Written by Steven Hansen
Americans have been convinced that due to demographics and general waste, social programs are out of control and need to be reined in. True or Not?
I would like to disclose my biases – anything big (like big government, big business, the wealthiest 0.1%) ends up doing a growing number of bad things. It is dangerous to design systems where power can be concentrated. That said, even small systems cannot be perfect. So there is no argument that there is waste in all systems.
Americans see graphs like this showing government spending on social programs are a significant government expenditure [hat tip kff.org]
source: CBO
And social programs will be a significant reason for future deficit spending.
source: CBO
But what is unsaid is that many social programs not only have a cost side in the government’s ledger, but and income side also – unlike MOST other government expenditures.
Comparing Social Program’s Expenditures (red line) to Social Program’s Income (blue line)
source: BEA, FRED
So what appears to be concerning the government leaders is that social programs are noticeably not paying their own way – and Uncle Sam now is kicking in a few coins. To a large extent for the USA, social programs are a transfer of wealth – and have little affect overall on the economy [removing income from some and giving income to others to spend]. However it is not a transfer of wealth when federal and state income and sales taxes are taken from the 28% of USA families earning less than $30,000 per year.
Now the government is funding social program shortfall by using income taxes – all while some blocks of politicians try to balance the budget.
Note: There is little said about the past benefits gained by borrowing from the social security trust fund for many years – reducing the budget interest expenses.
But something is happening (and has been for some time) that this discussion misses: The U.S. government is starving spending in social programs including social security, medicare, unemployment, retirement funds, veterans’ benefits, SSI, disability, medicaid, and worker compensation.
source: BEA, author’s calculations
Could this be contributing to GDP’s growth rate decline since 2000? After all, spending on social programs relative to GDP is down about 29% since 2000 (9.8% down to 6.9%). Since social program spending has a multiplier significantly greater than 1 (each dollar expended, on average, is sometimes spent again relatively soon), this is a significant drag on GDP.
Other Economic News this Week:
The Econintersect Economic Index for September 2016 is showing better growth for the second month in a row – but the rate of growth outlook remains weak. The index remains near the lowest value since the end of the Great Recession. There remain recession warning flags in some of the data we are reviewing..
Bankruptcies this Week: Golfsmith International Holdings, Privately-held Noble Environmental Power
