Transfer Payments in America

Over the weekend I tweeted some links on transfer payments in America, but people responded sensibly that one should separate retirement programs from the rest of the American welfare state when looking at this. And so I did.

The chart needs a little bit of unpacking. The blue line is Social Security and Medicare. The green line represents Federal Reserve Economic Data’s “government social benefits to persons” minus Social Security and minus Medicare. In other words, it’s Medicaid, Supplemental Nutrition Assistance Program, Unemployment Insurance, and all the other social benefits that aren’t earmarked for the elderly. I think that what you see in this green line explains a lot of why American politics is so emotionally complicated. For several years now, spending on transfer payments has been basically flat in nominal terms, meaning that it’s falling on a real per capita basis. On the other hand, it really does look like Nancy Pelosi and Barack Obama managed to surge this spending upward in a way that isn’t just a temporary recession hike but instead reflects an upward ratchet of the welfare state relative to its old trajectory.

And of course Obamacare’s Medicaid expansion and exchange subsidies will substantially increase government social benefits spending starting next year, even with many states refusing to expand.