Monday, April 04, 2011

The Dependence Economy: whatever can't go on forever won't

Catherine Rampell has a post on the trends in where our personal income is coming from. The long term trend is that more of it is coming from transfer payments and less from earnings. The steep blue rise and red decline at the end reflect the recent great recessions, but the trend has been established for far longer. As she notes,
These underlying trends are partly because of demographic changes; an aging populace means that an ever-smaller share of Americans are working, and so a larger share are receiving Social Security benefits. Policy changes, more Americans’ going on disability and growing inequality, which in some cases may be leaving more Americans on the dole, are also likely contributing to the growing Dependence Economy.

Whatever the causes, these trends are not infinitely sustainable. The money for transfer payments has to be transferred from somewhere, after all — and if not from other people’s wages, then from China and other foreign creditors. But foreign creditors won’t foot the bill forever without an exit strategy.

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