Government is measured everyday for different reasons and from different perspectives. Some measure government by the number of laws that have been enacted. Others look at the amount of tax revenue that is collected and the size of the operating budget. Still others look at more subjective measures such as the government’s performance or productivity. So what is the proper way to measure government?
Lets focus on fiscal measurements, which are primarily tax revenues, budgets, or government spending. Simply put, governments levy taxes to pay for government services. The more services a government offers, the more taxes need to be collected, either by introducing new taxes or collecting current taxes at higher rates.
Our state and local governments are spending more than they were thirty years ago. A simple analysis of government budgets, along with a calculation of percentage increases from year-to-year during that thirty years, tell us this. While the conclusion that spending has increased seems to be simple and quick, it is not the most accurate and could lead to misinterpretations.
When evaluating government expenditures, population is an important factor to consider. Since governments spend money to provide services for citizens, population increases often lead to increases in government expenditures. North Carolina has experienced a large increase in its population over the last few decades; from 1980 to 2010 the state’s population grew 63 percent. Looking at state expenditures on a per-capita basis gives more insight as to the spending increase per citizen, rather than simply looking at the state as a whole.
Another layer of analysis can be applied when using the per-capita measuring tool. Many government programs are targeted at certain groups of people, such as public education for school age citizens, Medicare for elderly citizens, or Medicaid for low-income citizens. When evaluating these government programs, many times a per-pupil expenditure or a per-patient cost is calculated. In some cases, the program’s overall budget might be larger, but the per-person expenditure might be lower, or vice versa.
When evaluating the government from a monetary stance, one must always take inflation into account. Inflation measures the purchasing value of money and the general increase in prices. Analysts will refer to this as the time value of money — simply put, a dollar today is worth more than a dollar tomorrow. The same can be said for the government. It costs more to provide services to citizens today then it did decades ago.
Nominal or constant dollars are what governments report, the amount actually spent in the stated year. The State of North Carolina had a General Fund budget of $2.8 billion in 1980, and a General Fund budget of $19.8 billion in 2010. If we calculate the percent increase over the thirty-year period using nominal data, we see the General Fund increased by 596 percent. But, if we make the same calculation using inflation-adjusted data, the increase is 208 percent. To give the best and most clear picture of exactly how much the state’s budget has grown over the thirty-year period, a per-capita and inflation adjusted calculation yields 90 percent growth.
Using these measurements can give a clearer picture of what government has been doing over time. Inflation and per-capita adjustments do not need to be used in all analysis of data, but are extremely useful tools when evaluating government revenues or expenditures. It is important to understand these measurements when reading or hearing about government budgets or revenues in the news. During budget time, I always see many stories or news reports that either report data incorrectly, or distort the data to fit the story they are trying to tell. Measurement tools such as these should be used to give policy analysts, legislators, and citizens a clearer picture of what their government is doing. Instead these tools are sometimes misused to sell a certain story or to mislead the public. Most on both sides of the aisle would agree that inflation adjusted data and per-capita breakdowns are important and helpful tools.
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