GOVERNMENT CONTRIBUTIONS TO GDP

GDP is essentially personal spending + business spending + government spending so GDP depends on all three kinds of spending.  One of the things that you don't hear about contributing to our slow recovery from the Great Recession is that government spending is a drag on the GDP (see figure).*

It is seen that during the Obama administration, the effect of government spending on GDP has been negative, except for one year that barely peaked into positive territory.  The negative effect of government spending during the Obama administration has been the most negative during the last 50 years, even more so than the recession of the early 1970s.  The worst quarter subtracted three-quarters of a percent from GDP.  From peak to trough the maximum effect looks like a 0.75% boost (since 1990) to a 0.75% drag on the economy or a range of around 1.5% total change in the GDP that is quite significant.

The large effect of government spending in the 1960s may be due to space programs such as Apollo.  For example, the total cost of the Apollo Program in 2008 dollars is $97.9 billion during Fiscal Years 1960-1973.  In terms of GDP, the peak year consumed 0.4% of the GDP.**  It also consumed 5% of the Federal Budget.


** http://fas.org/sgp/crs/misc/RL34645.pdf