Grim Milestone

Via the USAToday

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits "” from Social Security, unemployment insurance, food stamps and other programs "” rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

Buried in the ariticle is a quote that I have to cite as perhaps the worst analysis I have ever seen:

The shift in incomeshows 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.

How does the income shift prove the stimulus worked?  The problem is, as usual, a difficult one of evaluating what the economy would have done without the stimulus.  The mere shift in income is a necesary outcome of the stimulus -- all it means is that we have succesfully robbed Peter to pay Paul -- it says nothing about whether Peter and Paul are more wealthy in aggregate had we not moved money around by force.  In fact, proponents of the stimulus never, ever address a very simple fact - someone was using the money to run a business or invest or buy things or employ people before the government took it for stimulus programs.  And it is really, really hard to look at the body of stimulus programs and come to the conclusion that the private sector was investing the money worse, which is the only way stimulus would occur.

  • http://www.mckibbinusa.com William J McKibbin

    Why not use inflation to reduce the national debt and rout entitlements...? More at:

    http://wjmc.blogspot.com/2010/05/using-inflation-to-reduce-public-debt.html

    Thank you for the opportunity to comment...

  • DrTorch

    Grim indeed.

    Up next: tax increases.

  • Captain Obviousness

    Van de Water suffers from one of the fundamental delusions of Keynesianism: he thinks that the economy will grow as long as everyone is provided with a job. Of course that puts the cart before the horse. In reality a growing economy creates jobs, not the other way around. Keynesians seem to believe that if the government pays a million people to dig holes and another million to fill in the holes that these 2 million new "jobs" will stimulate consumer demand. Possibly true in the short term, but in the long term their "jobs" are unproductive and only sustainable by taxing productive workers to pay unproductive government workers.

    To William J McKibbin: You are basically advocating what Van de Water is. Stimulus = creating money/credit out of thin air, whether by printing or borrowing. Yes it can solve problems in the short term, but in the end it is savers who are punished. Intentional inflation by the government is IMMORAL!!!! Zero interest rate policies are IMMORAL!!!! It forces people to chase yields for no good reason. The frugal person who saved up a nice nest egg can no longer retire by simply creating a CD ladder or something safe like that. Instead, since savings accounts and CD's yield next to nothing in our current Stimulus World, people who have savings but no investment experience/knowledge are forced to invest in stocks and corporate bonds so that inflation doesn't destroy their savings before they die.

    The only solution to these global financial problems is to get governments out of the way and stop bailing everyone out with printed money. It will be painful in the short term but it is the only long term solution other than plundering the savings of the middle class in order to prevent bankers from taking losses.

  • Methinks

    What do you mean "How does the income shift prove the stimulus worked?"??

    The stimulus was designed to create more dependency on government by enabling politicians to grease the palms of their political backers and disabling individuals from creating for themselves and reducing their disposable income. All of this deciding who gets what and who pays what makes the American political class (the American Nomenklatura - let's be honest) enormously powerful. Power is wealth.

    I would say the stimulus worked perfectly.

    Van De Waters is just cloaking this reality in the more palatable "helping people out" mantra. But really "making people more helpless and dependent on the state" would be as accurate.

  • Judge Fredd

    Van de Water is rearranging deck chairs on the sinking ship, claiming that doing so will delay the ship from sinking.

  • Dr. T

    The various federal stimulus packages did not really rob Peter to pay Paul. They mostly paid Paul by borrowing huge amounts of money that Paul, his wife, his children, and his present or future grandchildren will have to pay back with interest.

    In answer to William J McKibbin: Inflation is a tax on people who are not in debt and on businesses that lend money. People who aren't in debt are "taxed" because everything they buy costs more and they cannot offset such loses by paying down loans with less valuable dollars. Businesses that lend money lose because their loans are repaid with less valuable dollars. Thus, inflation has the perverse outcome of rewarding debtors (including our governments) and punishing savers and lenders. I agree with Captain Obviousness: a government that deliberately creates inflation to reduce its debt is behaving unethically. It has happened many times, and the outcomes always were bad.

  • mesaeconoguy

    “It’s the system working as it should”

    Van de Water is exactly correct – this is the system working exactly as it should – for his team.

    It is the goal of statists (all Democrats, many Republicans) to increase dependency on government. Mission accomplished.

    This, however, is almost entirely incorrect:

    As the economy recovers, private wages will rebound

    The economy is not recovering (not as robustly as it should, ceteris paribus), and wages will not rebound precisely because government now occupies so much of the economy, and threatens draconian tax increases.

    Watching these fools try to explain away regime uncertainty and massive debt overhang in the face of a sputtering recovery is hilarious, and pathetic.

  • Methinks

    "As the economy recovers, private wages will rebound" - Our Dear Official Government Puppet Economist

    "These sacrifices are necessary to finally reach our Communist ideal (which is, I totally swear, on the horizon - where it has been for 60 years), we will be free of want and exploitation and these sacrifices will be worth it."
    - Our Dear Communist Party Leader Du Jour.

    Why is America beginning to sound eerily familiar to us Russians?

    No worries, though. They won't really need to plant bugs in your houses to get all the information they need on you. The "financial reform" bill allows the government to gather all the information it wants about everything from the amount in your bank account to your purchasing habits to your ATM usage. The American Big Brother can watch you without an ugly box permanently attached to your wall.

  • Patrick

    KEYNESIANISM = Standing in a bucket and trying to lift oneself up by the handle.
    (apologies to Churchill)

    William J McKibbin: The Weimar Republic tried that trick; so did Argentina. Ended badly - wars, despotism

    The only solution: Drastic cuts in Government welfare transfer payments combined with tax rate cuts. This helps the productive sector, while reviving fiscal accounts (cutting deficits), thereby enabling tax rate cuts that revive the private sector economy and get us back on our feet.