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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
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T he “ G reat D epression”
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T he “ G reat D epression” vs. the C urrent R ecession Percent change in GDP 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
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D id G overnment P olicy W orsen the 1930s D epression? U.S. federal deficits, expenditures, and GNP: 1929—1941
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S ize of S timulus P ackages Social Safety Net Not Included U.S.U.K.FranceGermany Japan Korea ChinaOECD Percent of GDP
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1930s- S tyle S timulus
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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.”
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$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%)
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Douglas J. Besharov, February 24, 2009 200920102011 2012 – 2019 In billions $ F our- P lus Y ears of S timulus Spending by year and category $185 $399 $134 $68
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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
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D eficits and E xpenditures Federal: 1994—2012 (est.) 2008 Dollars Federal expenditures Federal deficits (est.) Billions of dollars (est.) President’s budget
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G overnment S hare of GDP A permanent increase G overnment S hare of GDP A permanent increase Douglas J. Besharov, February 24, 2009
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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
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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
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H igher H ealth E xpenditures ?
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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
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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
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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
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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
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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
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►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
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Percent H igher L evels of E ducation? (2005) Annual graduation rate Total graduates N/A Douglas J. Besharov, February 24, 2009 N/A
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Percent of total population 19752005 H igher L evels of I mmigration ? N/A
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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
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W ho is P lanning A head ?
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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
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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
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Source: McGann, James G., “2007 Survey of Think Tanks: A Summary Report” The Think Tanks and Civil Societies Program, 2007 T opic A reas
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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
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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
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