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.The article explains that the long-term trend is in part due an aging America where a larger portion of people are retiring, which reduces wages, and collecting social security and medicare benefits, which increases government-provided benefits. The recession, the government response to it, and the Obama administration's expansion of healthcare benefits accelerated the trend. Cauchon provides comments from four economists on the trend. I provide the comments is a different order than Cauchon to distinguish between short-run and long-run affects. The first, Paul Van de Water, believes that the acceleration of the trend is the result of an effective stimulus.
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.
The shift in income shows 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.The wild-eyed libertarian economist in me feels constrained to point out that an ineffective stimulus would have the same short-run impact of increasing government benefits relative to private wages and that the economy would recover with or without government intervention. The remaining three economists focus on the long-run problems caused by the trend.
"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.
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says...
Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs.
Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says