How Much Government Handouts Are We Getting?

This week the US Bureau of Economic Analysis (BEA) released the Gross Domestic Product results for the first quarter of 2021. The release is here. There we see that the US economy grew at an annualized rate of 6.4% in the first quarter of 2021. 

Also included in that BEA release were estimates of Personal Income. When we dig deeper we see that the share of government handouts to the personal income of all people comprised a record-high rate of 34%. This rate is nowhere near what we have seen over the last 20 years, particularly prior to the government lockdowns policies enacted in March 2020.

Even when compared to the last financial crisis of 2008 – 2009, we see that share oscillating between 15% and 20%. Take a look at this graph for yourself:

                    Source: Bureau of Ecomomic Analysis. Calculated as the percentage of monthly 'Personal current transfer receipts' to 'Personal Income'.

The problem here is two-fold: 

• One is that the government is giving out money it does not have. We are all too aware of the debt problems the government has. 

• The other is that dependence on government is a breeding ground for all sorts of distortions – which among many include subsidizing behavior that is not conducive to increasing productivity and therefore economic growth, or getting people used to the idea that there is such a thing a free lunch (something for nothing), etc. 

Yet, the longer this policy of the government giving out money it does not have goes on, the closer it leads to an ultimate disaster. Imagine a drug junkie who realizes that his drug dealer is no longer around. That’s an appropriate image of what awaits for those who believe the current path we are on is sustainable. Reality is harsh to those who believe in fairy tales.