US Government Entitlements - The Sixth Biggest Economy On Earth

Tyler Durden's picture

Excerpted from David Stockman's forthcoming book "Trumped! A Nation On The Brink... And How To Bring It Back",

Because the main street economy is failing, the nation’s entitlement rolls have exploded. About 110 million citizens now receive some form of means tested benefits. When social security is included, more than 160 million citizens get checks from Washington.

The total cost is now $3 trillion per year and rising rapidly. America’s entitlements sector, in fact, is the sixth biggest economy in the world.

Government-Asst-DPI-072816

Yet in a society that is rapidly aging to the tune of 10,000 baby boom retirees per day, this 50% dependency ratio is not even remotely sustainable. As we show in a later chapter, social security itself will be bankrupt within 10 years.

Still, there is another even more important aspect of the mainstream narrative’s absolute radio silence about the monumental entitlements problem. Like in the case of the nation’s 30-year LBO, the transfer payments crisis is obfuscated by the economic blind spots of our Keynesian central banking regime.

Greenspan, Bernanke, Yellen and their posse of paint-by-the-numbers economic plumbers have deified the great aggregates of consumer, business and government spending as the motor force of economic life. As more fully deconstructed below, however, this boils down to a primitive notion of bathtub economics.

In this bogus economic model, it is assumed that the supply-side of the economy is always fully endowed or even over-provided. By contrast, the perennial problem is purportedly a shortfall of an ether called “aggregate demand”.

So the job of the central bank is to pump reserves and credit into the macroeconomy until the resulting incremental spending by households, business and government has caused “full employment GDP” to be filled to the brim. In effect, spending derived from current production and income is supplemented with proceeds extracted from increasingly indebted balance sheets.

Needless to say, this amounts to borrowing from future production and income, but it does boost the current period GDP so long as there is still runway available on household and business balance sheets. Yet what we call the Keynesian parlor trick—-goosing current economic output by leveraging-up balance sheets—–self-evidently doesn’t work in an economy that is at Peak Debt, as we document in the next section.

There is a similar story when government borrowing is used to fund transfer payments. Overwhelmingly, transfer payment recipients live hand-to-mouth—-so virtually 100% of the proceeds go into the spending stream (PCE) with little leakage or lag.

By contrast,, it’s an altogether different matter when transfer payments are funded out of current taxation. That’s purely a zero-sum game in which income producers have less to spend or save and recipients have more.

So the policy elite’s vestigial Keynesian fetish about “aggregate demand” means that ideas of quality, sustainability, efficiency, discipline, prudence or, for that matter, even economic justice and equity, never enter the narrative. Likewise, the possibility that current spending bloated by debt and transfer payments isn’t sustainable has simply been defined out of existence.

It matters not a whit to the Keynesian policymakers, for example, whether the considerable expansion of household consumption spending (PCE) depicted below originated in disability checks, second mortgages or car loans at 120% loan-to-value. All spending is good, apparently, even if it was deposited by a passing comet.

What counts is the incremental gains in GDP compared to last quarter and in proxies for demand such as job counts and housing starts versus prior month. That’s what fuels bullish spasms in the Wall Street casino. And when the business cycle eventually ends, there is always a scape-goat to blame, such as an oil price shock or a financial market meltdown.

The graph below depicts how the establishment’s “growth” swindle actually works. There are currently 126 million prime working age persons in the US between 25 and 54 years of age. That’s up from 121 million at the beginning of 2000

Yet even as the current business cycle is rolling over, the 77.1 million persons employed full-time from that pool is still 1.2 million below its turn of the century level!

That’s right. Only 61% of the prime working age population has full-time jobs. That compares to 65% as recently as the year 2000.

So it might be wondered. How is it possible that real consumption expenditures rose by a whopping $3.1 trillion or 38% during the same 16-year period that the number of full-time prime age workers was actually dropping?

Yes, the employment shown in the chart below is supplemented by part time workers, where the ranks have grown modestly, and also by the steadily rising participation rate of Wal-Mart greeters among the over 65 cohort. But the fact remains that on the margin the 38% real gain in consumer spending since the year 2000 shown below was funded from sources other than pay envelopes.

spending since the year 2000 shown below was funded from sources other than pay envelopes.

Among the alternative sources which played a major role in funding the nation’s shopping cart, of course, was the explosion of government transfer payment. In fact, during the last 16 years government transfer payments have grown at 6.2% annually or by nearly 2X the 3.3% growth of nominal wage and salary disbursements.

Accordingly, as shown in the chart below, transfer payments soared by $1.7 trillion during the period. This means the gain in transfer payments amounted to nearly 50% of the entire gain in wage and salary disbursements to the nation 150 million employed persons.

Needless to say, that astonishing and unsustainable trend have been completely ignored by the Wall Street/Washington peddlers of consumption based economics.

The Fed has never once mentioned the rapidly deteriorating quality of household income and spending during the last 15 years. And in crowing about all the part-time and “born again” jobs it has purportedly created, the Obama White House has never remotely acknowledged that its vaunted “recovery” has been largely built on transfer payments and debt.

So “deterioration” is not an inappropriate word. As a matter of public policy, $2.7 trillion per year of transfer payments may represent a bargain that society has chosen to make for reasons of equity and social welfare. But that doesn’t gainsay the fact that the underlying economics are an altogether different matter.

To wit, in May 2016 total transfer payments amounted to fully one-third of all the wage and salaries disbursed to the entire work force of the United States. And if you grant the old-fashioned assumption the government salaries are funded by taxation rather than production, then transfers amount to nearly 40% of wage and salary disbursements to private sectors employees.

So let’s put the chart below in plain english. Sixteen years is not a blip; it’s an embedded trend. When the transfer payment flows to “takers” over that span have fast approached the earnings of “producers”, you have a system that will, at length, go tilt.

Government Transfer Payments Have Grown 2X Wages

 

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Supernova Born's picture

Only unlimited immigration can allow the growth in entitlements that is needed to keed the Ponzi going. /s

knukles's picture

I got an idea.  With rates at 0%, let's do an LBO of China.
That way we can accomplish huge synergies and economies of scale, send the US welfare queens to brand new cities and it'll cost us naught.
Doing God's Work

ACES FULL's picture

That is as good a plan as any I've seen.

Stormtrooper's picture

But, who would shop at Walmart?

MisterMousePotato's picture

I would. So far, it's the best place I've found to buy paper napkins, light bulbs (although there is a better alternative online), inexpensive chicken leg quarters, certain frozen fish and shrimp, green onions, and blue jeans (ten bucks a pair). Oh, and honey, too. Might be a couple more things, but that's all that comes to mind at the moment.

Other than that, I don't really understand why people shop there.

Oh, yeah. One more thing. WalMart actually sells ice cream without corn syrup. Vanilla only, but it is perfectly good quality and very inexpensive. Kudos to them.

ACES FULL's picture

You buy your honey at Walmart? I won't even ask about the shrimp.

MisterMousePotato's picture

Yeah. It's a five-pound jar for 12 (?) dollars. Been a while. As for the shrimp, I know what you're thinking, but we only eat it every month or two. The human body can deal with a certain amount of toxic substances, just as smoking a cigarette every now and again isn't going to harm anyone.

Besides, what's the alternative? Corexit covered wild shrimp from the Gulf?

ACES FULL's picture

I understand. You get the most benefits from local honey although it is pricier to buy from a reputable source. Gonna harvest honey from my bees for the first time this year. As for the shrimp,I can't wait till fall so I can head down to the coast and get fresh shrimp,may even get lucky and go with a buddy to catch our own. Lots of work with all that but its worth it. Not knocking you though,I buy lots of stuff from Walmart too. Gotta do whatever time and money will allow.

joego1's picture

I used to get 9mm in there for about $10 a box. No more though.

True Blue's picture

If I may make a suggestion. I knew a man who was a food inspector at (for liability reasons) let's just say 'one of the major chicken processors.'

Never, ever buy anything but a whole chicken. Whole chickens had to be in perfect health -no tumors, growths, cysts etc. Chickens that were cut into separate parts (in his words, and I have no reason to doubt him) are almost invariably diseased in some way -and they only have to discard the infected bits -the rest of that bird becomes 'breasts', 'wings', 'drumsticks', etc. I know for sure he wouldn't eat anything but a whole bird, and after listening to his horror stories I really wouldn't either.

shining one's picture

I got an idea. End the Fed, kick Jews out of the media, kick Jews out of finance, kick Jews out of education.

LawsofPhysics's picture

Define "entitlement", is a BAILOUT considered an "entitlement"?

As far as I can tell you stupid fucks, everyone is on the dole...

Now where did I leave that "no bid" military contract? I better call my bought-and-paid-for senator.  After all, If I don't get paid he doesn't get paid.

Sheeple are so stupid.

redacted's picture

.....add to that an entitlement is someone who didn't pay into the system or work in it. people are now born or immigrated into a paycheck

thefinn's picture

This time next year everyone will be on food stamps.

 

JohnG's picture

 

But there will not be any food.....See Venezuela for a primer on what''s coming, it will just be much, much worse.

RattieNomNom's picture

made up stats to support invasion with foogies!

FearLess_FLY's picture

I know the argument between whether it is entitlement or paid for.  

 

I saw my father go from a stauch self reliant man to a man who began receiving checks from the government.  He then fell into the trap of, "that's not fair" , and changed his political outlook based on how much the govt would give him. 

 

Dear Lord,  I pray thee,  that I too don't forget my alligiance when I soon begin receiving government checks. 

(  Oh yes,  don't forget about world peace )   AMEN

Stanley Kubrick's picture

An old mentor of mine said:

"Don't be disappointed that everyone's got their price. 

What should disappoint you is just how low that price is."

August's picture

I plan to start collecting my first-ever gov bennie - Social Security - in a few months, and I still hope the fucking feds go bankrupt and the program collapses.

"The needs of the many outweigh the needs of the few". It is, after all, for the good of the children!

True Blue's picture

"The needs of the many outweigh the needs of the few" is such blathering nonsense -and worse, it is exactly the mentality that is used to enslave people and invariably ends in mass murder. Someone should get kicked in the Roddenberries every time that dispicable phrase is used.

The freedom of the individual outweighs the 'needs' of the many.

SWRichmond's picture

"Retired" people are starting to bug me.  They have been reverted to a childlike state, carefree.  While I sort of understand the attraction, their lives seem to have lost purpose, like they are marking time.  If that's what they want, fine, but where I am right now i want no part of it.

armageddon addahere's picture

I started my first full time job when I was 13 years old. I am now 65. From here on out all I want to do is coast. Is that so bad? In your view how many years should someone put in before they are entitled to a rest? Or are we supposed to pull the plow up one furrow and down the next until we die in harness?

Caprica six's picture

Who is John Galt?

 

ISawThatToo's picture

Banbait #478

John Galt was breathed into existence by a Khazarian author. Galt is then, in addition to being imaginary, not an American.

Now Nathan Hale on the other hand...

ISawThatToo's picture

Banbait #476

Every dime and dollar of that $3 trillion must be BORROWED with usury from the Khazarian grifters. Said same $3 trillion then forms the basis of additional grift and enslavement via fiat-debt in the Khazarians' bank grift machine. Then the same $3 trillion is levered up within the Khazarians' Wall Street and The City leverage machine.

Therefore then, the only "entitlement" is enslavement to the Khazarian tyranny.

Protocols 20:14 "The State exchequer will have to maintain a definite complement of reserve sums, and all that is collected above that complement must be returned into circulation. On these sums will be organized public works. The initiative in works of this kind, proceeding from State sources, will bind the working class firmly to the interests of the State and to those who reign. From these same sums also a part will be set aside as rewards of inventiveness and productiveness."

Protocols 20:32-33 "32...So long as loans were internal the Goyim only shuffled their money from the pockets of the poor to those of the rich, but when we bought up the necessary persons in order to transfer loans into the external sphere, (Woodrow Wilson and F.D. Roosevelt) all the wealth of States flowed into our cash-boxes and all the Goyim began to pay us the tribute of subjects. 33 If the superficiality of Goy kings on their thrones in regard to State affairs and the venality of ministers or the want of understanding of financial matters on the part of other ruling persons have made their countries debtors to our treasuries to amounts quite impossible to pay it has not been accomplished without, on our part, heavy expenditure of trouble and money."

Protocols 6:1 "We shall soon begin to establish huge monopolies, reservoirs of colossal riches, upon which even large fortunes of the Goyim will depend to such an extent that they will go to the bottom together with the credit of the States on the day after the political smash ... (Compulsory superannuation, Social Security)."

PoasterToaster's picture

Because the main street economy is failing, the nation’s entitlement rolls have exploded.

...

Because the nation’s entitlement rolls have exploded, the main street economy is failing.

skinwalker's picture

Things get real interesting when .gov has to keep the checks flowing to prevent the serfs from rebelling, but everyone has stopped lending them money.

 

Oh, and aggregate demand is a stupid concept. Demand is always infinite. Purchasing power is not. Everyone would buy everything if they could afford it.

The_Dude's picture

Fascist  Freebies 

FearLess_FLY's picture

I wonder if someone could finish the Limerick (where has the Limerick King gone ) :  

 

Limerick  :  

 

     I once got a check from Obama.

     The check didn't cause any trauma, 

     (fill in here)

Harry Paranockus's picture

I spent it on Apps

Like the rest of the saps

Now payback's a bitch called Karma.

Colonel Klink's picture

Then he told his kids,

Moochelle ain't Yo Momma

VWAndy's picture

 I dont know about yous guys but I cant wait until the day they all find out thats not a titty they been sucking on.

novelator's picture

Like peeling a bandaid, I just want the whole damn thing over with.

 

Then I'll know if I had enough faith to survive.

 

If I die trying to be free, what did I lose?

 

Or did I gain something more precious than gold.

VWAndy's picture

the mighty bosstones the impression that i get www.youtube.com/watch?v=NIGMUAMevH0

novelator's picture

So, TPTB has made poverty a growth industry.

 

Oh, the sin against the Innocents.

 

Or should I say woe?

novelator's picture

Here's the other question I have:

 

What is the percentage of corporate welfare?

 

If "entitlement" is 38% or so, you know those greedy fucks of TPTB, aka BIS, are getting at least that much out of us, plus the price of Congress, tacked on as a gratuity.

 

So, what does that leave for the rest of US?

 

Debt.

 

 

PoasterToaster's picture

JP Morgan has the contract for EBT and a host of other things.  Entitlements are how the government class picks the winners and losers in the economy.  The poor saps who have nothing left and who receive the welfare checks are just the scapegoats for the connected assholes who get first crack at all the printed money.

exomike's picture

Gee whiz, this is really bad. Let's starve all the old people.

exomike's picture

Precisely define "entitlements", please.

MrButtoMcFarty's picture

"means tested benefits".....means exactly that...

Able Ape's picture

Keep dem cheezy puffs a'comin'...

Kefeer's picture

I hate these articles; the largest entitlement is the top 1/10 of 1% running the nation into the ground. 

There are two welfare states, one at the bottom, which this article speaks of and one a the top.  The one at the top are living very well, the ones at the bottom are not; who here would want their (the bottom) situation?  Not I, said me!

 

This is the kind of story that deflects from the real welfare state; Stockman's a shill.

rejected's picture

How Stockman or anyone can include a bunch of lazy freeloading layabouts with Social Security recipients that paid 13% of their life earnings is a mystery to me. New Math?

I am including the employers part as that would be included in wages if not for the tax. Interestingly enough, the employer can deduct the employee portion of taxes he pays. The taxpayer isn't so lucky. Par for the course.

EDIT: Most welfare payments end up in the landlords pocket, the grocery store, the used car dealers, everywhere the recipient spends the money soooo exactly who IS the moocher here? In a way, the whole country is on welfare.

 

Dre4dwolf's picture

Well think about it like this, its an opportunity.

All these entitlements are broken down into pretty much

-Welfare Spending

----Most welfare recipients spend their money on housing, food, transportation, insureance

-Healthcare Spending

---- About 30% of Healthcare is spent on Hospital Care, 20% Physician care/clinics, 10% Prescription Drugs, ,7% Overhead costs for Insurance companies, 6% nursing home care

-Pension Spending

---- not sure on this one, but Id guess people spend their pensions on Real Estate (moving to retirement location/house), Home Imrpovements, Presents for family, paying off debts/mortgages, luxury items like fishing boats etc

 

So that presents a big opportunity.

If you know that the govt+ u.s. population is going to spend 60 Trillion dollars on all that stuff.........................

Invest in all that stuff before they start buying.

All the items on that list will skyrocket in value, prescription drug prices might  jump 1000% 

Now is a great time to start building retirement/vacation homes in more rural areas.

 

The only thing that sucks is, I think everything will come crashing down before those entitlements ever become an issue or topic of real discussion.

looseal's picture

When you are retired every day is Saturday.  If you are lucky enough to be healthy you will need to live in an area where activities you enjoy doing are available pretty much on a daily basis.  It may be in rural area or not.  Great idea to buy now for later.  During your working years, can rent out the place to pay a mortgage. 

Wild E Coyote's picture

Entitlement is not the correct word. I think compensation will be more correct. 

People of US worked hard and contributed to the economic development of the US. 

The benefits paid out are based on the economic growth and other factors. If it is too high today, it is only because of the bogus accounting and economic data that the US Government is peddling. 

If the healthcare costs are high it is only because of US Government intervention into the sector. This has caused chaos in market for health services. prices does not reflect the ability or willingness of people to pay for it. This is not free market. 

US has stopped being a capitalist or free market believer. US Government is running everything now. This will lead only to disaster. Blaming it on simple people who takes benefits that is given to them is idiotic. 

This article is spot on. Thanks.

Déjà view's picture

Insert Home Mortgage/Housing Policies (95% backstopped by Gov't) next to Healthcare. Transfer payments from renters and thrifty home owners who double down on mortgage payments subsidize mortgage debt slaves believing it is a great deal to have interest deduction against income.