In an article in The New York Times (October 5, 2011) titled “Nearly half of US lives in household receiving government benefit” on how US families had become increasingly dependent on federal support, Ms Sara Murray wrote: “Families were more dependent on government programmes than ever last year. Nearly half, 48.5 per cent, of the population lived in a household that received some type of government benefit in the first quarter of 2010.”

According to her, since the third quarter of 2008, when 44.4 per cent households had state-supported beneficiaries, the number has risen. They have been on the rise continuously and since long. State-dependent households were less than 30 per cent in 1983; the dependency steadily rose year after year — never fell except just in one year, 1995 — to the present level. The dependency has risen by almost two-thirds — from less than 30 per cent to 48.5 per cent — between 1983 and 2010.

Ms Sara Murray says that in 2010, 34.2 per cent Americans lived in households that received food stamps, subsidised housing, cash welfare and medicaid; 14.5 per cent lived in households where someone was on medicaid; 16.5 per cent of the households received social security. While the percentage of Americans on state aid rose, the percentage of Americans paying tax declined from 46.4 per cent in 2007 to 39.9 per cent. Also, 18.1 per cent of the household paid neither income tax nor payroll tax.

This had happened, not when the US economy was failing or falling, but, when it was on the rise, and was even seen as the model for everyone. The US GDP had risen from $2.8 trillion in 1980 to $14.5 trillion — by 5.2 times. Per capita GDP in the US in 1980, which was $12,530, is now $47,200 in 2010 — up by 3.8 times. Citing these numbers, the CIA Fact Book proudly claims: “The US has the largest and most technologically-powerful economy on earth, with a per capita GDP of $47,200.”

FEWER TAX-PAYERS

Yet, it was when the US GDP rose by 518 per cent and its GDP per capita by 377 per cent, the number of state-dependent households rose by two-thirds, to almost half the US families, and the number of tax-paying Americans dropped by one-seventh. Today, if eight Americans pay tax, 10 Americans not only don't, but live on the state.

How come even when the US economy was regarded as the most prosperous and powerful on earth, more and more people queued up for food stamps, subsidised homes, cash welfare, medicare-medicaid and the like and still do?

Troubling contradiction indeed. Mere economic analysis cannot unravel or answer this. It needs socio-cultural and socio-political audit of economics and US economic policies.

State support to distressed families emerged in the US during the Great Depression. In 1935, the Social Security Act to hedge against families in distress, provided for retirement and unemployment benefits and for lump-sum payment on death.

The scheme worked, and still does; thus, all employed Americans compulsorily pay payroll tax, their employers paying matching sums, to the government; and from out of the national pool continually funded thus, all those who retire or are unemployed, or the families of the dead, are regularly paid out. Social security is, in substance, dedicated tax. The concept expanded later, for worse.

COSTLIEST GOVT PROGRAMME

Subsequently, from the 1960s, the US government began providing for medicare, medicaid, education and other social welfare programmes, which kept increasing. Till 1960, medicare and medicaid were non-existent.

In 1950, the social security spend was 0.3 per cent of GDP; in 2010, it is 4.8 per cent of GDP. Today, the US Social Security is largest government programme and accounts for one-fifth of the federal spend. Medicare-medicaid account for another one-fifth.

In 1970, medicare provision in the budget was 0.7 per cent of GDP; now it is 2.7 per cent; in 1970, medicaid provision was 0.2 per cent of GDP; today it is 1.8 per cent. In 2010, the social security spend out of payroll tax was $695 billion, and medicare and medicaid $753 billion; education and social welfare $571 billion.

The total social security, medicare-medicaid, education and social welfare cost in 2010 — an extraordinary year — is $2.029 trillion. This accounts for almost 15 per cent of the US GDP, and accounts for 57.7 per cent of the federal revenue.

STATE AS FAMILY

Milton Friedman, regarded as the most influential economist of the second half of the 20{+t}{+h} Century and a Nobel Laureate, denounced social security as creating entitlement for all based on merely age, not an economic or poverty index. It is therefore not an anti-poverty measure. And what started off as support to families slowly expanded to supplant the families themselves.

The result: by such welfare schemes, the US government gradually took over the responsibilities and burdens of US families, and rendered them duty-free and functionless. By taking over normal functions of almost half the US households, the state has virtually replaced the household — that is, nationalised the families. While the next part of this article will be on the causes and consequences of this fundamental shift in the state-society relation, here is a brief on how this shift seems set to dynamite the US economy itself.

The greatest challenge of the US Treasury today is how to fund or how to reduce, the galloping social security-health care cost.

The 125-year projection (1962-2075) of the Congressional Budget Office (CBO) made in July 2002 — that is, before the financial meltdown in 2008 — saw social security, medicare-medicaid cost leaping to 11.3 per cent of US GDP in 2020, to 13.9 per cent in 2030, to 15.5 per cent in 2040, to 16.7 per cent in 2050, to 18.1 per cent in 2060, to 20 per cent in 2070 and to 21.1 per cent in 2075.

Against this, the total revenue of the US government would be 19.2 per cent of GDP in 2010; and it would remain constant at 19 per cent till 2075. The message is: the entire revenue of the US would be inadequate for the obligations resulting from financial nationalisation of families alone!

GLOOMY PROJECTIONS

According to the CBO, if things continued unattended, the budget deficits in 2050 will be 7.9 per cent of GDP; in 2060, 12 per cent; 2070, 17.5 per cent and in 2075, 20.7 per cent. This projection was made when the US was better off, and on the basis that US would post budget surpluses year after year, during 2000 to 2030.

But the prognosis now is that there would be no surplus between 2009 and 2019, and till 2019 the federal deficit would top $9.5 trillion! The gloomy projections of 2002 look gloomier after 2008.

Even as families were being actively nationalised in the 1980s, another movement started in the late 1980s in the reverse direction — namely, privatisation of the state.

Yes, it was then that, for the first time, the US President constituted a Commission on Privatisation, in 1987, to divest the state of its functions.

The Commission targeted low-income housing, home-loans, air traffic control, postal service, prisons, federal assets such as Amtrak, naval petroleum reserves, medicare, urban mass-transit and the like, for privatisation.

Why did the state in the US assume family functions from households and divest its own functions to corporates? Obviously, the state, overburdened by nationalisation of family functions, had to unburden itself by privatising its functions in exchange.

But, why did the US nationalise family functions? What principle of socio-economics caused this shift and to what effect? More on this tomorrow.

(To be concluded)

(The author is a corporate advisor. blfeedback@thehindu.co.in. )

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