Value Added: Government

Think of it this way

It is what the government produces itself, not what it distributes or what it buys.

What is Value Added: Government?

What federal, state and local governments produce: defense, public education, justice, police and administration. It is measured mainly by what public salaries cost, because these services are not sold in a market that sets their price.

How to read Value Added: Government

Its share has declined slowly for decades. It is the most stable line of all: it changes because of budget decisions, not the cycle.

What Value Added: Government means for the market

Not to be confused with “Government spending” in the spending version: that one includes investment in public works, while this one measures value added, basically payrolls. They are different figures, and both are correct.

Where the money flows

GDP can be measured in three ways that give the SAME figure: by spending (who buys), by production (who makes it) and by income (who earns it). This version uses the second: the value added of each industry, which is what it produces minus what it bought from others to produce it. Subtracting those purchases is what avoids counting twice the steel that goes into a car. The “By spending” version of the same chart splits the total the other way, which is why none of its lines match these: they do not measure different things, they divide the same thing differently.

What to watch in Value Added: Government

Compare it with the government accounts charts, keeping in mind that they measure different things: there you see what the government spends, here what it produces.

It does not measure liquidity: it is the part of GDP produced by this sector.