Americans should not get too smug about the troubles in Europe because the Bush-Obama policies of wasteful spending are bringing us down the same path. The latest evidence comes from a well-researched article about personal income in USA Today showing that the share from private paychecks fell to a record low and the share from government handouts reached a record high. As Veronique de Rugy of the Mercatus Center points out in her quote, this is the pattern that led to fiscal disaster in Greece:
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. …The result is a major shift in the source of personal income from private wages to government programs. 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.
[…] America needs to fix these programs…or eventually become another Greece. […]
[…] America needs to fix these programs…or eventually become another Greece. […]
[…] America needs to fix these programs…or eventually become another Greece. […]
Zorba says “They used to say: “It’s the economy stupid”. I’d say: “It’s the counterincentives of the welfare state stupid”.”
Yes, it’s yet more Government Failure. This time it’s the failure of government to recognize that changing the context changes people’s behavior in response.
[…] America needs to fix these programs…or eventually become another Greece. […]
[…] America needs to fix these programs…or eventually become another Greece. […]
[…] America needs to fix these programs…or eventually become another Greece. […]
[…] Wow. Not even a pretense of caring about fiscal responsibility. Keep the status quo, even if it means America is doomed to suffer a Greek-style budget meltdown. […]
[…] Wow. Not even a pretense of caring about fiscal responsibility. Keep the status quo, even if it means America is doomed to suffer a Greek-style budget meltdown. […]
Starting in 2014 you can have someone else, someone smarter and/or more competent or simply someone harder working pay for most of your health insurance. All you have to do is make sure that you produce less than $88,000 per year in goods and services. If you insist on making more than $88K per year, then you will not only pay for your family’s healthcare but for someone else’s as well. In other words, if you contribute more than $88k towards America’s GDP, not only will you loose your substantial healthcare subsidy, but will also have to pay the entire premiums with after tax dollars.
I am not going get into whether this is ethical or desirable. But no matter what you think, you have to recognize that it’s got to hit US GDP below the belt in a pretty hard way. Only in the fairy tale world of Congressional Budget Office forecasting there is the assumption that people’s behavior will not change and thus people will just keep working as before.
They used to say: “It’s the economy stupid”. I’d say: “It’s the counterincentives of the welfare state stupid”.
This, in a nutshell is the predicament not just for Greece, but for Europe in general – a continent where the otherwise, on average, most competent individuals in the world struggle to keep up with the United States.
The 15 trillion dollar question is: Has the US entered this vicious cycle? In my view, the fact that Americans elected big government Obama to fix the mistakes created by a statist Bush, is a strong indication that indeed, America has also entered the vicious cycle. Even if Americans come to their senses, they will simply not be able to undo all the damage, and the vicious cycle of –> central planning –> loss of prosperity –> voter discontent –> ask for more central planning at the polls, will more or less continue, albeit perhaps with a few supply side hiccups here and there.
Remember! Once the vicious cycle starts things can change very quickly.