welfare economics

According to a recent article by CNBC, various government welfare payments account for more than a third of all salaries and wages across the entire population of the United States! That is an amazing statistic when you stop to think about it what a social welfare program really is.

Welfare Payments Gone Wild

Now, when I speak of welfare payments, I am not just referring to payments made to the poor. Social Security, Medicare, and another popular social welfare program – unemployment – are all included! Here is what the article had to say about the numbers:

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.

So 35% of total wages and salaries will be nothing more than government handouts! The fact that this number was only 10% just a mere 40 years ago should alarm many!

What this means is that if you are in a room with 99 other people (say at a supermarket), 35 of them would completely rely on a social welfare program for their wages! There is no way that this nation can continue to function in this state for much longer!

“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.

Instead of being a nation of people who worked as hard as we could in order to support ourselves, and making sacrifices whenever needed, we are now people who depend on the government to support us, without any real effort on our part! I would say that we are not just dependent on government support, but we actually feel entitled to it.

Now, obviously Social Security is different because most of the people who are collecting benefits are retired and are receiving income based on contributions they made while working. The system is set up so that current workers support those who are retired, so this assessment doesn’t really apply to them.

A Social Welfare Program In Trouble

Even though I stated that Social Security should be seen in a different light than the other welfare payments, the thought of it should immediately bring to mind all of the baby boomers that plan to retire within the next decade or so!

Many people are simply not prepared for retirement, which means that they will depend even more heavily on Social Security to support even the most basic needs. Whether you are a baby boomer or not, take a look at the current IRA contribution limits and 401k contribution limits, and prepare yourself for retirement!

One of the proposed ways to fix this problem has been to reduce either Social Security or Medicare…or both! Unfortunately, most people are blindly hoping for another way…

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.

So, we are already at 35% of the population receiving welfare payments, and now we are expecting about 78 million more retired baby boomers!?!? I honestly don’t know if there is anything that can be done to turn this around – unless we make some major changes to how our economy functions!

Most people are aware of the fact that we won’t collect enough in Social Security taxes to cover outgoing benefits in the future (and the current payroll tax holiday sure isn’t helping)! Here is how the article summarizes our current crisis:

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?

That’s the key question! Not only will we have a huge surge in the amount of retirees looking for government benefits, but because of the tremendously weak (and it will weaken more in the future) housing market, high unemployment and underemployment, and increasing public healthcare costs, we will surely face an unprecedented amount of citizens looking for complete government support!

Unfortunately, most politicians are only interested in the short term, so the future looks pretty bleak! What’s even worse is that many of the developed nations are facing the same problem! Here is another quote from the article:

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.”

If we existed in a vacuum, then maybe we could feel good about our nightmare not being as scary as others. However, since many of the world economies are so connected, this means trouble for the entire world population! So while we are focusing only on ourselves – thinking about various credit card benefits, finding a cosigner for our loans, and identity theft – the economy could very well be crumbling before our eyes.

photo by renjith krishnan

Join The Discussion:

1. Are you shocked that 35% of all wages are based on payments from a social welfare program?

2. Do you think that there should be a limit to these welfare payments?

3. Do you find comfort in the fact that other nations are doing worse?

4. How do you think we can return to being a nation full of people who support themselves?

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