The Obama "Recovery:" Less Unemployment, But More Dependence

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A strange and disturbing new social pattern is unfolding before our eyes in America today: growing dependence on government handouts in the face of declining unemployment rates. Though we are now preparing to enter into the fourth year of recovery from our Great Recession, the roster of Americans seeking and obtaining entitlement benefits from our government just seems to keep on going up.

This is not the way the world is supposed to work-even if you are hopelessly infatuated with Keynesianism. Cheerleaders for Keynesianism, of course, take it as a tenet of their faith that the government should be spending aggressively during economic downturns. (To their way of thinking, the social welfare state should be one of the main vehicles for such expenditures: not only to provide a safety net, but to stimulate upswing by making up for insufficient macroeconomic demand.)

Yet to the finely calibrated Keynesian mind, government spending is supposed to be counter-cyclical: meaning that as things get better, the hand of the state is supposed to recede from economic life.

There are many today who maintain that America's vast array of entitlement programs really just serve a sort of essentially counter-cyclical, ‘social insurance' function: chief among them, our Commander-In-Chief. In his second inaugural address last month, President Obama chose these words to describe the workings of modern America's welfare state:

"We recognize that no matter how responsibly we live our lives, any one of us, at any time, may face a job loss, or a sudden illness, or a home swept away in a terrible storm. The commitments we make to each other - through Medicare, and Medicaid, and Social Security - these things do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great."

In the President's telling, our vast public entitlement system is really only there to redress "risk" (and the need caused by risk).

But if this were true, we would expect the claims upon our nation's entitlement system to diminish as the level of economic "risk" (and need) lessen, wouldn't we?

Alas: in the real existing America-as distinct from the idealized Team-Keynes America, or the imaginary White House version of America-something very different is going on. Just look at the numbers.

According to the Bureau of Labor Statistics, the national unemployment rate soared during the Great Recession, reaching a peak of nearly 10 percent in late 2009. By the second quarter of 2011, in a painfully slow decline, it had dropped by almost a point, to about 9 percent. Today it is a bit under 8 percent.

In the fourth quarter of 2009-when the U.S. unemployment rate had reached its Great Recession apogee-about 144 million Americans (just under 48 percent of the country) lived in homes that were receiving benefits from one or more government programs. These figures come from the Census Bureau's Survey on Income and Program Participation (SIPP).

SIPP cannot yet provide data on the current entitlement picture-its most recent release is for 2Q 2011. At that time, however, the estimated number of Americans in families obtaining government benefits was just about 150 million-an increase of more than 5 1/2 million over the worst phase of the Great Recession's unemployment problem!

This jump cannot be attributed to population growth: America's total population only rose by 3 million over that period. Rather, as the unemployment rate was dropping, the share of Americans in families on government benefits happened to rise-from under 48 percent in late 2009 to 49 percent in spring 2011.

The situation seems even more striking when we look a little closer. In 2011, as in 2009, only a third of America's beneficiary headcount consisted of people living in families with a Social Security or a Medicare recipient. (So much for the entitlements-are-mainly-old-age-insurance storyline.) The overwhelming majority of Americans on government entitlement programs today are collecting benefits from "means-tested" programs: ostensible poverty-alleviation programs like Medicaid, Food Stamps (as they were once known), and the like. And between the end of 2009 and the middle of 2011, the U.S. population in homes accepting means-tested benefits shot up by nearly 6 million, to over 107 million. In barely a year and a half, the share of Americans on means tested benefits had ratcheted by a percentage point and a half-to a full 35 percent of our population.

Yes, it is true that our ‘recovery' in the aftermath of the Great Recession has been miserably weak; yes, it is true that there are other ways to measure employment prospects besides the unemployment rate; yes, it is true that the effects of poverty can linger on after an unemployed job-seeker finds new work.

But neither these qualifications nor any others should obscure this basic truth: the old counter-cyclical relationship between the unemployment rate and dependence on government entitlement transfers has apparently broken down. In good times or bad, evidently, America's dependence on government largesse is now always on its way up.


Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute. He is the author of A Nation of Takers: America's Entitlement Epidemic (2012), and The Great Society At Fifty: The Triumph And The Tragedy, to be released next week.  

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