Sunday, July 11, 2010

As the Private Sector Shrinks, the Public Sector Grows

I remember the liberal, and even Marxist, teachers and professors I had growing up who talked about how wonderful it was that Russia had "zero unemployment." "Zero unemployment," I thought, "that's amazing!" Little did I know then that the jobs many Soviets were doing was digging holes and refilling them, all at taxpayer expense. This approach of massive government control over private dollars did nothing but create a perennially stagnant and backward society and economy.

It appears that Barack Obama is taking a chapter out of the Soviets own handbook as he pursues a similar policy agenda in the United States. But unlike the Soviets, who saw the virtue of people "working" even if the jobs were worthless, this administration is paying people to simply live off the government.

Dennis Cauchon of USA Today points out that "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." While the private sector's economic muscle was in decline, the government's was moving "full speed ahead." According to Cauchon, "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."

This crazy, upside economic world poses several problems for a free society. With all the incentives leaning towards idleness and all the losses in productive endeavors, the future looks dim. How will the growth of the public sector spending continue to expand with a rapidly shrinking private sector to support it? Candidate Obama pledged "no new taxes" for those who are affluent. In his strange world, that will be anyone with a job.

Cauchon's column also notes the findings of the Bureau of Economic Analysis, which "reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter." What are the key changes as far as public and private sector? Cauchon's states that, in the private sector, there was a "record-low 41.9% of the nation's personal income (that) came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007." As this area shrunk, we saw a rise on the government side as "individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. 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."

What is the future of an economy that shifts so heavily to government dependence? The first thing that should come to mind is Greece, as our debt ratio quickly approaches the same levels they have suffered from for the last few years and is now resulting in that country dealing with riots as the government cracks down on previously unchecked social spending. Even if it does not lead to a completely bankrupt economy, it will clearly lead to one that is, simply put, less dynamic. Cauchon quotes economist David Henderson of the Hoover Institution who says that this shift weakens an economy when the "People are paid for being rather than for producing," he says. The "sci-fi" world of Obamanomics continues.


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