I have mixed feelings. Purely from an economics standpoint ..
I like smaller government in that smaller government means fewer taxes. Private sector decisions are more efficient than government decisions.
However in a recession a larger government can provide a cushion against falling consumer demand. Consider what constitutes GDP. From any general econ textbook:
GDP = C + I + G + (X-M) + Change in inventories
where
C= consumption
I = Investment
G = Government spending
and X-M is exports and imports.
In a recession consumer confidence falls, savings increase and consumption decreases.
So C gets smaller. How about Investment? Well obviously we've seen the housing numbers. And also quite obviously businesses are not expanding with new plants and equipment right now. So I is going to be negative too. X-M is a product of many things but can't be counted on going in any particular direction in a recession. Same with inventories. So that leaves G, government spending.
Incidentally, one can see the breakdown by category by downloading the spreadsheet at
http://www.bea.gov/newsreleases/nati...ewsrelease.htm
Just click on "Tables only" and then go to table 3 for a complete breakdown.
Personal consumption expenditures. 10058.5
Gross private domestic investment. 2004.1
Change in private inventories... -39.9
Net exports of goods and services. -665.1
Government consumption expenditure and gross investment............. 2883.2
Total: $14.28 trillion
So government consumption and gross investments make up about 20% of GDP. That helps to provide a cushion. From Q3 to Q4 personal consumption decreased 2.3%. Private investment decreased 3%. And that was considered a pretty major recessionary quarter. So let's say the private sector is down 2.5%. If government spending can stay even then
total GDP decreases about 2% - all other things being equal. And if there is additional stimulus spending that will be even less. A frequently used rule of thumb is that a 1% increase in US GDP creates 1 million jobs. So saving 1/2% of GDP saves, on average 500,000 jobs.
Incidentally the actual 4th Q change was -.95% (annualized to -3.8% is the number given in the media. .95*4).
So what makes up government spending? (2008)
National Defense Expenditure. $639 billion
National Defense Investment. $95 billion
Non defense Expenditure. $292 billion
Non defense Investment. $44 billion
State and Local Expenditure. $1.45 trillion
State and Local Investment. $358 billion
Iraq+ Afghanistan. ?????
Everyone these days seems to like comparisons to the Great depression so what did these numbers look like on the eve of destruction?
http://www.bea.gov/scb/pdf/2008/08%2..._gdp_nipas.pdf
As you can see government spending in 1929 made up about 10% of GDP vs 20% today. Today we have a better cushion.
Don't get me wrong. I think the private sector is way more efficient than the public one in making economic spending decisions. Capital is allocated best by the private sector. But I also think there is some upside to larger government. I wouldn't want it any larger than today though. For my taste this is "just about right".