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 Policy University of Maryland June, 2009 Seoul and Busan, Korea

T he “ G reat D epression”

T he “ G reat D epression” vs. the C urrent R ecession Percent change in GDP U.S U.S. Korea Germany Sources: Bank of Korea, CBO, OECD, and OMB. Note: Dotted lines are projections as of March 2009

D id G overnment P olicy W orsen the 1930s D epression? U.S. federal deficits, expenditures, and GNP: 1929—1941

S ize of S timulus P ackages Social Safety Net Not Included U.S.U.K.FranceGermany Japan Korea ChinaOECD Percent of GDP

1930s- S tyle S timulus

 Unemployment insurance  Cash welfare  Food stamps  Medical care  Housing benefits  Earned Income Tax Credit  Supplemental old-age pension S ocial S afety N et is C ountercyclical Douglas J. Besharov, February 24, 2009 Although many gaps and inadequacies, means- tested benefits are automatic “stabilizers.”

$787 B illion U.S. S timulus P lan $155 billion for health, education, job training, science and research $787 B illion U.S. S timulus P lan $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, – 2019 In billions $ F our- P lus Y ears of S timulus Spending by year and category $185 $399 $134 $68

Douglas J. Besharov, February 24, 2009 P ermanent R ise in D iscretionary S pending? P ermanent R ise in D iscretionary S pending? In billions $ Discretionary spendingDirect aidTax breaks $288 $190 $308

D eficits and E xpenditures Federal: 1994—2012 (est.) 2008 Dollars Federal expenditures Federal deficits (est.) Billions of dollars (est.) President’s budget

G overnment S hare of GDP A permanent increase G overnment S hare of GDP A 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” -- B arack O bama “turn adversity into opportunity” -- B arack O bama 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 T he “ P erfect S torm” Douglas J. Besharov, February 24, 2009

H igher H ealth E xpenditures ?

Percent Gross Public Social Expenditures (% GDP) H igh T axes P ay for S ocial E xpenditures Public and private (at market prices), plus indirect taxes 2003 H igh T axes P ay for S ocial E xpenditures Public 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

France EU-15 U.K. Germany Japan U.S. Percent GDP T ax R ates P lateaued in 1990 s Korea? T ax R ates P lateaued in 1990 s Korea? Douglas J. Besharov, February 24, 2009 Korea

H ow W ill W e S upport O ur A ging P opulations ? H ow W ill W e S upport O ur A ging P opulations ? Douglas J. Besharov, February 24, 2009

US UKFranceGermanyJapan Projected deficit (2009) Current debt Projected debt Percent GDP C urrent D eficits & D ebts (2008), and P rojected D ebts (2050) Pre-recession estimates C urrent D eficits & D ebts (2008), and P rojected D ebts (2050) Pre-recession estimates Extended baseline Tax cuts extended Douglas J. Besharov, February 24, 2009 Current deficit Korea

S hort- T erm D ebt P rojections R ising F ast Revisions based on stimulus/recession 2014 Projected debt June 2008 Projected debt April 2009 Percent GDP N/A Note: 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 B ig D eficits L ong into the F uture? Douglas J. Besharov, February 24, 2009

Percent H igher L evels of E ducation? (2005) Annual graduation rate Total graduates N/A Douglas J. Besharov, February 24, 2009 N/A

Percent of total population H igher L evels of I mmigration ? 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 R e -T hink the S ocial W elfare S tate ? Douglas J. Besharov, February 24, 2009

W ho is P lanning A head ?

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 P olicy Analysis

Source: McGann, James G., The Global ‘Go-To Think Tanks, The Think Tanks and Civil Societies Program, 2008 A sia H as 12% of T hink T anks 60% of W orld P opulation

Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report” The Think Tanks and Civil Societies Program, 2007 T opic A reas

Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report,” The Think Tanks and Civil Societies Program, 2007 S teady G rowth T hrough 1990S Followed by stability

Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report,” The Think Tanks and Civil Societies Program, 2007 A sian T hink T anks L arge Only U.S. ones larger