The ability of America’s private sector to generate income and create wealth has been unparalleled in the history of the world. More amazingly, the private sector continues to do this despite its ever diminishing role in the overall economy.
The chart below shows the private sector share of personal income since 1929 (the first year of available data) to 2009 (the last year of available data). The opposite of the private sector is the public sector which is defined as all government compensation paid to employees (military and civilian) plus all personal current transfer receipts (Social Security, Medicare, Medicaid, Welfare, etc.).
As the chart clearly shows, the private sector has been steadily crowded-out by the public sector. Nationally, the private sector has plummeted 24 percent to 69 percent of personal income in 2009 from 93 percent in 1929.
Additionally, the decline in the private sector can vary dramatically by state. The chart shows my two favorite states for making such comparisons–New Hampshire versus Maine. These two states are alike in so many ways, yet differ in one major area which is the size of the public sector. New Hampshire has the 2nd largest private sector in the country while Maine has the 39th largest private sector in the country.
Why is this important? At the end of the day, a bigger private sector means a bigger economy. New Hampshire’s economy (as measured by personal income) is $8.3 billion larger than Maine’s despite having identically sized populations. As a result, New Hampshire has the 8th highest per capita personal income while Maine has the 28th highest. In dollar terms that amounts to an additional $6,085 more for every man, woman and child in New Hampshire.
This is an extremely important measure to keep abreast of. As a result, this will be a regular series here at Wealth Alchemy . . . stay tuned for more analysis and updates using the most recent data.