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May 12, 2010

Think Government Isn’t Getting Bigger? Think Again!

This is a simple article with a simple point. 
As I was studying government spending over the next five years, I asked myself “is federal government spending, as a percentage of GDP, going to increase over the next few years?”  This percentage is a true estimation of whether or not government is getting larger or smaller.  From the Obama budget, I got the following total federal government spending projections.

I found our GDP ($14.25 trillion) through Google.  In order to properly project these numbers, I had to give an estimate of what GDP growth was going to be from 2010-2015.  I went with 4% for 2010 (which is very rosy considering we grew at 3.2% in Q1) and 2.5% each year from 2011-2015 (which is higher than most economist estimates).

Starting in 2012, the increases in entitlement spending are going to officially increase the size of government.  With the behavior of our current business cycle, the next recession is likely coming in 2015-16 (at the latest).  Since government has the propensity to grow even faster during recessions, big government is going to be upgraded to obese government.
How does this affect you? 
The less government spending that is involved in your business, the tougher it is going to be to compete.  The economy outside of government spending has to decrease in size.  This is another way that the government crowds out private enterprise.  The more popular way is by borrowing excessive amounts of money, therefore making credit less available to consumers and small businesses.  In this model, government is simply taking more wealth and distributing to areas of the economy it defines as “appropriate.” 
I hope your employer is in one of those areas.

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