By at least one measure, government is playing an unprecedented role in the economy: In recent months, more than 30 cents of every dollar in personal income came directly from the government, new Commerce Department data show.
That's equal to about $3.8 trillion of $12.5 trillion in total personal income on an annualized basis.
Transfer payments (income support and health insurance benefits) ticked up to a record 18.4% of personal income last month. Another roughly 12% of income came from wages and benefits to current government employees at the federal, state and local levels.
Transfer payments as a share of personal income are up by nearly half from 12.7% in 2000 and more than a quarter from 14.4% in 2007. The growth is a combination of the inexorable rise of spending on Social Security and health care entitlement programs, as well as a spike in unemployment compensation, food stamps and Medicaid due to weak labor markets.
USA Today reported this week that 1 in 6 Americans are being served by anti-poverty programs.
However, unemployment outlays are down sharply since the start of the year as much more than a million workers have exhausted extended benefits of up to 99 weeks.
Although government spending is on an unsustainable path, the surge in spending has helped to offset weakness in the private economy. Inflation-adjusted personal income less government transfer payments remains 5.5% below its December 2007 peak, yet personal income is down just 1.8% in real terms.
Because transfer payments are up and tax payments are down, real disposable income is up 2.7% since the start of the recession.
Private wages and salaries remain down 8.4% in real terms since December 2007. Private wages are now just 1.3% off the bottom hit in February, which, sad to say, was the same level first reached in March 2001.
By contrast, government wages are up 3.8% since December 2007.
Meanwhile, real non-salary compensation (both private and government) is up 4.1%, likely reflecting rising health care costs and perhaps some catch-up pension contributions.
Government wasn't exactly small before the recession started. Government paid more than 25 cents of every dollar in personal income in December 2007, up from about 23.5 cents in 2000. The level topped 27 cents per dollar in the wake of the 1991 recession and reached a prior record of 28 cents in 1975.
During the Great Depression, when fiscal stabilizers and safety nets were in their infancy, the government share of personal income peaked at just over 16%. Even during World War II, when the government payroll ballooned, its share of personal income only briefly approached 25%, falling back below 20% until the 1960s.
The government share of personal income is an incomplete measure of the size of government's role in the economy because it doesn't include direct spending. A better, though imperfect, measure would be the combined size of federal, state and local government budgets as a share of GDP.
By this measure, government was much bigger during World War II, when the federal budget topped 43% of GDP. While state and local spending information is out of date, combined government budgets probably will be in the neighborhood of 40% of GDP this year.
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