The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 78

The States Are Revolting

It took the tax revolution of the late 1970s to bring profligate state and local government spending under control, right? Not really. It seems the hometown boys were more anticipatory of voters' mood swings than we imagined and already well on their way to controlling spending before California taxpayers started their revolt in 1978 with the infamous Jarvis-Gann initiative. It also seems Uncle Sam has yet to learn the lesson—largely because he never got quite as far out of line as the states had.

These charts come from the Advisory Commission on Intergovernmental Relations in Washington, D.C. They show the per capita growth of expenditures, adjusted for inflation, for both the federal and combined state and municipal governments. The federal numbers on the left show that after adjusting for inflation, Uncle Sam spent about $700 per year per American in 1954, but by 1982 was spending about twice that amount. The growth rate seems to have picked up about 1959 and galloped steadily ever since. Pulling out your financial calculator allows you to ascertain the Uncle Sam's “real,” postinflation spending grew about 2.7 percent per year per American.

The right-hand chart shows that state and local expenditures grew far faster from 1954 through 1974, but slowed to virtually no growth after that. State and local spending grew from a combined $300 million in 1954 to about $700 million in 1974, which works out to a 4.3 percent 20-year average postinflation ...