Wednesday, September 19, 2012

Dr. Pochick's First Two Questions

A recent Facebook conversation between a friend of mine I grew up with (Keith Pochick) and a former student of mine (Daniel Allen Hobbs) went something like this:

Dr. Pochick: What percentage of Americans are on full (and partial) government support (welfare, Medicare, Medicaid, government paid Disability), and what has that trend been over the past 50 - 100 years?

Mr. Hobbs: Social welfare programs technically began in 1912 with TR’s “New Nationalism,” but as we know them in 1930’s during the Great Depression (after Presidents Harding, Coolidge and Hoover implemented conservative economic policy over their three sequential administrations). In 2002, public expenditure on all programs was 21% of GDP. This includes all primary and secondary education expenditures - education programs like Pell Grants (for those who can’t “just borrow money from their parents” and don’t just want to “get as much education as they can afford.”) Numbers on “welfare” programs as we know them grew substantially until 1996, through 19 years of Democratic administrations and 28 of Republican, when Congress passed and Pres. Clinton signed Personal Responsibility and Work Opportunity Reconciliation Act, causing a 60% drop in the welfare rolls. As of census data released today, 46.2 million citizens live below the poverty level.  Most of them children, elderly and the disabled. The majority of them are in the south (according to CMS and Pew Center on the States). I, for one, am much happier giving my tax dollars to these folks than I am to subsidies for Exxon Mobil and to bail out preachers of free market capitalism in good times, and beggars of the reserve in bad. If you count people like me, who used student loans- technically a form of welfare, I imagine most people benefit from social welfare programs. Sad that this many need to, in the greatest, richest country on earth. Too bad they aren’t like Paris Hilton, whose hard work made her billions and who doesn’t need social welfare programs to have a fair shot at the American dream (you know, to be filthy rich and care less about community than self)

Sorry to hijack your post Dr. Smith.

Dr. Pochick: It is an honest question that I pose as a registered Independent voter. What I think would be informative would be some graphs that plot % of Americans on welfare, disability, etc. over time. Total expenditures and % of GDP spent on these services is helpful as well. Thank you for the information. I too, am a believer that the rich and corporations earning billions in revenue should be HEAVILY taxed. I think the stats I am looking for would be a good reflection of our country’s economic health over time, as I am sure they would follow a parallel curve to employment rates.

Mr. Hobbs: Well said, sir. My apologies for assuming (that’s why we don’t right?) negative connotation in your question. Forgive me, I’m still very young and foolish … lol.

Dr. Pochick: No problem  - I’m not easily offended! Our deficit/debt is a problem (real or perceived), and without finding ways to increase revenue and/or cut expenditures, it continues to grow.
Which raises another set of questions: how much debt is too much? Is there a “healthy” amount of debt? Is all this fuss about the debt a scare tactic or a real concern? Can what is happening in Greece and Spain happen to us? Hopefully, the good professor can help me understand some of these things. I am not the brightest bulb in the chandelier, so hopefully he can try to answer some of my questions at a basic level.
Yeah.  On Facebook.  I am more than lucky to be acquainted with such folk. Well, let’s see what I can do to help.

First, I’m going to break down Doc Pochick’s questions:

(1) What proportion of Americans are receiving government support in the form of either cash payments or payment for services and/or goods rendered by third-party services (e.g. medical and retail goods providers)? [from this point on when referring to these in-lump I’ll just call them “welfare”]

(2) How do current levels of welfare spending compare to welfare spending over the course of American history?

(3) How much debt is too much, relative to how much debt is appropriate or healthy?

(4) Is the United States in danger of economic catastrophe specifically because of its debt-load?

Yikes.  That is a heck of a lot.  As such I’m not going to try to answer all four of these questions in one go - rather, I’ll tackle the first two now, then hit the latter two once I’ve slept off my statistics induced hangover.  Ahem.  Here we go.

First, I am working on an old fashioned principle - when you can, use a single source.  I looked for a solid dataset, but didn’t really find one that suited my needs effectively - then, luckily, I happenstanced upon this gem:
This not inconsiderable document (368 pages) is, in essence, the total Office of Management and Budget (OMB) budgetary document (fiscal year 2013) on historical tables - literally it exists in order to allow policy makers, analysts, citizens, and America-watchers in general to (comparatively) easily gauge trends in Federal spending over time.

Alright, then, second things first.  This document is going to allow us to look at how spending has changed over time in the US with regards to welfare - I want to discuss this in both absolute and relative terms - that is to say, how much has it changed in terms of total amount of wealth expended and how much has it changed as a proportion of the Federal Budget.

Now, I could break this down to a very detailed level, but I won’t - I don’t have infinite time, and this is a blog post - that said, the data is readily available in the document.  That said, the OMB provides us with a nice umbrella catch-all for “welfare” in the term “Human Resources” - this term includes expenditures on education, training, employment, social services, health, income and social security, and veteran’s benefits (I wish the latter weren’t lumped in this section, but such is life).

What do we notice at first glance that is relevant.  Well, several things.  Firstly, in the contemporary period of American political-economics (that stage that follows the end of the Second World War) there is a steady and, frankly, fairly radical increase in the proportion of the Federal outlay that is related to matters “welfare” - indeed, while there is a very significant increase (more than a tripling, in fact) of the role the Federal government’s welfare spending plays in the American GDP, it is as a proportion of the total Federal budget that welfare truly explodes.  Alright then, why is this the case? Well, there are a few reasons.

To explain these, I’m going to rely on a couple of documents:

The Census Bureau’s “Demographic Trends of the 20th Century”


Timothy Noah of Slate’s “The Great Divergence”

and also, the Social Security Administration’s 2012 Fast Facts & Figures About Social Security

(1) We’re getting older.

I think the easiest way to illustrate this is to lift a quote straight from the Census Bureau’s review of 20th Century demographics, “At the beginning and the middle of the century, the most populous 5-year age group was under age 5. In 2000, people age 35 to 39 years outnumbered all other age groups.”  Why is this the case? Well, there are tons of reasons - people are having fewer children, people are living to be older thanks to advances in medical technology (and relatively high access to this technology), and there was an enormous burst of population in the late 1940s and the 1950s which we all know far too much about - the Baby Boom.

The result is that there are a lot of old people relative to young people.

What is the big deal, eh?  Well, a couple of things.  First, the older your population, on average, the smaller your proportion of people actually contributing to the tax base.  Secondly, the older your population, the more expensive any given welfare cost becomes since the cost of keeping an old person alive is higher than that of a younger person.  Thirdly, older people are contributing less to the tax base because they aren’t generating as much private income, thus the perfect storm emerges - old people need more money just as they need more money (think about it) just as they are able to generate less money.  Yeah.

Societies of course used to deal with this by letting families take care of their elderly.  Well, there are a couple problems with that too.  Remember how we’re having fewer kids?  Well, that means fewer working-age people to support the elderly per, um, elder in terms of both income and time.  Furthermore, people flat out live longer, so the drain on their kith and kin is far greater if this is our primary solution - heck, the average American lives darn near to 80 today - in the early 20th century it was closer to 60.  The result?  According to the Social Security Administration, in the mid-1950s every retiree had 8.5 people working to support them; today it is closer to two.  That is a heckuva’ difference.

(2) We’re becoming more urban.

In 1940 just over half of Americans lived outside of a metropolitan area (city or suburbs).  By 2000 that number came in at around 20% of Americans.  The trend is ongoing - steadily an ever-increasing proportion of Americans have left the farm for the city, largely because the agricultural life is difficult both financially and in terms of lifestyle, and because mechanization and the emergence of economies of scale in the form of corporate farming have driven them out.  Add to this the steadily declining dependence of Americans on mining and lumbering as sources of employment (though not necessarily as sources of income), again due to mechanization, and the process s easily understood.  Why does this matter?  Very simply, urban poverty is very different from rural poverty.  Urban poverty provides far fewer opportunities for alleviating poverty either through alternative income generation or substitution (e.g. gardening) and the urban poor rarely own real estate property which, in times of crisis, can be disposed of - they are tenants.  The result is that the similar poverty rates demand more government resources in an urban nation than a rural one, all other things being equal.

(3) & (4) Small- and medium-sized businesses are steadily less common AND income inequality is on the rise

Once upon a time America was very, very capitalist.  When I say this, what I mean is that the American economy was overwhelmingly driven my small- and medium-sized businesses, many of which were not even incorporated.  These businesses were competitive, which is nice, driving down prices while increasing quality of service and good.  But, equally important, they were the basis of a healthy society. You see, economies with lots of small businesses have more owning-class folk and more management-class folk, and other white-collar and “elite’ blue-collar positions - they do so because they are less efficient.  Economies with a few huge, diversified businesses have few owners (who are often absentee) and far fewer of these “petty bourgeoisie” folk - as a result they are much more efficient.  The result of this efficiency is, however, that wealth is overwhelming collected by a very elite upper-class (the 1%’r in the parlance of the Occupiers, but honestly more like the 10%’rs or 5%’rs).  Combine this with the fact that highly concentrated wealth is less likely to be spent outside of a few elite metropolitan areas (e.g. New York, London, Paris, Geneva, Shanghai, Hong Kong, and Tokyo) and therefore is very unlikely to “trickle down” and, well, bam.  Poverty increases, especially in rural areas and non-elite urban areas, leading to an amplification of the urbanization phenomenon and greater demands for public services.

It should be noted that this is further exacerbated by mechanization.  For instance, I often get nasty stares from mining folk when I talk about “when Old King Coal died.”  They argue that we’re still producing a heckuva’ lot of coal every year.  And they’re right - we are, indeed, more now than ever, and at incredible rates of efficiency.  Alas, we’re doing it with ever fewer miners but ever more industrialized and robotic methods.  The result is that less and less income is generated by mining for the people who live in the place that mining is done and more and more is generated for the folk who own the mines but, again, don’t live in the coal country.  I’m not picking on coal here, by the way - the Rust Belt is an enormous lesson in just this sort of process.

Is this list comprehensive?  Nope.  The drug and prison culture in the United States is clearly a contributing factor, for instance, but I do believe that in the broad strokes it does explain the increased pressures on the system.  Ah, but that means  I must return to my first question - how has welfare dependence changed over time?

The simple answer is there is no simple answer.  In absolute terms, clearly - the evidence above makes that unavoidable - there are more people drawing benefits from welfare than ever before.  Getting more detailed than that can be hairy.  Here are a few things I can say -

(1) Based upon the 2012 Social Security Administration “Fast Facts” publication the proportion of total income in the US derived from social security has increased from 30% to 37% since 1962.

(2) Based on the same document the number of children dependent upon social security insurance has increased from fewer than 200,000 in the mid 1970s to nearly 1.4 million today.

(3) The real value of welfare benefits in the form of direct payments has steadily declined over time due to the fact that increases in benefits haven’t kept up with inflation.

(4) It was only recently that direct payment welfare roles increased - throughout the 1990s and early 21st century they were largely stable, largely due to 1980s and 1990s-era reforms that strictly limited the time non-disabled persons could receive certain benefits.

Okay.  My fingers hurt.  More later, Dr. Pochick and Mr. Hobbs.

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