This chapter has mostly been about federal revenues and expenditures. But our government does many things and imposes many costs that do not show up on any formal budgetary accounts. The Environmental Protection Agency (EPA), for instance, has a budget of only about $9 billion yet its real reach, in terms of both costs and benefits, is much higher. The EPA has the power to regulate how business affects the environment and its mandates involve many billions of dollars of costs and benefits. Government spending is one measure of how government affects the economy, but it is not a complete or fully accurate measure.

Governments take many other actions that commandeer resources from the private sector but do not show up as full budgetary expenditures. For instance, until 1973 the United States ran a military draft. Drafted soldiers, of course, are relatively cheap if you just look at their paychecks, but the draft involves a very significant opportunity cost. Many people who were ill suited to be soldiers were removed from their jobs or their studies. The real cost of the draft—the opportunity cost—was pointed out by Milton Friedman, who advocated a move to a volunteer army. The United States had to pay soldiers more, so military costs appeared to go up. In reality, the volunteer army reduced the total cost to society of providing national defense by freeing up more productive labor, even if that efficiency was not reflected in the government’s budget statements.