Government Dependency and the Mark of the Beast

Freedom and initiative are being replaced by ever higher taxation, regulation and centralization of power in Washington. Our economy is now stagnant and our standard of living is declining. Each year government takes a bigger share of our earnings, employs more and more of our people, enacts more rules that strangle our economy, and controls more and more of our lives. In the enjoyment of plenty, have Americans lost the memory of freedom? When citizens are willing to sacrifice their liberty for security, they will have neither liberty nor security and will soon find themselves living under tyranny. [Ellen Sauerbrey, The Spark That Has Triggered Rebellion, American Thinker, September 13, 2009]

Welfare State: Handouts Make Up One-Third of U.S. Wages

A government job or welfare. Both options looked like selling out the only thing I had left: my soul. Therefore I refused. - Margaret, Living The Dream: What Do You Own – Really?, EndoftheAmericanDream.com, June 5, 2010

March 8, 2011

CNBC - Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement.

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices.

In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

Last month, the Republican-led House of Representatives passed a $61 billion federal spending cut, but Senate Democratic leaders and the White House made it clear that had no chance of becoming law. Short-term resolutions passed have averted a government shutdown that could have occurred this month, as Vice President Biden leads negotiations with Republican leaders on some sort of long-term compromise.

“You’ve got to cut back government spending and the Republicans will run on this platform leading up to next year’s election,” said Joe Terranova, Chief Market Strategist for Virtus Investment Partners and a “Fast Money” trader.

But the country may not be ready for these tough choices, even though economists like Schnapp say something will have to be done to avoid a significant economic crisis.

A Wall Street Journal/NBC News poll released last week showed that less than a quarter of Americans supported making cuts to Social Security or Medicare in order to reign in the mounting budget deficit.

Those poll numbers may be skewed by a demographic shift the likes of which the nation has never seen. Only this year has the first round of baby boomers begun collecting Medicare benefits—and here comes 78 million more.

Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?

At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.

“No matter how bad the situation is in the US, we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,” said Steve Cortes of Veracruz Research. “On a relative basis, America remains the world leader and, as such, will also remain the world's reserve currency.”

Americans on the Public Dole

The largest-ever federal payroll will hit 2.15 million people in 2010 and 2.11 million in 2011, but the true size of the federal government is much larger: it is estimated to be 15 million or more. To be more specific, by 2005, the true size of government reached 14.6 million employees, including 1.9 million civil servants, 770,000 postal workers, 1.5 million active duty military and 848,000 in reserve, 7.6 million contractors, and 2.9 million grantees. State and local government employs another 18 million (the nonprofit sector employs as many as 11 million Americans).

As of April 2009, the size of the U.S. workforce (employed and unemployed) was about 156 million (154,731,000 in the civilian workforce and approximately 1,500,000 in the military workforce). Therefore, almost 10 percent of the U.S. workforce is employed by the federal government and almost 12 percent is employed by state or local government, for a total of 22% of the U.S. workforce employed by local, state and federal government combined.

In addition, about 1 in 5 Americans receive Social Security or a government pension. And about 19 million others get food stamps, and two million get subsidized housing. For these categories, dependents as well as the direct recipients of government income are counted.

Slightly over half of all Americans -- 52.6 percent -- now receive significant income from government programs. That's up from 49.4 percent in 2000 and far above the 28.3 percent of Americans in 1950. If the trend continues, the percentage could rise within ten years to pass 55 percent, where it stood in 1980 on the eve of President's Reagan's move to scale back the size of government. That two-decade shrink-the-government trend now appears over, if for no other reason than demographics. The aging baby-boomer generation is poised to receive big payments from Social Security and government healthcare programs.

"Fiscal spending is running wild, and our president predicts a budget deficit of $9 trillion dollars over the next ten years. The Congressional Budget Office says spending has to be cut 8% permanently over the next several years. In July alone, federal spending rose 26%, as revenues fell 6%. Corporate tax receipts fell 58%, as individual revenues fell 21%. The official economic contraction is the worst since the great depression. Can you imagine what it really is? 9.4% unemployment is front-page news, but you didn’t hear about the 4.7% loss in salaries and wages of 4.7% for the 12 months ended in June. There are more government employees now than all those employed in manufacturing and construction. How is it that state employees now make 40% more than the average income in non-governmental jobs? What a perversion of government. It is no wonder that the US poverty rate is higher than in Mexico and Turkey." - Bob Chapman, Fairy Tales of Recovery, Reality of More Failures, The International Forecaster, September 3, 2009

Budget Puzzle: You Fix the Budget