Friday, November 5, 2010


Sniffing around the internets to try to figure out where all the formerly employed are being stashed away, I thought perhaps some were headed to welfare.  But based on this story in USA Today, that does not seem to the case, as welfare costs have only risen mildly the past 2 years.  Hence it remains a mystery to me, although with 1 in 10 mortgage holders in America living 'rent free' ... I suppose one could make do for 2 years with a combination of unemployment benefits + no housing payment.  We also have seen many cases of working age adults going back to live with parents, but this still does not explain millions of people who seem to have disappeared from the radar.

What was more striking as I did some quick research was how anti-poverty programs in the country, now surpass the cost of Medicare.   While everyone thinks both Social Security and Medicare are equal issues, Social Security can be extended a long time with some means testing, slight reductions in benefits, and pushing out the retirement age a year or two.  (not great choices, but do-able ones)  Medicare on the other hand is the elephant in the room - with medical costs in the U.S. rising 7, 8, 10, 11% a year this one is skyrocketing out of control.  The annual cost is just under $500B and growing at a hectic pace.

But as this data shows, if you combine the 4 major anti poverty programs (a) Medicaid (b) unemployment benefits (c) food stamps and (d) welfare - their cost has actually surpassed Medicare.  Staggering.   I've been talking about the food stamp issue long before it was fashionable.  [Nov 10, 2009: Walmart Executive "There are Families Not Eating at the End of the Month"] [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps[Jun 8, 2009: 1 in 9 Americans on Food Stamps [May 7, 2008: 1 in 11 Americans on Food Stamps]  I've written in depth on how America is becoming incredibly bifurcated  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance? [Sep 7, 2009: Citigroup - America; A Modern Day Plutonomy... but looking at it from a budget structure point of view is interesting.


For a background the federal fiscal year runs from October xx to September xx of the following year - so this data is through September 2010, and shows the increase from fiscal 08 to fiscal 10 (which just completed)

To put into context for foreign readers, U.S. population is just over 300M

50 million Americans on Medicaid  (keep in mind this excludes the substantial fraction of Americans with no health insurance)
10 million on unemployment benefits (peaked at 12m, but some people are exhausting their 2 years of eligibility)
40 million Americans on food stamps
4.4 million on welfare

Of course you cannot add these figures together (which would be 104 million, i.e. 35% of the country) because some people are drawing on multiple programs.  But stop here before you run ahead - look at those numbers above within the context of 300M citizens.  As we walk through the streets in our lives, essentially every 5th/6th person we pass is on one or multiple of these programs.  Richest country on earth?*


How does this translate to costs? Here are the increases in 2 years - from fiscal 2008 to fiscal 2010:

Medicaid +36% ($273B)
Unemployment Benefits +270% ($160B)
Food stamps +80% ($70B)
Welfare +24% ($22B)

Total: ~ $525B

Again, Medicare i.e. a national crisis - is just under $500B.

Green shoots anyone?

Aside from telling us the reality on the ground for the "bottom 2/3rds" (i.e. non stock investor class), this shows us the path to fiscal deficits is not going to be fixed anytime soon - if ever.  It is very easy for the GOP side to say "we'll cut spending" (when you don't mention any cuts of large scope specifically) but where are you going to cut to close that $1.3T hole?  .

Still doesn't answer my question where all these people who have dropped out of the workforce have gone but I assume many of them are enrolled in these programs the past 2 years, and hence the surge in costs.


That said, in America it is a bottom line business (profit at all costs) and as long as our largest corporations (and their human benefactors at the top of the food chain) are doing well, the entire society does well.  (as the data above clearly indicates...errr)  Further, with the Fed manipulated asset prices "higher than they should be" - everything else is just details. Trickle down prosperity - indeed.

As for the remaining citizenry outside of the government class and the top third of society.... the solution has become painfully obvious.  Print money to our hearts content, run deficits to the moon (let the Fed monetize it) and hand it out to quell the former middle class.  Bread and circuses! Sort of like Feudalism version 2010.  [May 25, 2010: 1 in 5.5 Dollars of American Income Now Via Government; All time High

[Oct 22, 2010: Reuters - The Haves, the Have Nots, and the Dreamless Dead]
[Sep 3, 2010: - The Crisis in Middle America]


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