Income shift from private industry to government

According to this story (from USA Today) the tectonic plates of the welfare state have shifted to record levels. The country’s income from the private sector is at an all time low while the income from government is at an all time high.

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 ā€” from Social Security, unemployment insurance, food stamps and other programs ā€” rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. 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.

This should not be surprising with out of control government spending at record levels. The biggest problem is that the government is spending money it doesn’t have. (For more details, see the US Debt Clock.) The article contains two quotes of note. The first is from a moron who thinks this is good:

The shift in income shows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

“It’s the system working as it should,” Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

Private wages will rebound only when private employers start hiring again. Lavish government spending will not “stimulate” this. The other quote is spot on:

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.

And nothing produces less than government.

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