How big is government in the U.S.? By some yardsticks, a lot bigger than it was a year ago. Paradoxically, however, one traditional (if informal) measure shows a shrinking burden of government in the past two years. 

Data for several series among AIER’s primary leading indicators have posted mild increases during the latest month. However, these increases, including a roughly 30 percent increase in the stock market, have not lasted long enough to warrant an assertion of changes in any of the trends.

The current economic recession has brought about a revival of Keynesian economics, with its presumption that a market economy is susceptible to irrational boom and bust cycles, which requires "activist" government policy through deficit spending to correct. The historical record has shown, however, that such policies not only have generally failed, but often have been counterproductive in merely generating new inflationary and unsustainable bubbles. Shortly after John Maynard Keynes made this case for government fiscal and monetary activitism in his book, The General Theory of Employment, Interest, and Money, the AIER Research Reports for July 13, 1936, offered a brief and highly critical review pointing out the inflationary dangers of Keynes's "new economics." Due to its renewed and insightful relevancy, AIER's 1936 review of Keynes's General Theory is reprinted as today's commentary.

Continued unemployment insurance claims, representing the number of people currently receiving unemployment insurance payments, topped 6 million in April, the highest number since the data began to be collected in 1967. This does not mean that the employment situation is worse now than it was during other recessions in the past four decades. Over the years, both the size of the labor force and the fraction of labor force covered by unemployment insurance increased substantially.

Income tax season is over and the numbers are in, and from the standpoint of the U.S. Treasury, they’re not good. 

Since 2000, the national labor force participation rate, the percentage of people over 16 years of age who are either employed or actively seeking a job, has been slowly falling. This trend, however, hides considerable disparities between different age groups. The current recession has exacerbated these disparities, as the chart below illustrates.  

The past year’s turmoil in the financial markets has prompted investors to flee to the “safety” of low-risk Treasury securities, helping to push the interest rate on Treasuries to exceptionally low levels. Adjusted for price inflation, the return on these securities has been barely positive in recent months.

The national unemployment rate now stands at 8.9 percent, but this percentage masks wide variation from state to state. 

After two and a half months, the results of the government’s stress test have come out. The test measures the health of nation’s 19 largest banks, all of which have total assets of more than $100 billion. It assesses whether the banks would need additional capital to survive in two scenarios. The more adverse scenario assumes real GDP growth of -3.3 percent, an unemployment rate of 8.9 percent, and another drop of 22 percent in housing prices in 2009, with further deterioration in 2010.