Big government is the biggest threat

As this Gallup poll shows, the majority of people worry more and more about the threat to the country that bigger government represents.

And as this shows, Democrats today are relatively unconcerned about big government, fearing big business more. Republicans are the ones most concerned about big government, and if that proves to be the party's rallying cry in the years ahead, there will be plenty of grist for the mill.

A primary thrust of the American political tradition is a fear of centralized government with too much power. And the U.S. capitalist economic system has given businesses wide latitude to operate with minimal government interference. But those values were put to the test last year as the imminent collapse of several major U.S. corporations threatened to drive the country into an economic depression. The government responded by infusing some of these failing companies with cash and in some cases taking on significant ownership in the companies.

HT: Greg Mankiw.

Big government gets way bigger

For the period 1980-2008, federal, state, and local government spending averaged about 35% of GDP. In the current fiscal year, it is projected to surge to 45%! This is just mind-boggling, if not downright scary. Virtually all of the surge in spending this year will be covered by borrowing money. The latest estimate of the federal deficit for this year is $1.8 trillion, about 12.5% of GDP. With the exception of WWII, these numbers are literally off the charts. We are truly in uncharted territory. Some of the recent surge in spending will go away next year (with spending projected to fall to about 40% of GDP), but nevertheless we will be left with government that is significantly larger than it has ever been in the postwar period. The higher taxes necessary to fund this permanent government expansion have not yet been found, and higher tax rates will not necessarily make them appear. Obama has already created his signature accomplishment, something he, and his supporters, may soon come to regret.

Oil prices and drilling activity

This chart may help explain why oil prices are rising this year. Drilling activity typically responds to significant changes in oil prices. The red line is the number of active drilling rigs around the world, while the blue line is the inflation-adjusted price of oil. Recently, drilling activity appears to have dropped by more than one might suspect (down 42% in the past seven months), given the historical relationships depicted in the chart. Note that significant exploration activity in the early 1980s set the stage for a big drop in the price of oil in 1986. A lack of significant expoloration activity in recent years probably contributed to the big rise in prices last year.