In January 1948, then-Federal Reserve Chair Marriner Eccles, who had served as chief of the U.S. central bank since 1934, was terminated by then-President Harry Truman. The reasons given for the decision varied—from inflation management concerns to tighter federal regulations.
But Sen. Robert Taft (R-Ohio) claimed that Mr. Eccles told the Joint Congressional Economic Committee that he had proposed “a rigid government economy,” resulting in his dismissal by the White House.
Is this dream of a government-run economy being realized more as the years pass?
Government Lifts the Labor Market
Since 1940, government payrolls have been on an upward trajectory, growing from about 4 million workers to nearly 23 million today.Over the past year, government employment levels have swelled by 600,000, representing nearly a fifth of all job growth. In the first half of this year alone, federal, state, and local governments added 380,000 employees, outpacing several industries, such as leisure and hospitality, health care, professional and business services, and social assistance.
The 380,000 new hires are more “than any industry in America,” the Committee to Unleash Prosperity noted.
“It was more than mining, manufacturing, construction, wholesale, and transportation—COMBINED.”
Experts say that the health care and social assistance sectors already depend a lot on government funding, so much of their growth has been the result of the state. With Washington allocating tens of billions of dollars from the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act to various private industries, whether microchips or electric vehicles, the government is financing employment growth.
In Jeffersonville, Ohio, two new LG and Honda factories will be established, costing federal and state taxpayers about $22 billion. The plants are expected to create 4,200 new jobs, meaning each position will cost taxpayers more than $5 million.
Ford is partnering with Chinese battery maker CATL to develop a plant in Marshall, Michigan. It’s estimated that every new green job will cost taxpayers $3.4 million.
How much tax money is being used to create jobs in the U.S. economy? The tally hasn’t been finalized.
Spending Explodes in US
In the second quarter, the U.S. economy expanded by 2.4 percent, topping economists’ expectations and rising from the 2 percent growth rate in the previous three-month period. At the same time, the headline figure had the White House and markets cheering, but underneath, the situation is a bit more complicated.“The latest GDP report shows anemic, and largely unsustainable, growth in the private economy while gov’t continues growing.”
Federal spending has risen at notable levels over the past year. The 12-month rolling deficit from July 2022 to June 2023 is $2.2 trillion, driven by a 14 percent increase in nominal spending to $6.7 trillion. Since 2019, federal spending has exploded by 40 percent and is already on track to top 50 percent.
But the collapse of fiscal discipline is a trend that dates to 2000, according to Chris Edwards, a Cato Institute economist.
From Federal Reserve Chair Jerome Powell to former Treasury Secretary Larry Summers, many experts agree that this is leaving the U.S. economy on an unsustainable path.
Government Growth to Persist
In 2022, the White House published a report titled “The Public Sector’s Role in Economic Growth.”Administration officials asserted that the United States has witnessed weak economic growth since 2001, caused by “the retreat of the U.S. public sector from its complementary role vis-a-vis the private sector in economic growth.”
“As a result, when the public sector stepped back, economic growth diminished and became less evenly shared. The private sector did not lose a rival; it lost a partner,” the report stated.
The federal government “must invest today” to grow the economy tomorrow, and its role in advancing the economy “requires sustained effort,” the White House stated.
“A core aim of the Biden-Harris Administration’s economic policy agenda is to restore the public sector as a partner in long-run growth, with a particular focus on the economy’s supply side—from physical infrastructure to the vitality of our workforce,” it stated.
The current administration has made it clear that the expansion of the federal government will persist all in the name of the economy.
Could Mr. Eccles’s vision of a government-run economy be realized? That remains to be seen, but the data show that the government is growing enormously.