What does the government spend money on? People, mostly
When the gross national product for the second quarter of 1988 was published recently, the public read that it rose at an annual rate of 3.1 percent and saw how it compared with the 3.4 percent annual rate for the first quarter of the year. The reports may have included numbers for government spending, but they often did not say much, if anything, about what the government spends its money on. The answer is primarily on people.
We know there is more to ``government'' in the United States than the ``federal'' government. But many people do not realize that state and local governments contribute roughly 1 times more to GNP spending than does the federal government. State and local governments annually outspend the federal government by roughly $100 billion (in deflated dollars).
More than 70 percent of state and local government spending is for services, not things. And nearly 80 percent of the money spent on services is for pay and benefits to employees. Another 10 percent of state and local government spending is for nondurable goods.
Less than 20 percent of all nonfederal government spending is for things of any permanence like school buildings, roads, and bridges.
Then what about the federal government, what about all that money for national defense? National defense commands about 80 percent of total federal government spending.
We are often reminded that much of the federal government's efforts are devoted to defense, but it is always a surprise to realize that 80 percent of the federal effort is paid to protect the country.
We think of the president as running the country. In the presidential campaign now under way the candidates talk about child care, education, drugs, welfare, plant closings, civil rights, justice, abortion, and separation of church and state. But 80 percent of running the country, in monetary terms, consists of paying for the nation's defense establishment.
Before breaking down national defense spending alone, it should be pointed out that payments to all federal employees constitute nearly 40 percent of total US government spending. In the defense sector, about 35 percent of the budget is used to pay employees.
But that doesn't mean we are left with 65 percent to be spent for weapons.
Going beyond the impact of individuals directly employed, the defense establishment is a prime purchaser of services of every kind. Services for defense, excluding compensation for employees, amount to 26 percent of total defense expenditures.
By the time we arrive at the Defense Department's purchases of things, we have already accounted for 60 percent of its total spending.
But even after we arrive at things, we find nondurable things making up 13 percent of the things purchased. Three percent consists of ammunition, food, clothing, petroleum products, and other items that are as much a part of the armed services as ships and planes. Another 5 percent of the budget pays for structures and 14 percent for nonmilitary durable goods.
We are finally at the point where we are ready to purchase military hardware. Aircraft accounts for 11 percent of total defense expenditures; missiles make up 5 percent; ships are 3 percent; vehicles, 2 percent; electronic equipment is 2 percent; and ``others'' make up another 4 percent.
This hardware adds up to a relatively small proportion of defense spending, at 27 percent. They represent an even smaller portion of federal spending at 22 percent; a smaller proportion yet of total government spending at 9 percent; and a fraction of total GNP at 2 percent.
That's about $70 billion a year in deflated dollars, which is no small change. But it is a long way from the $300 billion the federal government spends on total national defense, a longer way from the federal government's total spending of $375 billion, an even longer way from the nearly trillion dollars spent by all governments, and light-years from total GNP of nearly $4 trillion.
Changes in military hardware by themselves will not sustain or devastate a growing overall economy. The US economy is a vast complex of activities, and it is in no way dominated by the hard goods produced for national defense.
These figures are not to be construed as a matter of no economic concern. Compared with a federal budget deficit of about $155 billion, the sum of $70 billion is an extraordinarily large amount.
Mr. Lempert is director of Statistical Indicator Associates in North Egremont, Mass.