State and Local Government Spending vs. Private Sector Spending

In my latest chart, I take a look at the long-run growth patterns of state and local governments compared with the private sector. These governments depend almost entirely on the private sector for their resources. Just about every dollar they spend is borrowed or taxed from the private sector. (Either these governments directly borrow or tax, or the federal government borrows and taxes and then transfers the funds to the states and localities.)

Yet decade-in, decade-out, these governments have grown at a faster pace than the private sector on which they depend. I used National Income and Product Account data from the Bureau of Economic Analysis and adjusted it for inflation. I then plotted each year as a multiple of its value in 1950. This allows us to see that after 60 years of economic growth, the private sector is more than 5 times the size it was in 1950. Unfortunately, over that same time period, state and local governments have grown nearly 13 times their 1950 size. This is what economists mean when they say that government spending patterns are not sustainable.