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.

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Ken
Ken
11 years ago

Marc,
The 8 million jobs that were shed by private industry ended up on unemployment and food stamps thereby increasing government spending.
Would you rather there be no safety net and let those 8 million plus associated families go hungry and live in the streets or turn to crime in order to survive? In Vietnam families in order to make money for survival would sell the daughters into prostitution for the happy American GI. RI has plenty of Foxy Lady type clubs.
Like the USA Today article suggests, as the recession wanes and private industry starts to rehire the 8 million unemployed you will see private wages start to go up again surpassing government spending.
Plus some of those 8 million laid off workers just flat out retired because they could and started collecting social security and you also have all the baby boomers retiring.
This is by no means big government over spending.
I can tell you that the recession is reversing in Hawaii with unemployment dropping to 6.7%, increased tourist arrivals, hotel booking and tourist spending in March 2010 was up 12.7% to $874.2 million verses March 2009. For the first quarter of the year, visitor spending in Hawaii rose 5% to $2.7 billion. Overall visitor arrivals by air and cruise ship increased by 4.1% to 1.7 million for the quarter.
Sale tax revenue has increased to the point Gov. Linda Lingle (R) is releasing program funds early that she was withholding due to the recession.
How does Hawaii obtain all these numbers you say; it’s because by law everyone entering the state must fill out a State of HI agricultural declaration form and inspection which the HI tourist bureau piggybacks question on it and when leaving HI everyone must go through US federal government agricultural inspection.

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