I’ve written a lot lately about the great government job explosion myth; I thought I’d put down a bit about the dollars and cents side of things, in part so that I have the data ready at hand for future reference.

So how does one debunk the exploding government spending story? It’s not quite as easy as the employment issue — but it remains true that the idea that we’ve seen a surge in the size of government is basically wrong. Let me walk through the issues.

What you often see, for starters, is a chart like this, showing government spending (federal, state, and local) as a percentage of GDP:

Huge surge!

Oh, by the way: these figures were generated by FRED, the wonderful data service of the St. Louis Fed. If the labeling looks a bit funky, it’s because I’m using the data transformation feature; just pay attention, and you’ll see that it all makes sense.

So, why doesn’t this graph show a surge in government?

First of all, look at the fact that the ratio of government spending to GDP always rises during recession. That’s largely not because spending is up, it’s because GDP is down.

We can correct for this by using estimates of potential GDP, the level of GDP that the CBO estimates would be produced if we were at full employment. FRED has that series in real terms; we can get a nominal estimate by multiplying it by the GDP deflator, which lets us produce government spending as a percentage of potential GDP, a much better indicator of government size:

There’s still a rise in spending, but now we’re talking about around 2 points of GDP rather than 5.

So what’s behind that more limited rise? Mainly, it’s about people losing their jobs and their incomes, and therefore turning to aid programs. Unemployment benefits account for almost half the rise in spending:

Food stamp outlays have also surged.

And while I’ve had trouble tracking down a dollar number, Medicaid rolls rose 13.6 percent from Dec. 2007 to Dec. 2009.

What’s left after you take account of these emergency aid programs? Not much, if anything.

So that’s the story: despite what you’ve heard, there hasn’t been any surge in the size and role of government.