The good news is that wages still make up a majority of the nation’s income. Barely.
USA Today reports that in 2010, “wages accounted for the lowest share of income — 51.0 percent — since the government began keeping track in 1929.” In February of this year, “wages slipped to another historic low of 50.5 percent of personal income.”
As the proportion of our income derived from wages has declined, the proportion derived from government has increased. “A record 18.3 percent of the nation’s total personal income was a payment from the government,” USA Today writes. The recession obviously has much do with this, but “the trend shows few signs of easing, even though the economic recovery is nearly 2 years old.”
Government accounted for roughly 12 percent of income from 1980 to 2000, according to the paper, then started an inexorable march upward. In 1990, Americans on average received $3,686 in benefits from government; in 2000, it was $4,763; in 2010, $7,427. Almost all of it comes from the feds.
Someone has to pay for this, and if it’s not our creditors, it’s people making money and paying taxes. The private economy is caught in a vise between old-age entitlements and welfare programs for the poor. Everyone knows about entitlements. Social Security and Medicare already cost about $1.2 trillion, even before baby boomers begin to retire in earnest. Medicare has grown by 80 percent since 2000, and is set to career ever upward.
For every dollar of Social Security and Medicare, we spend roughly another 50 cents on anti-poverty programs, broadly defined. These programs have expanded at a rate 89 percent faster than inflation since 2000, according to the Heritage Foundation. Fifty million people are enrolled in Medicaid, and more than 40 million are on food stamps. Under George W. Bush, anti-poverty spending topped 3 percent of GDP for the first time. It is now above 4 percent of GDP, and Pres. Barack Obama’s vision is for the programs’ perpetual growth.
To save the productive economy from getting swallowed by these twin behemoths, we must both reform entitlements and constrain anti-poverty spending. It is telling, then, that there are two main criticisms of Paul Ryan’s budget plan: 1) It will reform entitlements; 2) It will constrain anti-poverty spending. In other words, Ryan’s offense is daring to do anything at all about the primary sources of welfare-state overreach.
The purpose of anti-poverty spending was supposed to be to get people out of poverty and off the programs. Their advocates, though, are never embarrassed by their continual increase, which is taken as a fact of nature. Liberals are willing to declare every war a quagmire except the war on poverty; by definition, there is no such thing as a failed poverty program.
According to Robert Rector of the Heritage Foundation, at least half of the spending goes to able-bodied people. If we were to take anti-poverty spending back to pre-recession levels and limit its rate of growth to inflation — as Republican representative Jim Jordan proposes, once unemployment declines to 6.5 percent — it would save $2 trillion over the ensuing ten years.
The fundamental source of contention in our politics is whether we accept our current path of enlarged reliance on government, or endeavor to reverse it. We can argue about what the tipping point is when our society will have lost its distinctiveness and dynamism. When we get 20 percent of our income from government, 25 percent? When only 45 percent of income is from wages? If you’d rather not find out, you’re an “extremist.”
At the moment, the American economy seems to be hitting a perverse sweet spot of low growth — just 1.8 percent in the first quarter — and rising prices. The Obama economic program is in shambles, unless the unspoken goal was always increasing reliance on government. By that metric, it’s been a smashing success. The trend line suggests yet more success to follow.
— Rich Lowry is editor of National Review. He can be reached via e-mail, [email protected]. © 2011 by King Features Syndicate.