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16 PA R T I INTRODUCTION AND BACKGROUND

FIGURE 1-7
(a) Federal spending (% of total spending)
1960 2007
Health
(including Medicare)
(2.9%) Other
Other Net (8.4%) Health
(12.0%) interest (including
Net interest (10.9%) Medicare)
(9.7%) (24.9%)
Unemployment,
disability (6.1%)
National defense
(49.5%)
Social National
Unemployment, Security defense
Social (20.1%)
disability (20.3%)
Security
(8.7%)
(13.4%)

Education, welfare, Education, welfare,


housing (3.9%) housing (9.2%)

(b) State/local spending (% of total spending)


1960 2007
Public order
and safety
Health
(10.2%)
Other (8.2%)
(21.1%) Other Health
Transportation (19.1%) (20.7%)
(5.7%)
Public order
Transportation
and safety
(11.7%)
(12.9%)
Education Welfare,
(38.8%) social Education
services (35.1%)
(6.5%)
Welfare,
social services
(10.0%)

The Distribution of Federal and State Expenditures, 1960 and 2007 This figure shows the
changing composition of federal and state spending over time, as a share of total spending. (a) For the
federal government, defense spending has fallen and Social Security and health spending have risen.
(b) For the states, the distribution has been more constant, with a small decline in education and
welfare spending and a rise in health spending.
Source: Bureau of Economic Analysis, NIPA Table 3.16.

has changed dramatically over time. In 1960, nearly half of federal government
spending was on national defense, military expenditures either at home or
public goods Goods for which abroad. Defense is a classic example of what economists call public goods,
the investment of any one indi- goods for which the investment of any one individual benefits a larger group
vidual benefits everyone in a
larger group.
of individuals: if I purchased a missile to protect Boston, that would benefit
not just me but all of the residents of the city. As we will discuss at length in