Monday, April 4, 2011

[Chart] Economix - The Dependence Economy, Only Half of the Average American's Income Comes via Wages

I've often written how dependent the average American has become on transfer payments as nearly 20% of income now comes via this route.   [May 25, 2010: 1 in 5.5 Dollars of American Income Now Via Government; All time High  But this graph via NYT Economix shocked me, because it cross references the growth in transfer payments with the shrinkage in wages in terms of the average American's % of income.  From nearly 70% sixty years ago, we are fast approaching the point where wages only make up half of a typical person's income. Startling, especially when you consider this is not a chart for the bottom 1/3rd, or bottom half of Americans, but everyone.  One can only imagine how much more heavily it would skew for the lower socio-economic classes.

I would assume a large proportion of this growth has to do with the outsized gains in healthcare costs, especially in the past 25-30 years, but it still is an eye opener.

As an aside, I wish I had the inputs for this chart so I could figure out where the other "30%" of income is coming from if 50%ish is from wages and 20%ish from transfer payments.   Whatever the case, and for whatever reasons (some of which are very clear), the average humanoid is becoming increasingly dependent on the government ...   Of course "the government" is nothing more than taxes on other citizens + exponential growth in borrowing.  Smells like a Ponzi... sounds like a Ponzi....

Via NYT Economix
  • Over the weekend I attended a talk by Credit Suisse’s chief economist, Neal Soss, on the structural and cyclical challenges facing the economy. The cheekily titled chart  — showing how much more dependent Americans have become on government money— is taken from his presentation.
  • The red line shows what share of personal income comes from wages — that is, what Americans earn from working. The blue line shows what share comes from  transfer payments, which are made to individuals, usually by the federal government, through social benefit programs like unemployment insurance, disability insurance and Social Security. (Note that the two lines use different scales, shown on the vertical axes, and that the scale for wages does not start at zero.)
  • ............the lousy job market accounts only for the spike at the end of the blue line (and likewise the steep slide at the end of the red line), where the numbers correspond with the Great Recession and its aftermath. The chart shows that the overall trends long predate the financial crisis.
  • These underlying trends are partly because of demographic changes; an aging populace means that an ever-smaller share of Americans are working, and so a larger share are receiving Social Security benefits and Medicare, which is also getting more expensive. 
  • Policy changes, more Americans’ going on disability and growing inequality, which in some cases may be leaving more Americans on the dole, are also likely contributing to the growing Dependence Economy.
  • Whatever the causes, these  trends are not infinitely sustainable. The money for transfer payments has to be transferred from somewhere, after all — and if not from other people’s wages, then from China and other foreign creditors.

[Nov 5, 2010:  USA Today - Anti-Poverty Programs Surpass Cost of Medicare]

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