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An Age of Illusionists

Posted by Gonzalo Schwarz
November 29, 2012

Remember, all spending is a tax. It has to come from somewhere. It’s coming out of the value of your Dollar.

by Steve H. Hanke

Watching Barack Obama and Mitt Romney duel in the presidential campaign should have convinced the spectators that we live in an age of illusionists. Few of the assertions and conjectures thrown around have been subjected to what the political chattering classes deem to be the indignity of factual verification.

As a point of departure from illusion to factual reality, I present the accompanying chart, which traces the evolution of federal government expenditures, as a percent of GDP since 1952. Based on the data, from 1952 until 2008 — when President Obama was first elected — we would expect, with an assurance of 95%, that the relative size of the federal government would fall in a range of 16.5% to 23.4% (see the accompanying chart).

Since President Obama’s election, in 2008, the federal government has been in uncharted territory. Today, for example, federal government expenditures, as a percent of GDP, register at 24.3%. This is nine tenths of a percentage point higher than the high end (23.4%) of the so-called 95% historical range. For many people and businesses, this unusually elevated level of government spending is a source of uncertainty and anxiety. …

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image: flickr.com/ktylerconk