The Return of Big Government and the (de facto) Welfare State (March 17, 2009)
Bill Clinton famously declared the end of big government and "ended welfare." Now as the U.S. economy rumbles down the path to Depression, the return of Big Government will be followed by a new de facto Welfare State.
The Return of Big Government is not exactly news. As one region after another in the U.S. slouches toward either Recession or Depression, the only Sugar Daddy capable of printing money and spreading it far and wide is Big Government. Nominally "small government" governors and mayors are scrambling over one another to get their share of the largesse, and of course the befouled financial sector continues its stupendous siphoning of Federal swag as well.
All hail the return of Big Government (as long as I get my share).
But while Big Finance and local governments are gorging at the trough, precious little is being said about the millions of unemployed scraping by on unemployment insurance scheduled to end, and the millions more who face layoffs as the economy spirals down.
Record 31.8 million on food stamps: Government shows increase of 700,000 food stamp recipients in a single month.
Last summer food stamps were renamed the Supplemental Nutrition Assistance Program, or SNAP.
If there are no jobs to be had, then how are these millions of households expected to get by? As correspondent Richard Metzger and I have discussed over the past few months, is there really any option to a de facto welfare state?
In a society based on free expression and high expectations, is it really plausible to expect millions, if not tens of millions, of unemployed to slink off into a hopeless, quiet poverty? The MSM propaganda machine is already ceaselessly pumping out stories about how the "recovery" will begin in 2010; but they never answer the key question: "based on what?"
The vagueness of the "recovery" talk is the giveaway: there is no basis for a recovery of the job market. Yes, stocks might rise as companies slash payroll and overhead enough to return to profitability, but the self-reinforcing cycle of less borrowing, more debt renunciation/paydown, drastically lower income and sales taxes, further declines in the housing market, etc. all suggest there is simply no rational basis for the MSM's expectation that a new credit-housing bubble will create millions of new jobs in 2010.
By early next year, all the current unemployment extensions will have expired. By early next year, the Federal government's ability to borrow another $800 billion at low interest rates to fund 3 million jobs will be gone; paying $100,000 or more per job is simply unaffordable. These realities will leave us and policy makers no alternative to a much cheaper social safety net.
As of March, approximately 5.3 million people are drawing unemployment benefits ( Record number of Americans on unemployment) and virtually no one claims this is the bottom of the recession. Given that there are about 133 million formal jobs in the U.S., it's plausible to estimate another 5 million wage earners will be laid off. As monthly layoffs hit 700,000, it won't take many months to reach 10 million officially unemployed and millons more officially "discouraged" or "underemployed" workers.
By my own rough accounting ( Endgame 3: The End of (Paying) Work, January 21, 2009), as many as 30 million jobs are at risk of vanishing in this Depression.
Here's how de facto welfare might work. Let's say 10 million people will soon be collecting unemployment benefits. This is not "welfare," as the funds in the state coffers were paid by employers. But these state coffers are being drawn down to zero, which means Federal money will be needed to pay the unemployment benefits to those who can't find work.
Currently, unemployment benefits last six months; they've been extended in various states for obvious reasons.
But what happens when the extension runs out? It's not like the economy is capable of creating 10 million jobs in the next six months. With the credit and housing bubbles irrevocably popped, it s difficult to see how the economy can generate 10 million jobs over the next six years, never mind six months.
The possibility that few are willing to discuss is that 20+ million workers will be unemployed for years, not months. As the Bob Marley song has it, "a hungry mob is an angry mob," and while food stamps, oops, excuse me SNAP script, will buy a goodly amount of real food (that is, not frozen pizza, potato chips, etc. but broccoli, bread, milk, etc.) they won't pay the rent.
Maybe my math is off, but it seems that paying 10 million laid-off workers $10,000 each a year works out to a mere $100 billion--chump change when you consider TARP, TARF, BARF and all the other financial sector bailouts/loans. (OK, BARF was a joke, but just barely.) The point is that paying 20 million unemployed people with slim-to-none chances of finding another job $800 a month in unemployment (roughly $10,000 a year) works out to $200 billion a year--far cheaper than the $787 billion "stimulis bill" which is supposed to save or create a paltry 3 million jobs.
Is extending unemployment benefits indefinitely "welfare"? I would say it is a de facto "social safety net" because if people can't find jobs and have no money, that's the foundation for anger, desperation and some flavor of insurrection, be it at the ballot box or the streets.
When you ponder an annual Federal deficit of $2 trillion, then $200 billion-- a mere 10% of the total deficit--seems like a real bargain to keep 20 million wage earners in some kind of shelter.
The other key to avoiding insurrection is to fully legalize marijuana and control it in the exact same fashion as tobacco is controlled. A crowd of stoners is not motivated or interested in rioting, while a drunken mob is positively primed to riot. If we want to minimize the risk of large-scale urban mayhem, the two most important steps we as a nation can take are:
1. Legalize marijuana, allow unlimited personal harvests and engage the big tobacco companies in packaging and marketing legal marijuana alongside their existing tobacco products. (The taxes generated will be most welcome, heh.)
2. Extend unemployment benefits indefinitely, until the job market can absorb the 20 million unemployed. (Please check back in 2012, 2015, and 2022.)
In past recessions, I received unemployment when laid off; when I was an employer, I paid thousands of dollars every year into the U.I. fund. It is a system which "works" during most recessions. But this is a Depression, and we need to think through solutions to mass semi-permanent unemployment. In the Great Depression, "relief" to families started as a box of basic foodstuffs; eventually this was replaced by a small cash stipend.
You can see the connection between today's subject and last week's topic of urban vs. suburban safety. Longtime correspondent Albert T. (who resides in New York City) and I have exchanged emails on these issues; here are his thought-provoking comments:
I am partially with you on the viability of some cities being safer then some suburbs. However, once the wonderful public pensions elephant hits the fan in most places the cities with the most aggressive bureaucracies trying to hunt for the last dollar standing will drive out the economic market makers in their prospective areas. Some cities will of course stoically/honorably go bankrupt and wipe out pension obligations or transfer them to PBGC which will minimize them, thus delivering themselves from the burden.
Albert added these comments after I suggested food stamps and unemployment would provide a social safety net:
The problem is that foodstamps will buy you nothing other than bread and maybe milk. In Russia people were paid similar wages but those who had access to food or tradable goods did better because you either got part of those as wages or they got stolen and traded.
Correspondent Ishabaka, M.D. checked in with these interesting comments on living in a small rural town, the acme of survivability in many minds:
After having lived in a city with multiple riots, that was once under martial law (sandbagged machine gun nests on every major city intersection!), I'll tell you where I'd like to be in case of T.E.O.T.W.A.W.K.I.
Thank you, Albert and Ishabaka, for these thoughtful commentaries.
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