the u.s. economic stimulus package and the future social welfare state thinking long-term about...
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The U.S. Economic Stimulus Package and
The Future Social Welfare State
Thinking Long-Term about Short-Term Remedies
The U.S. Economic Stimulus Package and
The Future Social Welfare State
Thinking Long-Term about Short-Term Remedies
Douglas J. Besharov
School of Public PolicyUniversity of Maryland
June, 2009
Seoul and Busan, Korea
TThe “he “GGreat reat DDepression”epression”
TThe “he “GGreat reat DDepression” epression” vs. the vs. the CCurrent urrent RRecessionecession
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
T T+2 T+4 T+6 T+8 T+10 T+12
Per
cen
t ch
ang
e in
GD
P U.S.
1929-1941
U.S.
Korea
Germany
Sources: Bank of Korea, CBO, OECD, and OMB.
Note: Dotted lines are projections as of March 2009
DDidid GGovernmentovernment PPolicyolicyWWorsen the 1930s orsen the 1930s DDepression?epression?U.S. federal deficits, expenditures, and GNP: 1929—1941U.S. federal deficits, expenditures, and GNP: 1929—1941
SSize of ize of SStimulus timulus PPackagesackagesSocial Safety Net Not IncludedSocial Safety Net Not Included
0
2
4
6
8
10
12
14
16
18
20
U.S. U.K. France Germany Japan KoreaChinaOECD
Percent of GDP
1930s-1930s-SStyletyle SStimulustimulus
Unemployment insurance
Cash welfare
Food stamps
Medical care
Housing benefits
Earned Income Tax Credit
Supplemental old-age pensionSupplemental old-age pension
SSocial ocial SSafety afety NNetet isis CCountercyclicalountercyclicalSSocial ocial SSafety afety NNetet isis CCountercyclicalountercyclical
Douglas J. Besharov, February 24, 2009
Although many gaps and inadequacies, means-tested benefits are automatic “stabilizers.”
$787 Billion U.S. Stimulus Plan$155 billion for health, education, job training, science and research
$787 Billion U.S. Stimulus Plan$155 billion for health, education, job training, science and research
Douglas J. Besharov, February 24, 2009
Tax breaks$287 billion
(36%)
Discretionary spending$308 billion
(39%)
Direct aid$192 billion
(24%)
Spending$500 billion
(64%)
Douglas J. Besharov, February 24, 2009
$70
$213
$39
-$33
$35
$111
$76
$87
$81
$76
$19
$15
-50
50
150
250
350
450
Tax breaks Discretionary spending Direct aid
2009 2010 2011 2012–2019
In billions $
Four-Plus Years of StimulusSpending by year and category
Four-Plus Years of StimulusSpending by year and category
$185
$399
$134$68
Douglas J. Besharov, February 24, 2009
$70 $81$35
$213
$76
$111
$39
$19$76
-$33
$15
$87
-50
50
150
250
350
450
2009 2010 2011 2012–2019
Permanent Rise in Discretionary Spending?
Permanent Rise in Discretionary Spending?
In billions $
Discretionary spendingDirect aidTax breaks
$288
$190
$308
DDeficitseficits and and EExpendituresxpendituresFederal:Federal: 1994—2012 (est.)1994—2012 (est.)
-1000
-5000
500
1000
15002000
2500
3000
35004000
4500
1994 1997 2000 2003 2006 2009 2012
2008
Dol
lars
2008
Dol
lars
Federal expenditures
Federal deficits
(est.)(est.)
Billions of dollars
(est.)(est.)
President’s budget
President’s budget
GGovernmentovernment S Sharehare ofof GDP GDPA permanent increaseA permanent increase
GGovernmentovernment S Sharehare ofof GDP GDPA permanent increaseA permanent increase
Douglas J. Besharov, February 24, 2009
Universal health care
Educational assistance
Unemployment insurance
Expansion of other income transfers
Creation of “green” (union) jobs
“turn adversity into opportunity”-- Barack Obama
“turn adversity into opportunity”-- Barack Obama
Douglas J. Besharov, February 24, 2009
Apparent economic emergency
Pent up political demand for “change”
Strong and impatient Democratic Congress
New and inexperienced President—beholden to unions
The apparent need to “rush”
Decentralized power in the U.S. government
TThe “he “PPerfect erfect SStorm”torm”TThe “he “PPerfect erfect SStorm”torm”
Douglas J. Besharov, February 24, 2009
HHigherigher HHealthealth EExpendituresxpenditures??
0
10
20
30
40
US UK France Germany Japan Sweden OECD-17 Korea
Percent
Gross Public Social Expenditures (% GDP)
High Taxes Pay for Social ExpendituresPublic and private (at market prices), plus indirect taxes
2003
High Taxes Pay for Social ExpendituresPublic and private (at market prices), plus indirect taxes
2003
Gross Private Social Expenditures (% GDP)Net Total Social Expenditures (% GDP) Indirect Tax Rate
Douglas J. Besharov, February 24, 2009
0
10
20
30
40
50
1965 1970 1975 1980 1985 1990 1995 2000 2005
France
EU-15U.K.Germany
JapanU.S.
Percent GDP
Tax Rates Plateaued in 1990s
Korea?
Tax Rates Plateaued in 1990s
Korea?
Douglas J. Besharov, February 24, 2009
Korea
How Will We Support Our Aging Populations?How Will We Support Our Aging Populations?
Douglas J. Besharov, February 24, 2009
0
100
200
300
400
USUK France Germany Japan
Projected deficit (2009) Current debt Projected debt
Percent GDP
Current Deficits & Debts (2008),and Projected Debts (2050)
Pre-recession estimates
Current Deficits & Debts (2008),and Projected Debts (2050)
Pre-recession estimates
Extended baseline
Tax cuts
extended
Douglas J. Besharov, February 24, 2009
Current deficit
Korea
SShort-hort-TTerm erm DDebt ebt PProjections rojections RRising ising FFastast
Revisions based on stimulus/recessionRevisions based on stimulus/recession22014014
0
50
100
150
200
250
UK France Germany Japan U.S. Korea China
Projected debt June 2008 Projected debt April 2009
Percent GDP
N/A
Note: Korea data from June 2008 and January 2009Note: Korea data from June 2008 and January 2009
►Debt payments higher share of government budgets– Limiting government’s financial flexibility
High interest rates vs. inflation
Capital investments crowded out
Exports at a competitive disadvantage
Economic growth dampened
Long-term stagflation
BBig ig DDeficits eficits LLong into the ong into the FFuture?uture?BBig ig DDeficits eficits LLong into the ong into the FFuture?uture?
Douglas J. Besharov, February 24, 2009
0
10
20
30
40
US UK France Germany Japan Sweden Korea
Percent
Higher Levels of Education?(2005)
Higher Levels of Education?(2005)
Annual graduation rate Total graduates
N/A
Douglas J. Besharov, February 24, 2009
N/A
0
2
4
6
8
10
12
14
US UK France Germany Japan Sweden Europe Korea
Percent of total population
1975 2005
Higher Levels of Immigration? Higher Levels of Immigration?
N/A
Universal benefits that need to be taxed back
Work disincentives
Savings disincentives
Marriage and child bearing disincentives
Private arrangements crowded out (substitution)
Higher costs than private payments
No cost sensitivity
Administration
Wishful thinking
Re-Think the Social Welfare State?Re-Think the Social Welfare State?
Douglas J. Besharov, February 24, 2009
WWhoho isis PPlanninglanning AAheadhead??
Policy analysis is the process of determining which of various alternate policies or programs might best achieve a specified policy goal or outcome.
One need not agree with a policy goal or outcome in order to prepare a professional policy analysis.
Douglas J. Besharov, February 24, 2009
PPolicyolicy AnalysisAnalysis
Source: McGann, James G., The Global ‘Go-To Think Tanks, The Think Tanks and Civil Societies Program, 2008
AAsia sia HHas 12% of as 12% of TThink hink TTanksanks
60% of 60% of WWorld orld PPopulationopulation
Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report” The Think Tanks and Civil Societies Program, 2007
TTopicopic AAreasreas
Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report,” The Think Tanks and Civil Societies Program, 2007
SSteady teady GGrowth rowth TThrough 1990Shrough 1990S
Followed by stabilityFollowed by stability
Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report,” The Think Tanks and Civil Societies Program, 2007
AAsian sian TThink hink TTanks anks LLarge arge
Only U.S. ones largerOnly U.S. ones larger