Forty percent of gross domestic product "is state, local, or federal money."
Cokie Roberts on Sunday, October 4th, 2009 in appearance on This Week with George Stephanopoulos
Cokie Roberts says government accounts for 40 percent of GDP
Part of the frustration voiced by critics of President Barack Obama stems from the notion that the government has simply grown too big. But just how big is the government?
ABC News commentator Cokie Roberts offered one estimate: Government spending accounts for 40 percent of gross domestic product.
Here's what Roberts said on the Oct. 4, 2009, edition of This Week With George Stephanopoulos :
"You know, right now, 40 percent, 40 percent of GDP is state, local, or federal money. I mean, that's an incredible number. So that, you know, adding more [government spending] to that, I think, is going to ... distort things even more. And the public is so concerned about it."
Could such a large number possibly be right? We contacted economists familiar with this topic to give us an idea of what goes into these numbers. And wading through the data is messy indeed.
Marc Goldwein, an economist with the New America Foundation, framed the conundrum in this mind-bending fashion: "What percent of GDP is made up of government spending is a different question from what government spending equals as a percent of GDP."
That's because when a government "transfers" money — such as through Social Security — it is shifting money around rather than spending it directly. "This can have real and large effects on GDP, but it does not directly impact GDP, since tax and transfer policies simply take money that one person could be using for consumption or investment and give it to another person to use for consumption or investment," he said.
The decision to exclude transfers underlies one set of federal economic statistics — the so-called National Income and Product Account data collected by the Commerce Department's Bureau of Economic Analysis. Using these figures, direct government consumption and investment amounted to just under 20 percent of GDP in 2007, the most recent year available. That's only about half of what Roberts said it was.
But there's also a second way of thinking about this question — and using this method brings the percentage closer to what Roberts cited.
Adding all federal spending, including transfers, for 2008 ($2.98 trillion) to state and local government spending (estimated to be between $1.72 trillion and $2.2 trillion) gets government spending to between 33 percent and 35 percent of GDP.
This, too, is short of Roberts' 40 percent -- but there's an important caveat. This year, the recession has driven federal spending higher (think of the stimulus package) and sent GDP lower (due to slumping economic activity). These twin developments could spike government's percentage of GDP for 2009, quite possibly above 40 percent, although this rise could be offset somewhat by lower state and local spending, since many states are constitutionally bound to balance their budgets and must cut back as tax revenues decline.
Obviously, this sort of calculation is tricky on a number of levels. Most importantly, the nation is in the midst of a recession and engaging in deficit spending to get out of it — yet the data that are available have not caught up to the new reality. So, while the government's percentage of GDP for 2009 and beyond is likely to rise, saying so requires the use of preliminary estimates and educated guesses rather than hard data.
Still, we spoke to several liberal and conservative economists, none of whom objected to including transfers in the data, and all of them said they expected the 2009 figure to be either 40 percent or close to it. Still, using the latest data, Roberts is off by 5 percentage points. So we find her claim Mostly True.