Total spending by the federal government relative to the GDP is shown by the solid line in Figure 26.1. Total spending grew significantly from less than 5 percent of GDP to about 10 percent during the 1930s; then it rose dramatically during the war reaching more than 40 percent of GDP. There was, understandably, a cutback after the war, but then total federal spending grew slowly relative to the GDP until about 1980, when it reached 20 percent of GDP. In the early 1980s, however, this ratio began to decline. After 2001 it began to move up again, and after the financial crisis in 2008 which produced an increase in government spending to stimulate the economy and lower GDP, it spiked upward reaching 25 percent of GDP. Next we will discuss the origin of these trends in detail, tracing them to domestic trends, particularly to the ideological battle between liberals and conservatives, and to international developments. Although the movements have been important, especially in terms of politics, it is important to note that these movements have been limited and have tended to cancel out. As late as 2007 this ratio was not very different from what it had been in the late 1950s.
FIGURE 26.1
Two Measures of the Size of the Federal Government as a Percentage of GDP, 1929-2011
C] (M (M
Source: Historical Statistics 2006, table Ca120-134; Economic report of the president 2012, tables B1, B20, and B78.
World History
