The so called Great Recession has left Americans depending on the government dole like never before. Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723,billion more than four times the record $167,billion dropped reported last month by the Commerce Department.
I noticed for the first time since the Great Depression, Americans actually took more aid from the government than they paid in taxes. I’ve discovered that figures show the devastating results of the massive job losses last year that indicate that the economic recovery began last summer is tenuous and has a long way to go before many Americans resume life as normal. Typically economic growth depends on consumer spending, which is fed by wages, rents, interest and other forms of income. The tentative revival of consumer spending in the second half of last year appears to have been fed largely by an extraordinary flood of government’s spending, as real growth in other kinds of income has disappeared.
Support from the government was critical in keeping the economy from completely collapsing during the crisis, particularly consumer spending. I am concerned that so much of the economic rebound is a direct result of government’s spending rather than a revival of private income and jobs. This situation is unsustainable, because the Governmet has had to borrow massively to prop up the economy and cannot continue that binge for long.
Last year wages and other job related income fell by a record $206 billion as compared to last years $7.84 trillion. Payments from the government such as unemployment checks and Social Security increased by$231 billion to a total of $2.1 tillion. Meanwhile the amount of taxes that individual Americans paid plummeted by $325 billion to $2.1 trillion as a result of middle class tax cuts and because nearly 6 million people were thrown out of work and are no longer paying their payroll taxes.
Commerce economists said last year’s unprecedented drop of $256 billion in private wages, was particulary dramatic and was more than 40 times larger than the drop in wages during the 2001 recession. An equally dramatic measure of the income that closely tracks the ravages of the recession also plummeted by an unprecedented$384 billion. That measure includes transfer payments and adjusts for inflation. Although it has stabilized at $9.1trillion since the middle of last year, which may be a sign that the worst of the job and income losses are over.
While most of the government benefits including Social Security, welfare, Medicaid, food stamps and regular unemployment benefits, are sent automatically to those who qualify, Congress is debating an extension of some benefits enacted as part of the stimulus package last year. Those could include jobless benefits and Health Insurance subsidies to the unemployed.
With more than 8 million workers laid off during the recession, unemployment benefits have quadrupled from $34 billion in January 2008 to $124 billion at the end of last year. And millions of Americans are now relying on unemployment benefits as their only source of income other than food stamps, they are unable to find work because there are more than six job seekers for every opening. There is literally nothing that most of these workers can do to get a job today. Unemployment benefits are often the only way they can make ends meet for their families and keep a roof over their heads.
As a side note my own daughter is in a situation very similar to this. With many skills and a great work ethic she is still unable to find a qualified job that will allow her to have day care and still show a profit for the household. Many grandparents, parents and children of all Americans are finding it ever increasingly hard to become employed. Many of our vulnerable families in America are suffering because of poor political decisions by our leaders.
As a result of record U.S. Government borrowing, total debt in the United States has soared to an all time high at 370% of yearly economic output, far exceeding its peak of 300% during the Great Depression.
While the gov’t was lavishing aid, banks were cutting credit to consumers by as much as $250 billion, nearly as much as the amount consumers gained from government transfer payments. This massive shift into dependence on the government, while essential in promoting an economic revival last year, has postponed a reckoning for many consumers who went too far into debt so they could maintain their lifestyles during those boom years. This shift only postpones a solution to the problem, by substituting Governmet that for consumer debt. It is evident these elevated debt loads will at least result in a sluggish growth or sluggish growth rates for the time being. I believe that if the problem is not tackled with determination, it might very well lead to another crisis. Other economists say the big shift towards dependence on Government spending and borrowing is only temporary.
On a brighter note Americans accumulated a record amount of saving last year as they stowed away funds out of fear of losing their jobs. The increase in savings now enables many consumers to increase spending while the 90% of workers who still have jobs can spend more because they are accumulating more income from overtime hours. The combination and interaction of all these factors, not just one, will promote more future spending by households and keep the economy going longer without Governmet aid, some believe.
Jobless benefits and other welfare spending for the unemployed will start to decline when job growth returns. Some economists predict that unemployment will increase this spring or summer in the next stage of the recovery. Because of bleak job prospects during the recession, some people were forced to count more permanently on the Government dole. As one result of this action many workers who were nearing retirement age and got laid off started drawing Social Security benefits. The number of retirees taking Social Security at age 62 grew by a record 19% last year, helping to push up Social Security outlays by $100 billion. I believe those spending levels will stay high and continue to increase as more baby boomers retire.
