Free Markets, Free People

Private pay shrinks, government payouts soar

Read this carefully:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

What is being said here is not that government provided benefits are now more than private paychecks.  Instead it is pointing to a trend brought on by the recession.  It gives a bit of lie to those who are claiming that all is well and we’re well on the road to recovery.  Those “government provided benefits” include unemployment benefits as well as other emergency benefits.

What does that mean?  Well it should be fairly obvious:

The trend is not sustainable, says economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.

Yes it really is. It is much like the problems we face with Social Security – we have too few workers paying for too many retirees. Well, this trend faces exactly the same sort of problem. We have too few taxpayers paying for too many unemployed. So that means going more into debt to pay extended benefits.

And that includes the states as well. To this point, 32 states have borrowed $37.8 billion from the federal government (and you know where the fed got the money) to pay unemployment benefits.

Here are the numbers:

• Private wages. A record-low 41.9% of the nation’s personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.

•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.

Now, having gone through all of that, what is the next sentence in the USA Today article?

The shift in income shows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

“It’s the system working as it should,” Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

I’m sorry, but what in the hell is this man talking about? Unless “stimulus” has been redefined since I woke up this morning, the “stimulus” he’s talking about hasn’t “stimulated” anything but unemployment benefit payments. How does one claim, with 9.9% unemployment (U6 at 17.1%) and private wages at their lowest point in “US history”, that the “stimulus” has worked?

I think, instead, this proves you can find an economist somewhere to say pretty much whatever you want, and this one wants to parrot the liberal line. My understanding is the purpose of the “stimulus” was to “stimulate” growth in the private sector. And that simply hasn’t happened.

One economist does seem to understand what this all means:

Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. “People are paid for being rather than for producing,” he says.

And we know many of them are riding the payments out as long as they can, now having adapted their lifestyle to the benefits they receive.

Where I come from, that doesn’t count as “stimulus”. That counts as unsustainable economic trouble.



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6 Responses to Private pay shrinks, government payouts soar

  • “People are paid for being rather than for producing,”

    Absolutely right. Government payments do nothing more than move economic demand from one person to another. The total demand remains the same, at best. Unemployment payments, in particular, only lessens the drop in demand due to the loss of employment. Since unemployment benefits replace only a portion of lost income there would be a net drop in total demand even if the money was not transferred from others.

    “And we know many of them are riding the payments out as long as they can, now having adapted their lifestyle to the benefits they receive.”

    I am sure that this is true for some. It does, however, ruin the theory that people want more and are willing to work for it and advance themselves.

    There are probably many more who dislike the idea of having to tell their kids “Sorry you can’t go to the prom, but daddy would rather sit on his butt”.

  • McQI’m sorry, but what in the hell is this [Van de Water] talking about? Unless “stimulus” has been redefined since I woke up this morning, the “stimulus” he’s talking about hasn’t “stimulated” anything but unemployment benefit payments.

    I think that Van de Water makes the classic liberal Keynesian mistake: government giving Paul money means that Paul will spend it, stimulating the economy*.  What libs miss is that the money was originally taken from Peter, who would have spent it himself without losing some significant fraction to bureaucratic overhead.

    Now, imagine how happy he’ll be when EVEN MORE of US personal income comes from government spending!  HEY!  Here’s an idea: we’ll all quit working and go on the dole!  THAT should REALLY stimulate the economy!

    / sarc


    (*) Perhaps somebody can correct me, but I’ve always thought that the idea behind Keynesian economics was that the government would SPEND money (for example, on roads, bridges, war materials, etc.), not just give it away.  The former case makes at least some sense: people are paid (as Henderson says) for making things.  The latter is absurd.

  • I’m curious – which 37 states borrowed that money?  Any of those “we’re paying for Red States!” Blue states in there?  (bwaahahahahaha)

  • Sorry – 32 states – my fingers are much fatter than I thought.

  • I read stuff like this and I remember the Dilbert cartoon, where his boss reasons to himself that if he eliminates all expenses, the company will enjoy a 100% profit.