Wednesday, November 11, 2009

What happens when everyone depends on the government?

Here is a depressing analysis.
By one measure, the government already plays an outsize role in our so-called free-market economy--and it has little to do with the recession. Economist Gary Shilling has calculated that 58 percent of the population is dependent on the government for "major parts of their income," including teachers, soldiers, bureaucrats, and other government employees; welfare and Social Security recipients; government pensioners; public housing beneficiaries; and people who work for government contractors. By 2018, Shilling estimates, an astounding 67 percent of Americans could be dependent on the government for their livelihood.
This has happened under both Republicans and Democrats.
Tea-party ranters might cite this as evidence of liberal policies run amok, but the growing-government phenomenon transcends party politics. In 1950, the starting point for Shilling's analysis, just 29 percent of the nation depended on government for its income. By 1980, that had risen to 61 percent--higher than it is today--thanks to demographic factors and the needs of a changing nation. The military got larger and defense spending grew as America took up its role as a superpower. Baby boomer kids required many more schoolteachers. The number of Americans receiving payouts from Social Security, enacted in 1935, increased 10-fold. Food stamps and other safety-net programs of the 1960s and '70s began to reach millions of Americans.

From 1980 to 2000, Americans became less dependent on government. California and other states cut their budgets and reduced spending. The military got smaller after the Cold War ended. Welfare reform in the 1990s kicked many people off the dole. And the private sector boomed during those two decades, accounting for a larger share of the labor force. By 2000, the portion of the population dependent on government had drifted down to 54 percent.

But it reversed course after that, and it seems poised to keep going up. The size of government has generally held steady since 2000, but globalization, technology, and other factors have led to weak private-sector job creation over the past decade. And that was before the recession destroyed more than 8 million jobs. So the government has employed an increased share of Americans. The other big change since 2000 has been a near tripling of food-stamp recipients, as low earners got left out of the housing and stock-market booms and then suffered worse during the recession.

The next big shift will come as baby boomers begin to retire, boosting the number of Social Security recipients 27 percent by 2018 and threatening the solvency of the program. Shilling has another dire prediction: Economic growth will be so weak for the next several years that without government support, the unemployment rate will rise to 23 percent in 2018. Since that's politically intolerable, government will continue to spend money to create jobs, he predicts, with nearly 25 million additional Americans employed as a direct outcome of government spending by 2018.
I know that liberals support government running as much as possible rather than evil private enterprise. But at some point, you need non-governmental workers to be working and building the rest of the economy to pay for all the lovely things that people look to the government to do.