A decade of extraordinary government reach
Federal spending has grown from 20 percent of GDP in 2019 to nearly 25 percent in 2025, the highest sustained peacetime level since World War II. Pandemic relief, industrial policy, and defense modernization have all expanded Washington’s economic role.
Table 1. Federal Outlays by Function ($ T)
| Category | 2019 | 2023 | 2025 (f) |
|---|---|---|---|
| Social Security & Medicare | 1.9 | 2.6 | 2.9 |
| Defense | 0.7 | 0.8 | 0.9 |
| Net Interest | 0.4 | 0.7 | 0.9 |
| Infrastructure & Climate | 0.1 | 0.3 | 0.3 |
Sources: CBO, Treasury.
Table 2. Spending Growth (% Change since 2019)
| Function | Change % |
|---|---|
| Entitlements | +52 |
| Interest | +130 |
| Discretionary (non-defense) | +22 |
Crowding out innovation?
While public investment in semiconductors and green technology is expanding, the private sector faces tighter credit and higher borrowing costs. Fiscal dominance—where debt servicing pressures monetary policy—could limit the Fed’s ability to ease rates quickly.
Business implications
Federal contracts and industrial-policy subsidies offer opportunity, but dependency on government flows carries risk. Companies in defense, EVs, and infrastructure must monitor Congressional budget negotiations closely; any spending cuts could abruptly reshape demand.
Action point
Diversify customer exposure and financing sources. Businesses that combine public funding with private capital partnerships will remain resilient as fiscal volatility grows.