Record government support

Date posted: May 20, 2011

A recent report indicated that government payments to individuals reached an all-time high.  N.C. State University economist Mike Walden explains why this is and what it means.

“A record 15 percent of all the income generated in our economy now is being taken by the government and transferred to other people. In fact, we call those transfer payments. And this is up from 12 percent only two years ago.

“And I think it reflects two things: First of all, clearly, the recession. During a recession we have more people on unemployment, so they collect unemployment compensation. They perhaps qualify for Food Stamps. Medicaid expenditures usually go up. So, it’s not unusual for this number to rise during a recession.

“Of course we’ve had an absolutely horrible recession. But the other thing it reflects is an ongoing trend. This number has been trending upward for many decades, and, in fact, 50 years ago, rather than 15 percent of the economy involved in transfers, it was only 5 percent.  And I think that the main pushers over the long term is the fact that we have an aging population.  As that population ages and, particularly, reaches retirement, those folks qualify for Social Security. They qualify for Medicare. Medicaid can kick in.

“So, this is a number that has been growing, and I think it does present a very important challenge, particularly to our legislators and elected officials who want to balance the budget.”

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