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May 16, 2008

Population, inflation and government speding

Government spending tends to increase over time. Is this just because government is always getting bigger or are there other reasons? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there are certainly other reasons, and I think if people thought about this, they would think this makes sense. One, of course, is population growth. As a state like North Carolina grows in population, we would expect government at all levels to spend more, and it does. Another reason is inflation. Inflation means that the price of everything is going up, not just to consumers but to government. So for government to provide the same level of services when prices are higher, they need to spend more money, and in fact, you see a correlation between government spending and inflation. But there can be a third factor, and sometimes this is missed. And that is that over time the average person sometimes is using more government services even beyond what is dictated by higher population and higher inflation. Two good examples of this would be higher education and transportation. We all know that the economy has changed; education is more important than ever before, therefore, more people are going to college, and so we have seen, for example, in North Carolina that money appropriated by the state to the university system has been going up faster than inflation and population. And that's due to the fact that people are using more higher education and services. The same with transportation. Certainly, you expect spending on roads to go up with population and inflation, but it's actually gone up more, and that's because motorists are driving more. Everyone is using the roads more. That means more spending on highways."

Posted by Dave at May 16, 2008 08:00 AM