In the second quarter, the U.S. economy expanded 2.4 percent, topping economists’ expectations and rising from the 2 percent growth rate in the previous three-month period. At the same time, the headline figure had the White House and markets cheering, but underneath the surface provided a bit more of a complicated situation.

According to the Bureau of Economic Analysis (BEA), government consumption contributed nearly 0.5 percent to the final GDP number. In the April-to-June span, real government consumption expenditures and gross investment climbed close to 4 percent over the last year.

“Simply put, gov’t spending is growing 65% faster than your spending,” EJ Antoni, a Heritage Foundation public finance economist, posted on Twitter on July 27.

“The latest GDP report shows anemic, and largely unsustainable, growth in the private economy while gov’t continues growing.”

Federal spending has risen at notable levels over the last year. The 12-month rolling deficit from July 2022 to June 2023 is $2.2 trillion, driven by a 14 percent increase in nominal spending to $6.7 trillion. Since 2019, federal spending has exploded by 40 percent and is already on track to top 50 percent.

But the collapse of fiscal discipline is a trend that dates to 2000, says Chris Edwards, a Cato Institute economist.

“Nondefense spending in 2023 is 18.6 percent of GDP, up from 12.6 percent in 2000. Thus, nondefense spending gobbles up a 48 percent greater share of the economy today than two decades ago,” Mr. Edwards reported. “Nondefense spending of 18.6 percent of GDP this year is $4.9 trillion. If we had restrained spending to the [President Bill] Clinton level of 12.6 percent, we would have saved $1.6 trillion this year, enough to wipe out the deficit and balance the federal budget.”

This behavior is flooding the nation with debt. The Congressional Budget Office’s (CBO) latest Long-Term Budget Outlook estimates that federal debt held by the public will exceed 180 percent of the GDP by the end of fiscal year 2053. Even in alternative scenarios, the debt-to-GDP ratios could tumble to as low as 132 percent or spike to 300 percent.

From Federal Reserve Chair Jerome Powell to former Treasury Secretary Larry Summers, many experts agree that this is leaving the U.S. economy on an unsustainable path.

“The faster debt grows, the more it will slow economic growth and boost interest rates—which not only lowers income and boosts costs for households, but also further undermines U.S. fiscal sustainability,” the Committee for a Responsible Federal Budget stated in a recent analysis.

Government Growth to Persist

In 2022, the White House published a report entitled “The Public Sector’s Role in Economic Growth.”

Administration officials asserted that the United States has witnessed weak economic growth since 2001, caused by “the retreat of the U.S. public sector from its complementary role vis-a-vis the private sector in economic growth.”

“As a result, when the public sector stepped back, economic growth diminished and became less evenly shared. The private sector did not lose a rival; it lost a partner,” the report stated.

The federal government “must invest today” to grow the economy tomorrow and “requires sustained effort,” the White House noted.

“A core aim of the Biden-Harris Administration’s economic policy agenda is to restore the public sector as a partner in long-run growth, with a particular focus on the economy’s supply side—from physical infrastructure to the vitality of our workforce.”

The current administration has made it clear that the expansion of the federal government will persist all in the name of the economy.

Could Mr. Eccles’s vision of seeing a government-run economy be realized? This remains to be seen, but the data show that the government is growing enormously.