Growing Gov't, Shrinking Priv't Sector

USA Today reports that recent number from the Bureau of Economic Analysis confirm what many people have sensed: private wages are shrinking while government grows. The facts:

* 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 {and down from 47.6% in 2000--ed.}.

* Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started {and up from 12.1% in 2000--ed.}. 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.

The spin, for and against:

The trend is not sustainable, says University of Michigan 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.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries....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.

Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs.

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.

It doesn't look like the current administration is going to do much to change the trends, but, as de Rugy suggests, maybe Americans will learn lessons from the Greek crisis and take action on their own.