The U'S' Economic Stimulus Package and The Future Social Welfare State Thinking LongTerm about Short

1
The U.S. Economic Stimulus Package and The
Future Social Welfare StateThinking Long-Term
about Short-Term Remedies
Seoul and Busan, Korea

• Douglas J. Besharov
• School of Public Policy
• University of Maryland
• June, 2009

2
The Great Depression
3
The Great Depression vs. the Current Recession
U.S. 1929-1941
Percent change in GDP
U.S.
Korea
Germany
Sources Bank of Korea, CBO, OECD, and OMB. Note
Dotted lines are projections as of March 2009
4
Did Government PolicyWorsen the 1930s
Depression?U.S. federal deficits, expenditures,
and GNP 19291941
5
Size of Stimulus PackagesSocial Safety Net Not
Included
Percent of GDP
U.S.
U.K.
France
Germany
Japan
China
OECD
Korea
6
1930s-Style Stimulus
7
Social Safety Net is Countercyclical
Although many gaps and inadequacies, means-tested
benefits are automatic stabilizers.

• Unemployment insurance
• Cash welfare
• Food stamps
• Medical care
• Housing benefits
• Earned Income Tax Credit
• Supplemental old-age pension

Douglas J. Besharov, February 24, 2009
8
787 Billion U.S. Stimulus Plan 155 billion for
health, education, job training, science and
research
Discretionary spending308 billion(39)
Spending500 billion(64)
Tax breaks287 billion(36)
Direct aid192 billion(24)
Douglas J. Besharov, February 24, 2009
9
Four-Plus Years of StimulusSpending by year and
category
In billions
399
185
134
68
20122019
2009
2010
2011
Douglas J. Besharov, February 24, 2009
10
Permanent Rise in Discretionary Spending?
In billions
288
308
190
Discretionary spending
Direct aid
Tax breaks
Douglas J. Besharov, February 24, 2009
11
Deficits and ExpendituresFederal 19942012
(est.)
Billions of dollars
2008 Dollars
Presidents budget
Federal expenditures
Presidents budget
Federal deficits
(est.)
(est.)
12
Government Share of GDP A permanent increase
Douglas J. Besharov, February 24, 2009
13
turn adversity into opportunity -- Barack
Obama

• Universal health care
• Educational assistance
• Unemployment insurance
• Expansion of other income transfers
• Creation of green (union) jobs

Douglas J. Besharov, February 24, 2009
14
The Perfect Storm

• Apparent economic emergency
• Pent up political demand for change
• Strong and impatient Democratic Congress
• New and inexperienced Presidentbeholden to
  unions
• The apparent need to rush
• Decentralized power in the U.S. government

Douglas J. Besharov, February 24, 2009
15
Higher Health Expenditures?
16
High Taxes Pay for Social Expenditures Public
and private (at market prices), plus indirect
taxes2003
Percent
Gross Public Social Expenditures ( GDP)
Gross Private Social Expenditures ( GDP)
Net Total Social Expenditures ( GDP)
Indirect Tax Rate
Douglas J. Besharov, February 24, 2009
17
Tax Rates Plateaued in 1990s Korea?
Percent GDP
France
EU-15
U.K.
Germany
U.S.
Japan
Korea
Douglas J. Besharov, February 24, 2009
18
How Will We Support Our Aging Populations?
Douglas J. Besharov, February 24, 2009
19
(No Transcript)
20
Current Deficits Debts (2008),and Projected
Debts (2050) Pre-recession estimates
Percent GDP
Tax cuts extended
Extended baseline
Korea
UK
France
Germany
Japan
US
Projected debt
Current deficit
Current debt
Projected deficit (2009)
Douglas J. Besharov, February 24, 2009
21
Short-Term Debt Projections Rising
FastRevisions based on stimulus/recession2014
Percent GDP
N/A
Projected debt June 2008
Projected debt April 2009
Note Korea data from June 2008 and January 2009
22
Big Deficits Long into the Future?

• Debt payments higher share of government budgets
• Limiting governments financial flexibility
• High interest rates vs. inflation
• Capital investments crowded out
• Exports at a competitive disadvantage
• Economic growth dampened
• Long-term stagflation

Douglas J. Besharov, February 24, 2009
23
Higher Levels of Education?(2005)
Percent
N/A
N/A
Annual graduation rate
Total graduates
Douglas J. Besharov, February 24, 2009
24
Higher Levels of Immigration?
Percent of total population
N/A
1975
2005
25
Re-Think the Social Welfare State?

• 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

Douglas J. Besharov, February 24, 2009
26
Who is Planning Ahead?
27
(No Transcript)
28
(No Transcript)
29
Policy Analysis
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
30
Asia Has 12 of Think Tanks 60 of World
Population
Source McGann, James G., The Global Go-To Think
Tanks, The Think Tanks and Civil Societies
Program, 2008
31
Topic Areas
Source McGann, James G., 2007 Survey of Think
Tanks A Summary Report The Think Tanks and
Civil Societies Program, 2007
32
Steady Growth Through 1990S Followed by stability
Source McGann, James G., 2007 Survey of Think
Tanks A Summary Report, The Think Tanks and
Civil Societies Program, 2007
33
Asian Think Tanks Large Only U.S. ones larger
Source McGann, James G., 2007 Survey of Think
Tanks A Summary Report, The Think Tanks and
Civil Societies Program, 2007