Wednesday, February 04, 2009

Wagner's Law 

According to Wikipedia: "Wagner's law predicts that the development of an industrial economy will be accompanied by an increased share of public expenditure in gross national product."
From Captain Capitalism, who notes:
Imagine, it was in 1900 that the US government only taxed us at a 2.5% rate. Then, after each successive war, the government has found it necessary to boost its take of economy to today, where including Obama's bailout, I estimate the federal government ALONE will take 30% of GDP in 2009.
I have some question about how he gets to 30%. Figuring GDP of about $15 trillion means we need to find $4.5T of spending; currently spending is forecasted at $3.5 trillion. The stimulus bill that passed the House would add only $108 billion to that in FY 2009 (the Senate version speeds that up to $132b.) So we can quibble about whether it's 25% or 30% or whatever. But Aaron's point is nevertheless correct: After each war, the ratio of government spending to GDP doesn't typically recede to the old level.

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